愛德華生命科學 (EW) 2011 Q4 法說會逐字稿

Greetings and welcome to the Edwards Lifesciences Corporation fourth-quarter 2011 earnings conference call.

At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, David Erickson, Vice President of Investor Relations. Thank you. Mr. Erickson, you may begin.

Welcome and thank you for joining us today. Just after the close of regular trading, we released our fourth-quarter 2011 financial results. During today's call, we will discuss the results included in the press release and accompanying financial schedules and then use the remaining time for Q&A.

Our presenters on today's call are Mike Mussallem, Chairman and CEO, and Tom Abate, CFO.

Before I turn the call over to Mike, I'd like to remind you that, during today's call, we will be making forward-looking statements that are based on estimates, assumptions and projections. These statements include but are not limited to our expectations regarding sales and sales growth, gross profit margin, net income growth, earnings per share, SG&A, R&D, tax rates and free cash flow, diluted shares outstanding, foreign currency impacts, and other financial expectations, including our assumptions regarding the timing and extent of the additional US approvals, launches and reimbursement for the SAPIEN transcatheter heart valve. These statements also include our current expectations for regulatory submissions and approvals related to a variety of new products and indications as well as the timing status and expected outcomes of new or currently ongoing clinical trials, the expected impact, ramp-up and benefits of new product introductions, and potential impacts of economic conditions and competitive products. These statements speak only as of the date on which they are made and we do not undertake any obligation to update them after today. Although we believe them to be reasonable, these statements involve risks and uncertainties that could cause actual results or experiences to differ materially from the forward-looking statements. Information concerning factors that could cause these differences may be found in our press release, our annual report on Form 10-K for the year ended December 31, 2010, and our other SEC filings which are available on our website at Edwards.com.

Also, a quick reminder that when we use the terms "underlying" and "excluding special items", we are referring to non-GAAP financial measures. Otherwise, we are referring to our GAAP results. Additional information about our use of non-GAAP measures is included in today's press release.

Also note that we calculate operating leverage as gross profit minus SG&A and R&D expense divided by net sales. Now I'll turn the call over to Mike Mussallem. Mike?

Thank you David.

Our fourth quarter closed out a year of significant investment and major milestones for Edwards. Successful PARTNER trial results lead to regulatory approval to begin offering our transcatheter heart valve technology to many inoperable patients in the US. For 2011, excluding special items, we were able to achieve 10% net income growth while increasing R&D by 20% and making considerable investments in our US launch.

Now, turning to quarterly results, reported sales grew 10% to $430 million, which was consistent with the guidance provided at our investor conference. On an underlying basis, sales grew 8%. Sales outside the US grew 11% on a reported basis and represented -- and represent nearly 2/3 of our total sales.

For Heart Valve Therapy, reported sales for the fourth quarter grew 13% to $257 million, which included $93 million from transcatheter heart valves. Surgical heart valves grew 2% over last year on a reported basis and were unchanged on an underlying basis.

Outside the US, our surgical heart valve business reported 7% growth driven primarily by strong sales in Asia and continued penetration of premium products. Pricing remains stable in each geography. However, strong growth in emerging markets changed the country mix, which slightly lowered our local average price.

In the US, sales declined this quarter due to the introduction of a competitor's product in 2011, along with what we believe were flat procedural volumes. We expect the impact of competition in the US to diminish in the second half of 2012 with the annualization of that product's introduction.

We continue to make progress on our Edwards INTUITY rapid deployment aortic valve system. We have submitted responses to the additional questions we received in late 2011 and now expect CEMark approval during the first quarter. We will then initiate two European post-approval clinical studies, CADENCE and FOUNDATION. Additionally, we remain excited about our next-generation tissue technology, GLX, for which we anticipate receiving a CEMark in the second half of 2012.

Turning to Cardiac Surgery Systems, sales for the quarter were $27 million, up 8% on a reported basis and 7% on an underlying basis. These results were primarily due to growth of MIS products which are recovering from the product availability issues earlier in 2011. Late in the fourth quarter, we received both a CEMark and a 510(k) clearance for our IntraClude Aortic Occlusion device designed to reduce the learning curve for MIS mitral valve surgery. We continue to expect the limited launch in the first quarter as we collect additional clinical evidence. IntraClude is the first of several new products we expect to introduce into our MIS portfolio in 2012.

As a reminder, beginning this year, we will be reporting sales of surgical heart valves and Cardiac Surgery Systems products together in a product line called Surgical Heart Valve Therapy. In 2012, we expect to achieve underlying sales growth of 3% to 5% in this product line driven by expected improvement in valve procedure volumes and continued momentum of our newest products.

Turning to transcatheter heart valves, fourth-quarter sales were $93 million, a 43% growth rate over last year. Although the US launch was later than we anticipated, it was a significant growth driver. Economic pressures in southern Europe resulted in lower procedural volumes, which affected our growth rate.

Transapical sales were comparable to levels recorded in previous quarters, although the impact of two recently approved products in Europe trimmed sales approximately $1 million this quarter. Transfemoral units accounted for approximately 60% of our sales, lifted by the US launch, which today is entirely transfemoral. Product pricing remains stable outside the US and inside the US is consistent with our expectations.

As you know, in early November, we received FDA approval of our SAPIEN valve in the United States for certain inoperable patients. Total US sales in the quarter was just over $17 million with about half from commercial sales and half from clinicals. Approximately 3/4 of our commercial sales were stocking unit from new centers that completed their training, and we continue to expect to train 150 to 250 new commercial sites in the first 12 months.

