愛德華生命科學 (EW) 2016 Q4 法說會逐字稿

Greetings, and welcome to the Edwards Lifesciences' fourth-quarter 2016 earnings conference call.

(Operator Instructions).

As a reminder this conference is being recorded. I would now like to turn the conference over to David K. Erickson, Vice President, Investor Relations. Thank you, please begin

Welcome, and thank you for joining us today. Just after the close of regular trading we released our fourth-quarter 2016 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 Scott Ullem, CFO. Before we begin I'd like to remind you that during today's call will be making forward-looking statements that are based on estimates, assumptions and projections.

These statements include but are not limited to financial guidance and current expectations for new product approvals and clinical regulatory reimbursement and competitive matters, as well as trends in therapy adoption and foreign currency movements. 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.

Additionally, the statements involve risks and uncertainties that could cause actual results to differ materially. Information concerning factors that could cause these differences and important product safety information may be found in our press release, our 2015 Annual Report on Form 10-K and our other SEC filings, all of which are available on our website at edwards.com.

Also a quick reminder that when we use the terms underlying and adjusted, we're 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 and on our website. And now I'll turn the call over to Mike Mussallem. Mike?

Thank you, David. We are pleased to report strong fourth-quarter results which contributed to another successful year for Edwards as we strengthen our financial performance and product leadership across our portfolio. Robust demand for TAVR therapy continued through the end of the year and better than we forecasted at our December 2016 Investor Conference.

We ended the quarter with total sales of $768 million, an increase of 15% on an underlying basis, and finished the year strong with global sales of nearly $3 billion, representing an underlying annual growth rate of 19%. And I'm proud to report we invested aggressively to bring new medical technologies to more patients and drive future growth.

In transcatheter heart valves, global sales were $432 million up 32% on an underlying basis over the prior year. Growth was led by continued strong adoption across all geographies with notable strength in the US and Japan. Globally average selling prices were stable.

In the US transcatheter heart valves sales for the quarter were $267 million and grew 41% on an underlying basis versus the prior year. Once again overall performance was strong with procedures growing broadly across more than 500 hospitals in both large and small TAVR programs. The growth continues to be driven by the extraordinary patient outcomes with SAPIEN 3 reported from the PARTNER II trial early in 2016.

Outside the US, underlying THV sales grew 19%. We continue to be encouraged by the strong global adoption of TAVR therapy, particularly outside Europe where overall therapy penetration is still very low. In Europe, consistent with previous quarters, growth in countries with lower TAVR adoption continue to outpace countries where therapy is more established.

We estimate total TAVR procedure growth in Europe was approximately 15% in the fourth quarter compared to last year. Our growth rate was lower as anticipated due to the impact of lower sales in France.

As a reminder we significantly reduced shipments in the third and fourth quarter while we were negotiating a resolution to the French policy that effectively limited the number of TAVR procedures in 2016. Although the policy was adjusted and we resumed shipments, we estimate fourth-quarter sales would have been about $10 million higher absent this interruption.

Turning to our near-term product pipeline we continue to expect that our new Ultra system featuring an on-balloon delivery system and next-generation sheath technology will be launched in Europe in the second half of 2017. And we remain on track to receive a CE mark for our CENTERRA system in the second half of 2017.

As we discussed at our Investor Conference in December, we continue to believe the global TAVR opportunity will exceed $5 billion by 2021 for patients with severe symptomatic aortic stenosis. We believe the prevalence of this disease is large, generating an even greater need for TAVR therapy.

Additionally we believe TAVR will benefit the many patients suffering from severe AS who have not yet been diagnosed with symptoms as well, as moderate AS patient populations, representing an opportunity for continued growth beyond 2021.

We're continuing to enroll our PARTNER III low-risk trial with the goal to have this randomized trial fully enrolled this year. As we announced today we received FDA approval for early TAVR, our groundbreaking trial will study patients diagnosed with severe AS who have not yet developed symptoms.

Approximately 1,000 patients across 65 centers will be randomized to receive either transfemoral SAPIEN 3 or clinical surveillance. We are beginning the contracting process with hospitals and expect them to begin enrolling later this year. In summary, while we exited 2016 higher than we forecasted in December, our 2017 THV sales guidance remains unchanged and we expect to achieve 15% to 20% underlying growth.

As expected this represents a slower THV growth rate compared to 2016 and is consistent with our estimate of more than $5 billion TAVR opportunity by 2021. Turning to surgical heart valve therapy, sales for the fourth quarter were $189 million and were down about 4% compared to last year, driven by lower aortic valve sales in US and Europe.

Surgical heart valve sales were lower primarily due to the impact of SAPIEN 3 and the continued constrained mitral supply. Globally our average selling prices were slightly higher due to the growth of our advanced Edwards INTUITY Elite valve system.

Looking forward we believe the launches of our new surgical therapies will offset the TAVR impact in 2017. This includes our Edwards INTUITY Elite valves system, which has launched in multiple geography and globally and is currently expanding to additional commercial centers in the US with growing momentum.