As we have previously stated, achieving and maintaining a high level of acute procedural success just as we have in Europe is our first priority and will drive the pace of the SAPIEN rollout. While we have just begun, we are very pleased with our high success rate.

Last fall, CMS initiated a national coverage analysis for TAVR which is expected to result in a national coverage determination, or NCD. This early NCD process has resulted in inconsistent interpretations among the regional Medicare contractors. The majority of these Medicare payors are reimbursing on a case-by-case basis while policies of others are still evolving. This uncertainty has led to somewhat lower than expected sales. Edwards, along with physicians, hospitals, and medical societies, are working to ensure that patients throughout the US have adequate access. We believe this reimbursement situation will improve as payors clarify their policies.

In the last hour, CMS has posted on their website a proposed decision memo for TAVR. This 88-page document appears to be very comprehensive. While we welcome the accelerated timeline, we have not yet had adequate time to assess it. As a reminder, it should trigger a 30-day public comment period and suggest that a formal NCD could issue in the next 90 days. We support a well-written NCD that assures adequate patient access.

Even with this temporary uncertainty, in the first quarter, we expect to achieve commercial and clinical SAPIEN sales of $30 million to $40 million in the US.

Earlier this week, at the STS meeting, data from the continued access patients in Cohort A of the PARTNER trial were presented by Dr. Todd Dewey. In this much larger group of patients, the data showed an improved transapical experience. Investigators observed a trend toward patients feeling better faster and having improved outcomes. We believe this more recent experience adds strong new support to the transapical procedure as an important option for patients who are at high risk for surgery. We expect additional data to be presented at medical meetings during the year, including two-year data from Cohort A at the ACC meeting in March. We continue to plan for a midyear 2012 TMA approval for Cohort A of partner, proceeded by an FDA advisory panel. We remain confident that the trial results clearly demonstrate the benefits of both TA and TF as less-invasive treatment options for high-risk surgical patients. We are preparing extensively for this panel meeting and are providing to FDA additional data and analysis of our clinical experience to support our case.

Turning to our PARTNER II clinical study. In January, we completed enrollment in Cohort B studying inoperable patients using our SAPIEN XT technology. Patients will be followed for one year and we continue to plan for US approval in 2014. For Cohort A, the surgical arm, we remain on track to complete enrollment in 2013. As a reminder, Cohort A is a noninferiority study of up to 2000 patients with a lower-risk profile than those that were enrolled in the PARTNER trial. Patients are being evenly randomized to receive the Edward SAPIEN XT valve or surgery. Those undergoing transcatheter valve replacement are being treated either transfemorally or transapically.

As we unveiled in December at our investor conference, we have two new low-profile transcatheter valve platforms we are very excited about which we believe will enable us to further extend our leadership position. SAPIEN 3 is our next-generation balloon expandable valve that builds on all our knowledge and experience and includes a unique feature designed to reduce, further reduce paravalvular leak. We're pleased to have recently completed successful first-in-man cases.

CENTERA is our repositionable self-expanding valve featuring a motorized delivery system designed for stable deployment and single operator use. European clinical trials for both these new products which are delivered through a 14 French e-sheet are expected to commence in 2012.

We plan to initiate the Pro TAVI trial at the end of this quarter that will study the causes of stroke as well as our Umbrella device. The results of this study should become available in 2012 and could support a 510(k) for Umbrella in the US.

With respect to the appeal regarding the Andersen patent dispute with CoreValve in the US, we expect a decision by the court in mid-2012. In December, we filed a request with to extend the Andersen US patent out to 2017, and we expect our request to be granted.

In summary, we continue to expect 2012 underlying transcatheter heart valve sales to grow 70% to 90% over last year. This would result in sales of $560 million to $630 million, which includes $200 million to $260 million of clinical and commercial sales in the US. Our sales guidance assumes PARTNER Cohort A is approved and starts contributing to US sales in midyear 2012.

Turning to Critical Care, sales were $133 million for the quarter, up 4.5% on a reported basis which includes a 2.4% benefit from foreign exchange. Without approximately $5 million of discontinued products, the bulk of which annualizes after the first quarter of 2012, growth would have been lifted by 4.5 percentage points.

Driving the growth this quarter were strong sales of our advanced monitoring products, including our EV1000 monitoring hardware and FloTrac. Pressure monitoring sales contributed to global Critical Care growth as we continued to gain share.

We are currently gaining clinical experience in Europe on our latest in-hospital glucose system and plan to evaluate additional enhancements midyear. We continue to anticipate obtaining a CEMark for this improved system before the end of 2012.

Total reported vascular sales, which is comprised of our Fogarty products, were $13 million this quarter, down slightly from the prior year. As a reminder, next quarter, we will be reporting sales of Critical Care and Vascular in the Critical Care product line. For 2012, we continue to expect full-year underlying sales growth in this product line to be 5% to 8%, driven primarily by continued growth in our advanced monitoring products.

Now, I'll turn the call over to Tom.

Thank you Mike.

This quarter, we achieved diluted EPS of $0.53 and non-GAAP diluted EPS of $0.62, an increase of 13% over the prior year. As we anticipated, our operating leverage improved sequentially to 20%, driven by reduced a FX impact in the US THV sales. Including the benefit of a much lower tax rate, this quarter's non-GAAP EPS exceeded expectations. Excluding this benefit, we would've achieved the low end of our EPS guidance.