We also plan to launch our INSPIRIS RESILIA aortic valve in Europe and the US later this year. This is the first of a newly created class a resilient heart valves that incorporates the advanced RESILIA tissue. This valve leverages features of the trusted Paramount family and includes the proprietary DFIB technology which is designed for potential future valve-in-valve procedures.

We believe INSPIRIS addresses the specific needs of active patients and those who would have previously received a mechanical valve. In summary, surgical heart valve results were below expectations in 2016. However, we believe the introduction of our next generation platforms to lift overall underlying sales growth to 1% to 3% in 2017.

In the critical care product group, sales for the quarter were $146 million. It grew 3% on an underlying basis. Our growth was driven by our enhanced surgical recovery program in the US and developing markets.

As we announced at our Investor Conference during the quarter we received a CE mark for our next-generation advanced monitoring platform HEMOSPHERE. This all-in-one system will provide greater clarity on a patient's hemodynamic status to enable clinicians to make timely potentially life-saving decisions.

We anticipate a US regulatory clearance later this year and a commercial rollout of the base platform. HEMOSPHERE is modular in design and we will later add enhanced surgical recovery capabilities in the future. And we remain on track for a 2017 European launch of our Acumen HPI software suite with our new FloTrac IQ smart disposable.

This is the first-of-a-kind hypotension or low blood pressure probability indicator during monitoring. In 2017 we continue to expect our critical care underlying sales growth to be between 5% and 7%.

Now for an update on several of our new transcatheter mitral and tricuspid therapies; last week we were pleased to announce that we completed the acquisition of ValTech Cardiom the developer of the Cardioband system for transcatheter repair of mitral and tricuspid valves. We are in the process of welcoming and integrating this talented team to Edwards.

Our 2017 financial guidance provided at our Investor Conference in December included the expected financial impact of this transaction which Scott will discuss in a few minutes. As a reminder the mitral application of Cardioband has received a CE mark in Europe and we are building a European field organization to begin training heart teams to perform this therapy.

Additionally prior to close ValTech received a conditional approval to begin an IVE trial of Cardioband in the US. We are now assessing the trial design and expect enrollment to begin later this year.

The Cardioband system for tricuspid regurgitation is in a CE mark trial which we expect to be fully enrolled in 2017. In the Edwards Cartier queue program for transcatheter mitral replacement, we're focused on transeptal delivery. As we indicated during the Investor Conference we're implementing key clinical learning sequentially from our US early feasibility study.

Consistent with this approach we recently paused enrollment in our clinical trials to perform further design validation testing on a feature of our valve. If we see positive results from the test we expect to resume clinical trial enrollment in the second quarter.

This pause also postpones the start of our CE mark trial. We continue to gain early clinical experience with our Pascal transcatheter mitral repair system in compassionate cases. We're also gaining experience with Edwards forma, our spacer for treatment of tricuspid regurgitation and are developing a larger spacer that would enable treatment of a broader group of patients.

You can expect further updates from clinicians on these new structural heart programs at upcoming major medical meetings. And now, I'll turn the call over to Scott.

Thanks, Mike. As Mike mentioned we're pleased to report that with our strong finish to the year we exceeded our revenue and earnings targets for 2016. For the full year, adjusted earnings per share grew 25% to $2.89. Sales increased 18.5% on an underlying basis to nearly $3 billion.

In the fourth quarter another strong sales performance in transcatheter valves drove significant top- and bottom-line growth versus the prior year. Underlying sales grew 15% and adjusted earnings per share grew 17% to $0.75.

GAAP earnings per share was $0.73, which includes our customary adjustments for intellectual property litigation expenses and amortization of intangibles. A full reconciliation between our GAAP and adjusted earnings per share is included with today's release.

Our January 23 we closed the acquisition of ValTech cardio. Under the terms of the merger agreement we delivered approximately $270 million in stock and $70 million in cash at closing. In addition, there is the potential for up to $350 million in prespecified contingent payments over the next 10 years.

Periodic accounting adjustments to these payments will be highlighted in future financial results. The financial guidance we provided at our Investor Conference in December incorporated the expected impact of the transaction in 2017.

And now I'll cover the details of our results and then share guidance for 2017. For the fourth quarter our gross profit margin was 72.2% compared to 73.8% in the same period of 2015. This expected decrease was driven by a reduced year-over-year benefit from our foreign exchange hedge contracts and manufacturing expenses associated with capacity expansion.

These decreases were partially offset by a more profitable product mix. We continue to expect our gross profit margin excluding special items to strengthen in 2017 to between 74% and 76%, driven by an improved product mix and the expected impact of foreign exchange.

Turning to selling, general and administrative expenses, fourth-quarter expenses were $234 million or 30.4% of sales. Compared to $222 million in prior year. This increase was driven by sales and personnel related expenses, primarily in transcatheter valves, partially offset by the suspension of the medical device excise tax.

We continue to expect SG&A excluding special items to be between 28% and 29% of sales for the full-year 2017. Research and development investments in the quarter grew 17% to $115 million or 15% of sales. This increase was primarily the result of continued investments in our transcatheter aortic and mitral valve programs. Including spending on clinical trials.