For the quarter, excluding special items, net income grew 12%. For the quarter, our gross profit margin was 72.2% compared to 71.1% in the same period last year. This improvement was driven primarily by a more profitable product mix. For 2012, we continue to expect our gross profit margin to be between 73% and 75%, building throughout the year as THV sales grow.

Fourth-quarter SG&A expenses were $163 million, or 38% of sales, an increase of $21 million over the prior year. This increase was driven primarily by US transcatheter launch-related investments. We continue to expect SG&A to be between 36% and 39% of sales for full year 2012. Driven by the launch-related expenses, the first two quarters will be approximately 40%, followed by a significant step-down in the third quarter and then again in the fourth quarter due to the expected sales ramp.

R&D investments in the quarter grew 9% to $61 million, or 14% of sales. This increase was primarily the result of additional investments in clinical studies and new product development efforts in our transcatheter valve programs. For the full year 2012, we continue to expect R&D as percentage of sales to be between 14% and 15%.

During the quarter, we recorded a pretax $17.6 million special charge comprised of three items -- an $8.8 million charge to reflect the increased collections risk associated with our Southern European receivables, a global realignment charge of $5.5 million primarily related to severance costs, and a $3.3 million charge related to a legal settlement.

Additionally, during the quarter, we recorded a $4 million favorable tax adjustment related to the release of reserves. Our reported tax rate for the fourth quarter was 8%. Excluding the tax effect of special items I just mentioned, the tax rate was 15%, which benefited from favorable year-to-date adjustments in both the income mix and the R&D tax credit. For full year 2012, we estimate our rate, excluding special items, to be between 25% and 26% versus 21% in 2011 full year. This rate increase results primarily from the growth of our US sourced income, which includes the expected THV sales and improved FX hedge outcomes. Our 2012 quarterly rates assume the federal R&D tax rate renewal will not occur until the fourth quarter. FX rates positively impacted fourth-quarter sales by approximately $6 million compared to the prior year. Compared to our recent guidance, FX did not have a material impact on the quarter's earnings. Looking forward, at current rates, we now expect a $40 million negative impact to 2012 full-year sales when compared to 2011 rates.

Free cash flow generated during the fourth quarter was $62 million. We define this as cash flow from operating activities of $94 million, less capital spending of $32 million. This resulted in a full-year free cash flow of $183 million, which was lower than planned due to higher-than-expected inventories.

During the quarter, we repurchased 560,000 shares for $40 million. For the full year, we repurchased 3.9 million shares for $303 million. For modeling purposes, we project diluted shares outstanding to be 119 million in 2012.

Turning to our balance sheet, we had total cash and cash equivalents and short-term investments of $450 million and total debt of $150 million. The short-term investments of $279 million represents bank time deposits with initial maturities ranging from greater than three months to seven months. These time deposits are highly liquid and were included in error, the part of our cash and cash equivalent in our 2011 interim statement. We are now reclassifying these items, these time deposits, as short-term investments, and will reflect the purchases and sales as investing activities in our statement of cash flows for the full year 2011. This change has no effect on any other aspect of our financial statements or guidance. We are currently evaluating the manner in which we correct these previously reported amounts.

Our DSO at the end of the quarter was 65 days, an improvement of five days from the prior quarter, driven primarily from collections efforts outside the US. Inventory turns were 1.8, a small decrease from the prior quarter.

Turning to our sales guidance, we continue to expect our full-year product line sales range to remain unchanged from the guidance we provided at our December investor conference. For surgical Heart Valve Therapy, we expect sales to be between $800 million and $830 million, which includes approximately $115 million of cardiac system sales. In transcatheter heart valves, we expect sales to be between $560 million and $630 million. In Critical Care, we expect sales of $580 million to $610 million, which includes approximately $50 million of vascular sales.

We continue to expect full-year sales of $1.95 billion to $2.05 billion. Excluding special items, we remain comfortable with our previously stated financial goals of full-year 2012 diluted EPS of $2.70 to $2.80, 73% to 75% gross profit margin, net income growth of 35% to 40%, and free cash flow between $240 million and $260 million. These goals assume a midyear 2012 approval of Cohort A of the PARTNER trial.

For the first quarter 2012, we project total sales of $440 million to $460 million and first-quarter diluted EPS, excluding special items, will be between $0.47 and $0.49.

With that, I'll turn it back over to Mike.

Thanks Tom. As we look ahead, we see an exciting future for Edwards Lifesciences. We believe that our transcatheter valve technology has the potential to drive significant sales growth over the next decade. Our focused strategy on structural heart disease and Critical Care Technologies creates multiple points of leverage and our commitment to innovation should enable us to extend our leadership and create value for patients, clinicians, and our shareholders.

Before I turn the call back over to David, although I am certain that you will have many questions about the recently published draft NCD, we are unprepared to provide analysis at this time. This extensive document requires careful review and consideration. Therefore, we are not going to be answering questions about this at this time.

With that, I'll turn the call back over to David.

Thank you Mike. (Operator Instructions). Operator, we are ready to take questions please.

(Operator Instructions). David Lewis, Morgan Stanley.

Good afternoon. It's Steve Beuchaw here for David. Thanks for taking the questions.