For the full-year 2017, we continue to expect R&D as a percentage of sales to be between 16% and 17%. Our reported tax rate for the fourth quarter was 20.9%, up from 15.7% in the prior year which benefited from the renewal of the federal research and development tax credit.

For the full-year 2016 our tax rate was 22.8%. Starting in 2017, our tax rate will reflect the new accounting standard for employee stock-based compensation, and this forecasted impact is included in our guidance. This accounting benefit will fluctuate in each reporting period, making period comparisons less consistent. We intend to highlight the impact to each period if material.

We continue to expect our full-year 2017 tax rate including the estimated impact of this accounting change to be between 23% and 24%. Foreign-exchange rates positively impacted fourth-quarter sales versus prior year by approximately $1 million.

Compared to our October guidance, foreign exchange rates positively impacted earnings per share by $0.01. Free cash flow for the fourth quarter was $138 million; we define this as cash flow from operating activities of $201 million, less capital expenses of $63 million. For the full-year 2016 free cash flow was $528 million.

We continue to expect full-year 2017 free cash flow to be between $575 million and $650 million. Turning to our balance sheet, during the fourth quarter we repurchased approximately 2.7 million shares for $246 million, to help offset dilution associated with our ValTech acquisition.

Average shares outstanding during the quarter were $218 million, and we continue to expect our full-year 2017 shares outstanding to be between $216 million and $218 million. At the end of the quarter, we had cash, cash equivalents and short-term investments of $1.3 billion. Total debt was $822 million. An increase reflecting our fourth-quarter share repurchases.

And now turning to 2017 guidance, we are reiterating all of our 2017 ranges. For transcatheter heart valve therapy we expect sales of $1.7 billion to $2 billion, including $10 million to $15 million of estimated Cardioband sales to be reported as part of THVT. For surgical heart valve therapy we expect sales of $752 million to $790 million.

And for critical care we expect sales of $560 million to $600 million. For total Edwards we expect sales of $3 billion to $3.4 billion. For full-year 2017 adjusted earnings per share we expect to be between $3.30 and $3.45.

Turning to the first quarter of 2017, we project total sales to be between $760 million and $800 million and adjusted earnings per share of $0.79 to $0.89. And with I'll hand it back to Mike.

Thanks, Scott. In conclusion we're very pleased to achieve strong financial performance and significant progress on transformational new therapies across our businesses in 2016 and expect continued growth and progress in 2017.

We are enthusiastic about the continued expansion of catheter-based therapies for the many structural heart patients in need which positions us well for the long term. We believe our patient-focused innovation strategy can transform care and bring value to both healthcare systems and shareholders. And with that I'll turn it back over to David

Thank you, Mike. In order to allow broad participation in the Q&A, we ask that you please limit the number of questions. If you have additional questions, please reenter the queue and we will answer as many as we can during the remainder of the hour. Operator, we are ready for questions please.

Thank you.

(Operator Instructions)

David Lewis, Morgan Stanley

Good afternoon. Mike, just a quick question for you on TAVR and then maybe a follow-up on the clinical data, just think it's investors are going to be focused on sort of US and ex-US TAVR performance this quarter. So wonder if you could give us a sense in the US how you think you fared on share relative to a competitor's launch of a larger valve size, and in the international market, if we adjust for France it seems that your ex-US business has been pretty stable from a growth perspective in the back half of 2016. Is that how you see it? So two questions there and a quick follow-up.

Okay thanks, David. Yes, in the US I think we would broadly say that share positions compared to the last couple of quarters have been pretty flat. I think we had a share gain versus the prior year, but they probably have been pretty comparable here over the recent past. If you go to Europe, I think your assessment is correct, that if you take the French situation out, market shares once again were pretty stable.

Overall sort of the new competitors or accounting for something in the midteens of market share so not a lot moved other than France.

Okay, Mike, and then just clinically one of the big messages from analyst day in December was the market development activities you have to engage and to get these younger less sick patients in an intermediate risk, given that commentary at the analyst day, can you talk to us about the EARLY-TAVR program and why you are confident that's going to be the commercial success given your sort of a asymptomatic patients relative to the market development things you discussed at the analyst day in intermediate risk. Thanks, I'll jump back in queue.

Yes thanks, David. They are both really important so market development is probably more near-term and more important. As we indicated at the investor conference we are penetrating maybe at the -- our estimate was the 18% level and that, that needed to move to something like the 30% level by 2021.

So for us to make sure that we're doing our work to properly make sure that physicians and patients have the best information is really important, and we're focused on that. We're building that organization, we're building that capability.

But separate from that, and you know we are long run guys, we are engaged in wanting to study this group of patients that have not yet demonstrated symptoms. We are firm believers that people with severe aortic stenosis are really at risk and [to do] the clinical study to test that. We won't get our results for a while of course, but we think it could be very meaningful once you get out into the future, probably beyond 2021.

Thank you very much.

Bob Hopkins, Bank of America.

Hello thanks, just two questions, first a follow-up on that last comment. Mike, I want to get your opinion on something on EARLY-TAVR given these patients have to undergo a stress test, what percentage of the patients do you think might move from a asymptomatic to symptomatic post the stress test as you enroll this trial? Trying to get a sense for could awareness in this trial actually help a symptomatic portion of the market well before the asymptomatics get approved.

Yes, thanks Bob. Yes that's a really good point and a good question, frankly we don't know a lot about this group of patients. We are really looking forward to learning much more about it so the real answer to your question is unknown.

There are a number of physicians we've talked to that speculate that although the patients had previously been diagnosed with no symptoms that once they are on the treadmill they might indeed have symptoms, which would mean that it would be candidates for the therapy in the near-term to either maybe if there intermediate risk to be treated commercially or if they are at low rest to potentially going into the PARTNER III trial.

So the follow-up just to stick to TAVR, maybe you could talk a little bit more about the fourth-quarter US market dynamics. I think your sequential revenue is only up $7 million, maybe just talk a little bit about more about what you're seeing any surprises in the quarter, just a little more color what happened in Q4 in the US.

Yes thanks, Bob. I can't say there were any real surprises, it was pretty much as we expected, I will tell you the very end of the year, finished stronger than we anticipated it would. We did an estimate at the time of the investor conference never being too sure how it's going to turn around the holiday period and that turned out stronger than we thought. But other than that I thought it went very much as we anticipated.

Great, thanks for taking the question.

Sure.

Mike Weinstein, JPMorgan.

Thank you, good afternoon, gentlemen. So let me just follow up on TAVR first and I want to switch over to Michael if I can. So France cost you $10 million this quarter, if you didn't have that $10 million headwind your TAVR franchise would have grown 32% year over year. So the questions there are number one, do you recapture that $10 million in the first quarter when you put that headwind go away and then second, given the kind of global growth you are seeing is 15% to 20% the right range for 2017?

Yes, so that share that we lost or those that $10 million probably went completely to Medtronic. Of course, our intention is to try to win those customers back, that's the goal of that and but hard for us to estimate. If we can get that all back and how soon that might happen that certainly will be our intention, but that's in front of us to do.

They actually switched over and did some core valve cases during that period, so we've got some work to do. Your second question, Mike, tell me again what your question was about our growth rate?

Yes, if you adjust for France your grew 32%. Even including France you grew 29%, so is 15% to 20% the right range? And then I have your Mike I want you to give us a little bit more CardiAQ. Could you just kind of spell out for us a little bit better what's going on and in what the issue may or may not be?

Sure, yes, we think the 15% to 20% is right on top only put that estimate in place at the time of investor conference, there wasn't a lot that we learned since that time so we think that, that is a good estimate and we would encourage you to think about that as you think about our growth rates.

In terms of CardiAQ, I will refer you back to what we said, we said that we are engaged in this and we're been going through this process where we try to very thoughtfully make sure that we learn from all of our clinical experiences and we saw something that we decided we wanted to, and this was again totally voluntary -- go back and take a look at; and so we're running some internal test associated with that to make sure that we feel comfortable moving forward.

We are doing this in complete cooperation with our clinical investigators, the teams continues to be very positive but it's just a step that we're going to go through. It's a bit of a signal of just how early this therapy is we're still on a pretty steep learning curve, across the board, we seem to learn in every case not only something about our device we learn something about the procedure, something about imaging, and something about anticoagulation and we're trying to apply all those learnings as we go.

Larry Biegelsen, Wells Fargo.

Good afternoon, guys. Just a few for me, all on Europe actually. So Mike, is it safe to assume that the CE mark for CardiAQ in 2018 will get pushed out? France, can you talk about why it was $10 million this quarter and $5 million last quarter and the Outlook for France in 2017? And just lastly Mike, Cardio band rollout in Europe could you give us a little bit more color on how that's going and how you're going to get to $10 million to $50 million in sales in 2017? Thanks for taking the questions.

Okay, let me try to walk you through it, Larry, and if I miss something will come back to it. We're not saying that the CE mark is off for 2018. It's still possible for us to get that and we'll keep you informed that all of that develops. We're just pausing enrollment and that's not really unexpected for something that's his early stage and transformative.

Your second question about how we're going to perform in France, we would hope that we would do well. France is a growing market, and we would hope to regain some if not all of that share during 2017, so to your question of why was Q3 different than Q4, during Q3 people were so working on inventories and in Q4 they felt the full brunt of the effect; and so I think it's just that simple.

Finally your question was about Cardioband, we're early in this process. It's only closed a week ago, and so we're putting together a separate field organization in Europe, that's a combination of the team from ValTech and Edwards and we're getting ready to take the field. So I don't have much more to report at that point, at this point. But we'll keep you posted in each quarter we will share with you our progress on sales.

Thanks for taking the questions, guys.

Brooks West, Piper Jaffrey.