Mike or Larry, I wonder if you could go into a bit more detail articulating the dynamics with SAPIEN in Europe. If we said, just for the sake of discussion, that the result in Europe came in $30 million below where it would've been, in a hypothetical where the growth rate in the fourth quarter were the same as it was in the third quarter, understanding of course that wasn't necessarily in the plan, how much of that $30 million was competition? How much was macro? How much was pricing, if that's an issue at all? How much might have been a shift towards transfemoral?

Thanks a lot Steve. I think there's some confusion. I don't know where your $30 million comes from, but I am happy to walk through some of these pieces. As I indicated on the call, the new competition as it relates to TA was worth about $1 million, and we don't feel like we lost share to our other competitor in Europe. So that's really not a factor.

You know where I think sometimes people get confused is when they go back and look at our results and compare it to what we have done. So for example, we said there were $334 million worth of sales for the full year in -- of 2011 in transcatheter heart valves. Some of that was US clinical, around $20 million that you have to back out. Some of that came from other parts of the world; that accounted for almost 10% of those sales. So that when you actually -- and there was another whatever it was, $9 million or so, of commercial US sales. So you need to back those pieces out when you actually compare a growth rate in the quarter.

We'll do that, thanks. Then one follow-up on Europe. Could you comment on your expectations for the duration of the macro challenges there? Could you elaborate a bit also on how they are manifesting there? Is it pricing? It sounds like that's not the case. Does it manifest as just a receivables issue or is there something else?

Are you talking about transcatheter heart valves in the quarter?

In Europe specifically?

All right. I'm going to assume that's what you're talking about. We mentioned that we were affected in Southern Europe. So, in particular, we saw growth rates decline in places like Greece and Italy and Spain, all of which were good markets for transcatheter heart valves, so that was the driving force. Pricing has been rock stable, and our hope here is that this picks back up, that this is a temporary situation driven by some difficult economics in those countries.

But it sounds like then it's a temporary situation and it's volume. Is that fair?

That's what we would like to thank it. I'd like to thank those countries don't stay in the same sort of straights that they were in before.

Great, thank you very much.

Raj Denhoy, Jefferies & Co.

Good afternoon guys. I wonder if I could ask about the -- I'm not going to ask for NCD but you did mention there is a little bit of reimbursement pushback right now. And understanding is that part of that was perhaps related to the fact that there wasn't a national policy. Does the publication of NCD, regardless of your views of what's in it, does that have any bearing on the reimbursement situation out there right now?

Yes, I'll share what our thinking is on that. It's a good question. Before an NCD was opened, it seemed as though we had a fair amount of clarity and there was pretty clear coverage by these local providers throughout the clinical trial period. We would've imagined that would continue in a very stable way going forward.

When the NCD was actually opened, and it's relatively unprecedented that an NCD or a national coverage analysis was open even before approval, it created some of this confusion, and it caused some of these providers to say, gee, I don't know what this means, maybe I should wait, and a whole variety of interpretations of what that meant. We would like to think, when we actually land on a decision and we're hopeful that the decisions are good ones, that it clarifies the temporary situation.

Okay. Just on your expectations here for a panel soon and approval for PARTNER A by midyear, you also commented about how you're continuing to supply the FDA with information, whether it's the continued access data we saw earlier this week. You also mentioned the data coming out at ACC here. So there still is data being presented to the FDA. I'm curious whether that could potentially have some impact on their ability to schedule a panel.

I don't know, frankly, what impacts their scheduling of the panel. We don't have a date at this point. We believe it's in the best interest of the technology and it helps the FDA with their decision-making to have as much up-to-date experience, clinical experience as possible. So we are providing that. When the date goes out longer, it just allows us to probably even provide more. But I don't know. I really have no insight into whether that's driving any decisions on timing.

Okay, thank you.

Jason Mills, Canaccord.

Yes, thanks for taking the question. Can you hear me okay?

I can hear you great.

I'm traveling so I apologize if there's any problem there. I wanted to ask about your training program for TAVI in the early days of commercialization. It's gratifying to hear that you are reiterating your guidance of 150 to 250. You had a principal investigator at STS comment on the podium about his thoughts maybe getting to 200 by the end of 2013. I suppose I could've heard him wrong, but your commentary seems to suggest you're confident in getting to 200 perhaps in the first year, which would sort of be sort of exiting this year. Could you talk about over maybe about maybe over the next 18 months what your thoughts are with respect to the ramp in new training centers and any color you could provide around how it's going early with some of the synergy you've gotten on board in the first three or four months?

Thanks Jason. I'm not going to get into a specific count of how many people have gone through, but we said right along here that we have expected to train 150 to 250 new centers in the first year, and we haven't backed off that at all. We build capability and we have the internal capability to certainly train that number of centers and more, so it really doesn't have anything to do with our internal capability. So, I think what it's probably going -- what would be more of a factor is whatever comes out in the national coverage determination, whether there's any limits. If there were limits, that could change the number, but otherwise I would expect that we would stay right on that plan and we would hit 150 to 250 in the first year and escalate from that into the second year.

Our initial (inaudible) looks like it was a fairly flexible document and inclusive. So we look forward to hearing your analysis. I suppose, on that front, should we expect to see a press release? What form in which do you plan to commentate or provide guidance or thoughts on this NCD win and if you're prepared for it, to do that?

Yes, it's a fair question. Right after this call, we will get into this and we'll dig pretty deep. We are not sure what the best way to communicate is. If we think we can answer sufficient questions for investors with a press release, that we would do it. If it was something that we thought was complex enough that it required a call, we would set something like that up. In terms of our actual response to CMS, of course we would prepare an extensive response within this 30-day public comment period.

Great. Last question, your guidance for US TAVI sales in the first quarter, what percentage of that do you expect to be in the PARTNER II trial, the clinical setting, and what percentage sort of either stocking orders or sell-through on the commercial side?

It's a minority portion of that. The clinicals probably account for, I don't know, 20%, 25% of those sales.

Thanks Mike.

David (technical difficulty)

Good evening everyone. I just wanted to see, Mike or Tom, if you were going to provide backward-looking details on the breakdown of previously reported transcatheter sales in Europe versus clinical studies. Because I think one of the pieces of confusion in the quarter was the underlying growth rate there relative to what we've seen in the past.

Yes. Thanks David. I'll just try, and maybe I can at least give you the headlines on it to get you close to it. The full year, we reported at $334 million. Within that, US clinicals probably accounted for around $20 million. The rest of the world was probably around 10% of that number, so think $30 million, something plus or minus that range; US commercial just under $10 million. So it helps, hopefully with those pieces of data, it helps you back into what the baseline is.

Yes, that is a helpful starting point. Maybe just while you're answering the previous question regarding the 150 to 250 centers, could you maybe just walk us through and remind us how you came up with that number? What sort of the top-down bill was to figure out, what the right number of centers to approach was, maybe beginning with sort of how you look at the overall addressable market and why that is an appropriate number?

We've always been driven by great (technical difficulty) results. That's going to continue to be our mantra and our top priority as we roll this out. We actually probably had the capability and possibly the interest of even going faster, given that we could stay at a very high procedural level. So, we were at a number much larger than that at one time in terms of what we were thinking, but there was a little bit of push-back on the part of societies that said, hey, can you really maintain high quality at that sort of rate? So this was through some discussions. We felt very comfortable that a 150 to 250 number of additional centers was going to be an appropriate rate for a first-year rollout. So, it's a bit of a negotiated number, if you will. I don't know if that gets at your question.

Would you be willing to put a number on that, sort of what percent of what you think the ultimate addressable numbers of centers is?

That's a great question. I mean, how many centers will actually be doing TAVI when the smoke clears five years or ten years from now is an uncertain number. We know that there are approximately let's say 1200 or so centers that are doing open heart surgery today. We would imagine that would be something in maybe half that or less than half that that end up doing transcatheter heart valves in the long run. But this one is a very difficult number to try and pin down. It's uncertain, and I think there's a variety of views out there. There will be some discussion between societies and regulators that will ultimately determine what that looks like.

Then lastly, for Tom, as you look at the pacing of earnings throughout the course of the year which you gave very explicitly at the analyst meeting, it really is sort of a tale of two halves, first half versus second half as the SG&A numbers start to ramp down. How should we think about the normalized earnings power of the business with a commercial US TAVI program? Is fourth quarter the right way to look at it? Is a blend in the second half, just to get a sense as to when we start to see a more normalized run rate?

Sure. I'd have to say, if you are looking forward, probably Q4 is your best indication. What you're facing is a lot of investment that was made upfront, and a pretty dramatic ramp as we add centers each quarter, so each quarter we are looking at a bigger sales number obviously and expenses not going as fast. So I would say the exit rate is probably the best indication, but I would think you've still got improvement going forward from there. We will continue to invest in everything, but I think those expense ratios will grow slower than sales for the foreseeable next couple of periods.

Larry Biegelsen, Wells Fargo.

Thanks for taking the question. Just one clarification Tom, the $17.6 million in special charges related to Southern European receivables risk, that did not affect sales in the quarter? Is that correct?

No. Larry, only, I think it was $8.8 million of that was receivables related in the $17 million, yes.

Any way you -- based on the numbers you've given us, it does look like the O-US TAVI sales were relatively flat sequentially, up just slightly, which is different from what we've seen in the fourth quarter typically. I know you've gone through the reasons for that, but help us understand why you would expect it to recover. Did they run out of budgets in the fourth quarter and you see budgets, new budgets, for 2012?

Typically, I would say Europe in total -- it's a good observation, Larry. Europe in total would've been growing at a pretty rapid pace throughout the year, something in the 40% to 50% range in terms of total market. Here in the fourth quarter, it slowed down a lot. That's because we actually had countries that went into negative growth, that were actually lower in the fourth quarter of '11 than they were in the fourth quarter of '12. These are the Southern European countries that actually we had a fair amount of volume in. It's not the largest in Europe but enough certainly to affect the growth rate.

Now you're asking me to see the future in terms of what's going to happen in those countries. We know that there's patients that certainly want transcatheter valve procedures, and we would expect this to begin recovering, but it's difficult for us to predict exactly when that might happen.

It wasn't really flat. It was probably maybe more in the range of the 20s%, 20% growth. There were a couple of pieces that makes that hard to trace, but I would say somewhere in the 20s%, low 20s%, is not a bad number for Europe

Tom, you're saying 20% sequentially or 20% up year-over-year?

Year-over-year.

Guys, I know you haven't had a chance to look at the NCD, but this one number that has been thrown around there before, and I'm wondering if you know it offhand, how many centers in the US do over 50 aortic valve procedures per year. Does anyone know that offhand? That's one (multiple speakers)

Yes, offhand, there is around 400 centers in the US that do 50 around AVRs historically.