Hello, thanks for taking the questions. Wanted to circle back to the ultra launch and CENTERRA C mark, I'm assuming that would also launch in second half 2017, should we look to those devices to have an impact on your revenue or how should we think about that?

Yes, we are very proud of those products we think there are both going to be very well received by our customers they're are mostly going to -- the Ultra product is particularly going to help the physicians, and those heart teams do even better procedures.

They are in our guidance, Brooks, so I wouldn't say that there's been any upside beyond what's in our guidance, the CENTERRA system again, is in our guidance where we're excited about that. We think it has the opportunity to be best in class amongst self expanding stents.

Okay, and then Mike, I wanted to circle back to France and I apologize, I'm just confused on how this kind of happened. I thought you guys had talked about France as a potential headwind in Q2, it seems like you were a little bit surprised by the impact in Q3, and then we are seeing a more full impact in Q4. So -- and I thought I remembered that you had renegotiated with the French government and you are able to get a little bit more volume in Q4. Am I thinking about that correctly or you just give us more detail kind of how that preceded throughout the year.

Sure, let me try and we could talk about it. I think we saw the potential there in Q2, in Q3 we realized that it was a serious situation and we discontinued our shipments at the time.

I think we told you at that time it was going to have impacts both Q3 and Q4. I think the Q4 impact probably turned out to be a little larger than we thought, so even though we reached resolution during the fourth quarter it turned out a little larger than we thought; but that's kind of the way the played out. Is that clear?

I think so. I might follow back up with you off-line, appreciate the comments, Mike. Thank you.

Sure.

Bruce Nudell, SunTrust Robinson Humphrey.

Good afternoon, Mike, thank for taking the question. My first question is we, as you do, believe there's a large prevalent pool of untreated, mainly elderly patients, and your refer to your kind of business development efforts for building that referral chain and building an organization to do that, could you speak to the details of that in any way?

Yes, at this point I'm not sure that this is worth detailing. We are adding some senior leadership, that will bring some more experience, Edwards people that have the experience with therapy adoption in other fields. Beyond that we're going to use actually a host of different, I will call it methods, to be able to drive education and therapy adoption.

In the US it will be largely web-based, there is a lot of actually telephone conversations and direct contact and seminars in Europe and Japan that seem to be effective. So there's going to be a variety of tools that are applied and we'll try and be a little more granular for you as time goes on.

Perfect, and the my follow-up is on EARLY-TAVR could you share anything about the length of follow-up and the endpoints that might be used and the length of enrollment?

Yes, so it's designed to be a superiority study, it is randomized, we expect it to have a two-year composite endpoint and the endpoint is likely to include death, stroke, and re-hospitalization. We're going to randomized it between SAPIEN 3 and clinical surveillance, and I think it's going to have about 1,000 patients in it.

Thanks so much, Mike.

Jason Mills, Canaccord Genuity

Super, great. Mike, can you hear me okay?

Yes, I hear you well, Jason.

Great, so first question on TAVR US, Mike, if we add back the $10 million it looks like sort mid-20s growth comparably a little less, over eight quarters it would sort of challenge the best growth you've seen, and your commentary and your prepared remarks about Japan jumped out at me. Could you tease Japan out a little bit and give us some more color on the composition of that market and what you're projecting going forward?

Sure, without getting into specifics in Japan, I think are just two companies approved in Japan and we're fortunate the last year we had SAPIEN 3 approved and we really pleased at the way that the therapy is being adopted in Japan.

You'll recall we got off to kind of a slow start a couple of years ago and there were a number of structural elements that were obstacles, but at this point, we feel like much of those have been cleared. I think we are probably headed, we're maybe around 100 accounts in Japan and we continue to think that has a total addressable opportunity of $300 million to $400 million.

Okay, so that seems to be gaining traction. You will have some easier comps in France clearly, in the European side of your TAVR business, and the US business you talked a lot about, you've given some granularity here and so as you kind of look at the TAVR growth guidance for the year at 15 to 20% and I think 30% plus in the United States if I recall from your analyst meeting, it would imply that the OUS assumption that you're making is at best 10%, maybe even high single digits but given those tailwinds how should we look at that? It sounds a bit conservative.

Well, we think there's reasons to be conservative, so we think across Europe this has been many years since this technology has been adopted, we expect the market's probably going to grow a little faster than Edwards that we will lose a little bit of share, probably both in Europe and the US, so I ask you to keep that in mind when you think about how realistic the 15% to 20% is. We think that's a pretty good estimate and not that conservative.

Okay, great. One quick and I'll get back in queue, regarding EARLY-TAVR, given the new patient population in several centers Mike, talk to us about the bandwidth at these centers. Is there any risk to the trial taking up enough time to have an impact on normal TAVR volumes? Thanks for taking the questions, I'll get back in queue.

Yes, thanks, we don't think so, we give our centers -- they're involved with us on the PARTNER trials an opportunity to enroll in the EARLY-TAVR, and we think it's been probably in excess of 90% of those centers have said that yes, they are interested and they feel like they do have the bandwidth to do that. The good news is they have infrastructure in place that they can leverage so that's helpful.

And this really is a new group of patients that they haven't addressed before so we believe that they can handle it. We have a lot to learn though because this is a new field for us.

Understood, thank you.

Matt Miksic UBS

Thanks so much. And congrats on a nice job here in the fourth quarter. I know we've covered the TAVR performance and new centers of Paramount's so far on the call, but I just wanted to clarify one thing, Mike, if I could, and then had a couple of questions on some of the growth initiatives.

So coming out of the analyst meeting I think it was a lot of discussion in TCT and the analyst meeting about the need for market development the need for education and awareness. That still sounds like it's important and you are starting to put that in place, but if I read your comments correctly it doesn't sound like if we look the performance in Q4 that, that has been -- those efforts have had a significant impact yet that would be something we'd expect to play out over the next, I don't know, several months or next year and a half or so. Is that a fair way to look at it?

It is a fair way to look at it, we have some efforts in place, and we're proud of those but we think we are still relative novices at this and growing; so we'd like to think we have we be more effective in the future.

Terrific and then on some of the growth and pipeline product and approvals you talked about, I wanted to touch on a few if I could and starting with CENTERRA I think I want to ask about your tricuspid and mitral for a quick [sec]. But the CENTERRA product could you tell us what we should expect to see, hope to see, when we might see it, that would tell us if that is going to achieve the kind of performance you're hoping it could in order to be an important ad to your SAPIEN platform.

Yes, so as we've indicated we expect to get the CE mark by the end of the year and we expect to be based on data that probably is presented at Euro PCR meeting in May, so I think that's going to be a good chance for you to get a look at that, Matt, and be able to judge what kind of therapy that is.

Okay, and I know we talked up Cardioband for mitral, you had mentioned at your meeting also that you are kicking off or beginning to initiate this study for Cardioband CR, any sense of when we will see start to see some tricuspid data or short track results out of that initiative?

Yes, even though the ValTech is new to Edwards, we're also excited about Cardioband for tricuspid regurgitation. They tell us they got some pretty good momentum so we believe that, that CE mark trial could be enrolled by the end of 2017.

And then finally, if I could, on similar category of product here on Pascal, you talked about kicking off the CE mark study in this year, any update on timing or expectations for that would be helpful, this is for the mitral valve repair.

Yes, I don't have any update on that. We will keep you tuned in, Matt, and we will let other people ask questions.

Thanks much.

Rick Wise, Stifel.

Good afternoon, Mike, let me start with something that's coming up I think it's certainly new since the analyst day, the SATAVI data intermediate risk data from Medtronic is coming up at ACC as a late breaker. I think that's certainly a faster date than I expected back in December. If we can assume it's going to be positive, how do we think about this? Can we view this as positive data there, as a positive class affect for intermediate risk adoption sort of similar to other large positive data sets we've seen in the past, and could that, should that, would that, potentially accelerate intermediate risk adoption for all?

Yes, I think your points a good one, we think if they show good results that's only positive for patients and that only helps transcatheter aortic valve replacement therapy as a total class and so we actually hope that they are successful in treating these patients and we will be anxiously awaiting the results, like you.

And maybe, Scott, one for you, first-quarter guidance, I think I get the revenue range, but the EPS range seems unusually wide. Maybe just help us understand some of the factors. Is this more revenue, or margin, or currency that is creating this $0.10 range? Thank you.

Sure, it's not uncommon and it's probably not FX because most of our EPS volatility or unpredictability is addressed through our hedge programs, so it's really good be more driven by revenue and that's been the largest driver of earning so far in our margins, and that's really probably what's going to have it end up wherever it ends up in the range. But I'd point you to the middle of the range, for modeling purposes.

Thank you.

Raj Denhoy, Jefferies.

Hello, thanks for taking the questions. Just two on mitral, first on the Cardioband, one of the points of feedback on that product is that it is a relatively long procedure, it could be an hour and a half, two hours to put that device in. So I guess I'm curious what your thoughts are around that and as you've now taken it in, if you see the prospect to shorten the time for implant for that.

Yes, thanks Raj, there are a number of things about the Cardioband that we find attractive, but there's also opportunities for improvement and yes, absolutely one of them is the shortened procedure times, those can be really very lengthy and tedious and we have a number of ideas that the R&D team has to be able to shorten this procedure time. So that's going to be one of the key areas of focus for us, as well as to try and put some engineering into the system to improve reliability and take out cost.

Fair enough, and then maybe just one CardiAQ. I know it's probably premature to be thinking about what might come after that, assuming that maybe you can fix what the problem is, but you sort of shelved your own program and you chose not to buy or to take in ValTech's mitral valve initially, but how we think about what comes next and potential delays in timing now that this might represent?

Yes, I'm not going to speculate. There's really a broad range of things that could happen from where we are right now. Just to be clear, we've just suspended clinical enrollments. We didn't really pause the whole program, and I don't know that pausing is that unusual for this sort of an early stage in transformative technology.