Okay. Last for me, the cap day that we just saw, the transapical cap data, I don't know if this was asked earlier, but just to confirm, you will be providing that to FDA and you would expect that to be part of a panel? Thank you.

You have to promise that's the last question; we are starting to string them out a little bit there. We need to leave time for others. But yes of course we would provide that cap data to FDA.

Thank you.

Mike Weinstein, JPMorgan.

Thanks for taking the question. Mike, you had commented at the analyst meeting on the trajectory early on and your expectations. You had said that you thought January would come in for US SAPIEN sales in the $10 million to $15 million range. Is that where it played out?

We probably came in a little short of that. I think some of this temporary conversion caused it to be a little short of where we thought it would've come in.

So in your mind, the pushback from a couple of those local carriers that you and I had talked about, that probably has changed the trajectory of the slope for 2012 but hasn't changed where you think you will end up in total for the year.

I think it ends up changing -- yes, it ends up changing the trajectory here in the short-term, until there is a national coverage determination. I'm optimistically hoping that this document that was published today starts providing some clarity, but the interim period appears that it is -- the ramp is affected by this uncertainty. So -- but you can see, because we are reaffirming our full 2012 numbers, we are still feeling confident that, as this gets cleared up, that we will be able to get back on that ramp and stay in our range.

Okay. Let me ask a couple of quick follow-ups. One of the questions people have is the play back and forth between the TAVI ramp and the surgical valve business. It's tough to extract out the impact of obviously a competitor's launch and how that's impacted of your business. If we look at your constant currency, either your surgical valve growth over the course of 2011 or the total Company growth at TAVI for 2011, so if I looked at total Company, it was 8% in the first quarter, 4.9% in the second, 3.7% in the third and 1.3% in the fourth. It does suggest that, ex what's happening on the TAVI side of the business, the other part did decelerate. Could you just comment on the confidence level on that reaccelerating in 2012? Because the guidance does imply some reacceleration.

NO, it's a good point. I hear the stories that those numbers tell, but there's a little bit -- there's a little more going on besides that. The first quarter of last year, for some inexplicable reason, we saw very high procedural growth across the board, so that was that. Then we saw competitors come in for the first time in the second quarter. That suppressed growth rate for a while. You can see that had some impact during the year. Toward the tail end of the year, we felt that the economy in general sort of slowed procedures. So you have three things going on there.

I think that, when we anniversary this competition, that it's going to -- we are going to get a lift out of our growth rate out of that, and we don't think people save up heart valve procedures forever. So we expect there to be some lift.

On top of that, just the introduction of transcatheter heart valves in the US we think actually is a stimulant to surgical heart valves in total. We think they are going to bring patients into the system. If our experience in the US is somewhat like our experience in Europe, there is another reason to believe that the growth rates will be higher in surgical going forward. There's also we expect to get INTUITY. That probably adds another, I don't know, what, maybe 1% to the growth rate as well. So when you put it together, we think we've got pretty good reasons to believe that 3% to 5% is solid.

I know some others want to jump in. Let me ask one quick one on the NCD. You haven't had a chance to look at this, I appreciate it, so maybe you can give us some thought. But one item that did kind of catch me (inaudible) I hadn't heard of or thought of before was that a requirement for new centers to be considered for TAVR was that interventionalists have to have experience doing at least 50 structural heart disease procedures prior to this. I don't know where they would get that experience of doing 50 structural heart procedures unless they've been active doing ASDs, VSDs, PFOs. Is that something that you have heard of or surprises you? Because I would assume that hasn't been a requirement to date of centers you've been going to.

Yes, you correctly anticipate that I am not able to really analyze what they said. No, although there has been conversation right along that this should be done by experienced surgeons and experienced cardiologists and there have been different kind of numbers thrown out, this is the first time that I've heard of a number of -- a certain number of structural heart procedures, so that is new from our perspective. But the good news is we are going to have a comment period. We're going to be able to get into this and really talk about and challenge potentially the logic associated with some of the assumptions.

Thanks for taking the questions. Appreciate it.

Glenn Navarro, RBC Capital Markets.

Thanks. Two questions. One, I just wanted to come back to international sales. If you take out -- this is for SAPIEN for TAVI. If you take out the US numbers for 4Q, your O-US sales were about $76 million. To kind of get to the mid to high point of your TAVI forecast worldwide for 2012, it looks like the international number has to do between $90 million and $100 million, in that ballpark. So how do we get from doing somewhere around $75 million in international sales in 4Q '11 to getting to $90 million-plus per quarter in 2012? That's my first question.

Yes, I'm not sure I followed your math perfectly, so I apologize for that, Glenn. We do think that, even though Europe has grown substantially and we know that growth rate won't persist forever, which is just a little bit of the law of large numbers, they're still going to be pretty good growth. We would imagine international growth would be in excess, just the market itself, in excess of 20%. So, I don't know if that ends up solving for what you're trying to get to from the $75 million to the $90 million, but we would think the market growth would do that by itself.

Okay. That's what I have in my model, but it just, on a sequential basis, as you go from 4Q into 2012, does require a step up. Let me ask you just one other question on the advisory panel. At STS, Dr. Smith said he thought a panel would be April-May. Now I don't think has an edge, but I'm just wondering. Is an April or May panel more realistic? In other words, the cap data is going into the FDA, they want to review that data, and it's for that reason that a panel maybe is a little later than expected? Thanks.