As I tried to relate earlier, we are on a steep learning curve and to place at valve in the mitral position is a tough task, and to do it well. The valves are large, the pressures are high, the anatomy is very complex, there are very serious imaging challenges, there's coagulation challenges; and so we on the steep learning curve and we are very pleased at the pace where moving at we just decided on this feature that we're going to pause this while we are going through our own internal tests.

So we will keep you tuned in and we're hopeful that it's positive and that we will be back rolling again in the second quarter.

Fair enough, thank you.

Ben Andrew, William Blair.

Good afternoon. Thanks for taking the questions. Mike, talk about how you screen patients for EARLY-TAVR. Obviously these are asymptomatic patients and there may be other some obvious signs and signals that people suggest they can find these patients easily, or is that part of the learning process?

I will tell you my understanding, and then again I'm not an expert and I think collectively the clinical community is going to learn something as well. These are patients again with severe aortic stenosis, so someone has done an echo or an ultrasound on this patient and found that their valve is closed, so typically it's starts out with a murmur, they get a diagnostic echo, that echo says that have severe aortic stenosis. But the physician, their physician, does not diagnose the symptoms.

So I think the first step of the clinical trial actually is to put this patient on a treadmill in addition to a number of other diagnostic tests, and so this will be the first interesting test and then ultimately if they show no -- demonstrate a lack of symptoms, they would be randomized between getting a transcatheter aortic SAPIEN 3 by femoral delivery or just clinical surveillance.

Do you have any sense of how many patients are out there with a positive echo but no symptoms?

You know, we don't have a good sense. When we did our early estimates we felt there may be as many asymptomatic or patients without symptoms as patients with symptoms. Again, that's an what the clinical community would estimate and we believe a lot of those patients are probably out of the system.

Now there also a number of hospitals that tell us that they actually have groups of patients that have no symptoms that they could name names on. So again, we're going into a bit of uncharted territory Ben, and we will keep you tuned in on what we learn.

Okay, and if I could sneak in one on the SAVR side, you talked about kind of the new products helping offset the impact of volume but what is the volume assumption for 2017 guidance in surgical valves?

If you are to say what we think of getting it happen Europe in the US, we think that the number of procedures would be down slightly, so down a few percent in terms of the total number procedures done in Europe or done in the US. And that again is of surgical isolated aortic procedures, right, we expect that we offset that decline through our new products. So through new products and share gains that our sales would actually grow 1% to 3%.

Is any of that price or is that just share?

Some of it, I suppose you would say, turns out a price, for example, when a physician chooses to use in an INTUITY Elite valve instead of a magnet ease valve, the value that they would impart would be higher to Edwards, obviously getting higher value. So you see that, I suppose, in the price relationship, but the other part might just be share gain associated with our products that are best in class and we're the market share leader on.

Thank you.

Josh Jennings, Cowen and Company.

Thanks, gentlemen. I was hoping, and I apologize, Scott, this first question for you is a little bit granular, but with a focus intense focus on the sequential growth in US TAVR business, I was wondering if you be willing to just lay out any of the potential headwinds outside of just the core clinical utilization either on the royalty side or the clinical revenue side in the quarter?

Sure, so clinical revenues did decline in the second half of 2016, as intermediate risk patients went from clinical to commercial after we got the approval. And we expect clinical revenues should increase again during 2017 in connection with PARTNER III. But the growth rate in the US have gone from -- last year they were 64% in Q1 and then 66%, 55% in Q3, and 41% in Q4, and now it's expected; it's really the law of big numbers that's driving the decline in the growth rates, and ultimately we don't expect that there any new headwinds or considerations other than the ones we've been talking about.

Anything specific on the royalty, $2.5 million can account for about 100 basis point of sequential growth at these levels?

There's nothing really that we expect to change with the royalties. We've guided people to assume about $10 million per quarter, and that's about what we've been running with a couple of exceptions where we might have a quarter was a true up and ends up being more than that. But generally $10 million a quarter, $40 million for the year is the right assumption for royalties.

Okay great. Then Mike, just one longer-term question for you, some are clinical checks with surgeons and talking about holding onto patients that are either younger and lower (inaudible) in the (inaudible) category or maybe eventually for low-risk patients, what they hang their hat on is durability. I was just hoping you could give us your internal roadmap of how you see that question being answered.

I know it's we're looking out a number of years but will clinical trial data set you think gets us the answer? And what is the duration of data that we need to see is that 7, 8, 10 years? Appreciate it.

Yes, thanks Matt. It's not unusual if you go out into speak to surgeons to either find some that have a lot of confidence in their own ability to do great surgery on intermediate risk or low risk patients.

We don't find that as a surprise. The surgeons that are already on heart teams that TAVR centers seem to really understand the value of the therapy and those referral processes seem to go much better. When you're in hospital systems where there is no TAVR and only surgical valve replacement is available probably those surgeons are less -- probably understand less the value of TAVR and the importance of TAVR.