Yes, thanks. I was in the audience as well when Dr. Smith said that. I have no reason to believe that he has any inside information, and I think that was his own estimate. We really, frankly, we really just don't know. We've been estimating it will be in the first quarter and for modeling purposes, we will have assumed that we would get the approval for Cohort A in midyear. And so if the panel comes a little earlier or a little later, really tough for us to be able to estimate it. It's really up to FDA and the availability of the panel members. So I am sorry, but I can't give you much more insight.

Great, thank you.

Miroslava Minkova, Leerink Swann.

Let's start by -- I appreciate you don't have a comment on the national coverage decision. But theoretically, were you expecting the two surgeon rate approvals would be required for an inoperable patient? How would that change your assumption, adoption assumptions basically?

Thanks. I haven't seen it, and so if you say that there's two surgeons in there, I'll take you at your word there. For us, we frankly didn't know what the FDA label would say. It might have also said two surgeons. We don't think two surgeons is a big negative for this procedure. We think, in general, there are two surgeons that are going to be associated with this at all times; that's what was trained. That's -- when we have the PARTNER trial itself, it took two surgeons, so we don't look at that as a big negative.

Okay. Great. Finally, maybe I know you've been asked a lot of questions on Europe, but I think what's probably still confusing people is the currency is a little bit more negative than at the time you gave guidance; the euro has weakened. Your fourth quarter wasn't quite as stellar because of weakness due to macroeconomic conditions. I guess maybe if I could ask what gives you the confidence to maintain sort of the overall TAVR guidance that you are giving? Or said differently, were you assuming this kind of a tough environment in Southern Europe when you did give the guidance last month?

Yes, if you go back to our investor conference, we actually put a slide up that anticipated sales. That sales number we actually said is the bottom end of our range, and I forget what slide number it was, but we pretty much landed exactly on that number. So, we had a pretty good idea of what the climate was by the time we got to our December investor conference. We did not have that same visibility back in October, but in December, we were pretty close. Is that fair Tom?

Yes. That FX got worse by about 20 since that time, and I would say half of that probably is going to be hitting the THV Europe sales, so within $10 million you should be close on FX impact.

You're basically assuming that some of these procedures that did not happen should come back perhaps as we go into the new budget year?

I would say that we are still standing by our guidance for what we have for 2012. So of course, it's going to be a ramp. It's tough for us to predict, but we think our guidance anticipates both some of the natural FX fluctuation as well as some of the uncertainty that's around when these countries restore procedures.

Okay, thank you.

Bruce Nudell, Credit Suisse.

Good evening. Thanks for taking the call. Mike, on a happy note, the cap data really showed amazingly good neurological outcomes. Do you have any feel yet of what the secret sauce in that was?

We don't is the short answer. Obviously, we think it's a byproduct of experience, so a combination of factors. We think patient selection probably was better. We think operator experience and procedures were better. We think the devices were a little bit better a little later on in the trial as well. So there is a combination of factors. It's tough for us to say which was the most important factor. We expect to learn more about that in our Pro TAVI trial.

And I guess a follow-up, and we've talked about this before, if unit growth in Europe is around 20% now, we thought ex-US unit growth in aggregate was about 30% for the market last quarter. Does that tell you anything about the idea of how many people are really sitting on the sideline, the ability to recruit unreferred patients now, the fact that the market probably at the beginning of the year, ex-US, was closer to 50%? Any thoughts on that?

We probably think that -- we continue to believe that there's a lot of patients that are on the sideline, and it's probably economic factors that's the greater issue. When we see a country gain reimbursement, you see the patients in those countries come for the procedure. We think that's probably the more significant underlying factor that unlocks the ability of these patients to get treatment.

Thanks so much.

Amit Bhalla, Citigroup.

This is Adam in for Amit today. I just had a question on rest of world. I know the growth rate there decelerated just as much as in Europe, so I was wondering if you could go into a little more detail as to what happened there.

In rest of world? I don't know. Those numbers tend to be smaller. I don't know if I could pick up a growth rate on that. Maybe do you have something a little bit more specific?

Maybe --

Because our rest of world -- what we call rest of world so, again, if you take out US and you take out Europe, the growth in the fourth quarter was very similar to the full-year growth. So --

Maybe just on any kind of segmentation by product, was there anything in particular going on there that was different than expectation?

Was this Edwards in total that you're talking about or --?

Yes, Edwards in total.

Oh, okay. Let me try and look more closely and see if there is something that I can attribute it to. Yes, it looks, just looking at this quickly, our quarter-to-date and our year-to-date growth rates in rest of world are very similar. They look like they are within about 1% of each other. So it's not something that's jumping off the page. So we are happy to work off-line and see if there's a more detailed understanding we can provide.

Kristen Stewart, Deutsche Bank.

A real quick one and then I'll have a follow-up. I know the cap data on TA was really superb. I was just wondering when might we be able to see the cap data on transfemoral.

I don't know that's going to be presented publicly before a panel; I don't know if that's available. That certainly is being worked up by us and we would plan to bring that kind of data to the panel if we can possibly do that, but I don't know that it's going to be in a public forum before then.

Okay, so that won't be something at ACC along with the two-year data?

I don't know that it'll be at ACC. Again, we'll see what happens. As far as I know, ACC will just have the two-year data that's particularly within the PMA.

Okay. Then I know you have not looked at the NCD but I was just wondering. In formulating your guidance for transcatheter valves for 2012, I was just wondering what you were thinking about in the context of potential risks to that, specifically in terms of centers having to qualify in certain criteria. Does this really add an element of risk? Because I imagine, if I am a center looking to start up TAVI and I'm looking at all these criteria, I may just want to wait to see how this shakes out before really making the level of investment and buying the valves and getting all the training up and running.

Yes.

So maybe just talk through how you were thinking about that in terms of maybe applying different haircuts to the guidance. Then also just on the sales, it looks like they are proposing to restrict coverage to patients with coronary artery disease which is consistent with Hardtner, but it seems to screen out quite a bit of patients if you look at the STS database.

You're ahead of me when it comes to the analysis of what was published, so I can't really comment on that. We can talk about our assumptions. Obviously, we gave a range because there is a range of possibilities. Probably the two biggest factors that are in our assumptions, we have assumed that we would train 150 to 250 hospitals, and so there would be a natural ramp that's associated with that. Obviously, that builds upon itself and so it gets much bigger in the back half of the year.

The other thing that's in that assumption is an approval for Cohort A in midyear. So if Cohort A were approved earlier or later, that would change the numbers. If there was something within the document that you're referencing that causes the 150 to 250 hospitals ramp to change significantly, that would also have impact on our range.

So the 150 to 200 you didn't necessarily expect any formal restrictions in terms of which centers you could go after? That was just your ideal centers?

Well we --

(multiple speakers)

Yes, what we are trying to do is to summarize that we thought we would train 150 to 250 centers. We knew that it wasn't going to be a center-only kind of criteria laid out by the societies and CMS, that there would be some specific criteria, or credentials, for physicians into it, and we thought that would allow 150 to 250 centers. And so that's what we'll be analyzing when we get into it.

Okay.

Tom Gunderson, Piper Jaffray.

Hi guys. On PARTNER II and its impact on your US guidance numbers, if we look at -- you've already fully enrolled B, so if we look at A and it's roughly 2000 patients and it's a one-to-one randomization, and you said in your prepared comments that you expect full enrollment in 2013, is the math correct to assume that somewhere around 500 SAPIEN XT patients would be enrolled in 2012, and that's part of your guidance?

I think that's, you know, I think that's a reasonable estimate. Of course, remember there's also a ramp associated with P2A, but yes, I think that's a reasonable estimate.

Okay, thanks. Then you mentioned this to one of the other answers, but I call it the halo effect where you get more SAVR just because you are out there talking more on the valve teams etc. Is that a passive increase, or do you have specific programs that you are focusing on to capture as much of the valve market as you can because of the attention that TAVI is getting?

Yes. First, historically, it's been passive. So what we saw in Europe -- and I don't know if you recall a slide that I think -- either Larry presented at the investor conference, it talked about the fact that the growth of the market both doubled after the introduction of transcatheter heart valves. I think it went from the 3s% range to the 6% range, and then in particular for Edwards, our growth rate stepped up from 5% to 1% that was more than 10%, I think close to 13%. So that happened in Europe.

In the US, we do have more active processes where we are helping hospitals establish valve clinics. This is a cooperative effort between our heart valve team and transcatheter heart valve team to just help people, help hospitals to do a good job of treating aortic stenosis. So there may be some positive effect, but I would say that the underlying effect is the more predominant one.

Good. Thanks.

Spencer Nam, ThinkEquity.

Thanks for taking my questions. Just a couple of quick housekeeping questions I guess. First, on the NCD, is there going to be another decision document coming out from CMS in the next couple of months in terms of proposed rates and things like that? Should we expect that?

So our expectation -- this is the document that we were anticipating. I think they had something, Spencer, that was shown on their website that we anticipated this draft document might come at the end of the first quarter, so the fact that we are getting it on February 2 just moves that up. Then there is a natural part of this process which is a 30-day comment period, and then actually the publishing of a formal document. We think that's going to be the primary output from CMS. I don't know that there's anything else that's going to come out besides that.

So your interpretation is that there's not going to be a specific -- the reimbursement rate-related document following this coverage decision criteria.

Yes. There already has been some determination early on here that we were mapped to some surgical DRGs.

Okay.

The national coverage determination will actually not have anything that changes that mapping process.

Okay. Then second question is this -- at ACC two-year follow-up data, what sort of -- this is going to be just a continuation of the data that we saw last year on Cohort A, and that -- or is it going to be more select data from that analysis, and should we expect the data to be also included as part of the panel, upcoming panel?

Yes. No, I think, if you take a look at the -- I think what you're going to see is that the patients that receive transcatheter heart valves, what was reported in the past was simply their one-year data. These are the patients that were randomized in the trial, so that was 699 patients I think was the number that was in Cohort A, and then there was the numbers that were in cohort -- just like for Cohort B that what we saw at the TCT, this will be what you see for Cohort A. You will see two-year data on that group of randomized patients, so for example, within that are the 104 or 103 TA patients, etc. That will all be extended out to two years. Is that clear? Did I answer that?

Yes, no, that's helpful. Thank you.

We have run out of time for questions. I'd like to hand the call back over to management for closing comments.

Thanks, everybody, for your continued interest in Edwards, and appreciate your patience associated with the questions on the NCD. Tom and David and I are going to welcome any additional questions by telephone. Back to you, David.

Thank you for joining us on today's call.

Reconciliations between GAAP and non-GAAP numbers mentioned during this call, which include underlying growth rates and amounts adjusted for special items, are included in today's press release and can also be found in the Investor Relations section of our website at Edwards.com.

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Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.