So it's part of probably our system moving a little slow, probably not a big surprise to us that's in our estimates, we know it's going to take some time. It will be a cumulative sort of weight of the data that ultimately influence them. We're really pleased that we have powerful data in PARTNER I and PARTNER II, we've got PARTNER III right behind it and then EARLY-TAVR right behind that. So we're going to bring big powerful studies that are highly scientific to bear and ultimately we think the way to that data will carry the day.

Glenn Novarro, RBC Capital Markets.

Hello, good afternoon guys. My first question, Mike, just on the intermediate adoption curve is you now have a full quarter of intermediate in terms of the label. Have you gone out or your sales team has gone out, have you been out and able to assess how the TAVR centers are absorbing these new patients, are they able to get extra lab time, are they hiring new operators?

I just want to make sure that there's no structural roadblock to the market picking up with all these intermediates coming in to the marketplace. And I've two quick follow-ups.

Yes, thanks, Glenn, as you know no two sites are alike but I would say broadly, that we really have not seen structural roadblocks. It's sites have had amazing ability to add capacity and cases per day and in some cases it's been pretty significant that they are able to do even four cases a day with SAPIEN 3. So they get a pretty good capacity bump out of it, and so no structurally I don't think it that's the core issue.

Okay. And then two quick follow-ups. One, you said you were implanting over 500 centers in 2016, so how many centers did you add in 2016 and how many do you expect that in 2017? Then on the CardiaAQ, are you still going developing that device for transapical?

Yes, so I don't remember the exact numbers but I want to guess it's around 50 centers that we added during 2016, it gives you a sense of what we've done. And then your question about transapical was on which system?

On the CardiAQ, is it still going forward a transapical system, and then I also asked about how many centers you thought you'd add in 2017.

Yes, indeed we are moving forward with the transapical system as well. When we adopted that CardiAQ of the things we found attractive is that we could have one valve with two delivery systems and so yes, that is an important element. In terms of number of centers and 2017 to that TAVR center is what you're asking about?

Yes, correct.

Yes, so 2017 we're likely to get some growth, we expect that will probably slow some, not to be as big as the growth in 2016. There are still centers that are interested in joining, but we expect that to be at a reduced rate it's hard for me to estimate just with that would be.

Okay great, thanks Mike.

Joanne Wuensch, BMO Capital Markets.

Good evening, and very nice quarter. A couple of things, starting off with something boring like gross margins you had 72.5% in the fourth quarter and yet your guidance for the year 74% to 76%, for modeling purposes how should we think about that progression?

It was actually 72.2% for the Q4. It was about 73.1% for the full-year 2016, and the best modeling assumption for 2017 is right in the middle of the 74% to 76% range and the difference is take from 73% roughly for 2016 and add about 100 basis points for mix and about 100 basis points for FX.

Okay, that's helpful. And then possibly more interesting, can you talk a little bit about the international market, you think that the $10 million from lost French sales went to Medtronic. But bigger picture what's really going on in that market as it relates to market shares and [shifts] with some newer products coming in? Thank you.

Yes, so, there have been some new products but overall there hasn't been a big change that we've observed over the past several quarters, the new competitors are still having some impact.

I think total they are in the midteens sort of level of market share, and outside of what happened in France we haven't seen a lot. ASP's have been very stable across Europe, so again you know that we are selling at a premium and sometimes that premium is quite large. It could be the larger the 20% in some places but there's no real significant changes in the market dynamics, Joanne.

That's very helpful. Thank you.

Danielle Antaliffy, Leerink Partners.

Hello guys, good afternoon, thanks for taking the question. First of all, I was wondering if you could parse out a little bit more the impact if any of the competitors' large valve in the quarter. I believe they launched about a month into the quarter. Sounds like maybe you didn't see an impact at all and where did you make that up if you did not, because presumably they did gain some share in the 34 mm size?

Yes, you know what, I think the quarter turned out pretty much the way that we expected it to maybe a little bit stronger than we thought based on how the year closed out. I don't know what to tell you about that, our 29 mm valve serves both sides of the patients some don't really feel like we lose patients in that regard. The large size valves is already factored into our guidance so there's really nothing new there.

Okay, that's fair and then, Mike, just trying to get a handle where we are in intermediate risk. So I appreciate all the market development efforts you guys are putting forth, but and those are -- have yet to really take hold and bear fruit, but do you have a sense now in the US market what percentage of patients are intermediate risk or where we are intermediate risk penetration? If you look at your own patient population, patients that are [taking] SAPIEN 3, how many of those are intermediate risk versus high risk or inoperable?

Yes, thanks. I know it must be frustrating but we really would like to steer you away from just isolating looking at just the risk factors.

As we tried to talk about it our investor conference, there are a number of factors the heart teams take into consideration which includes risk score but certainly everything about the anatomy of these patients and the frailty of these patients. So it is multifactorial and it's done by these multidisciplinary teams I'd encourage you to go broader. We feel like there's about 650,000 patients out there with severe aortic stenosis and the treatment rate right now is around 18%.

And so our job is to see if we can improve that and improve the lives of these patients and our performance as well.

Thanks so much.

Sure.

Chris Pasquale, Guggenheim.

Thanks. Mike, Doctor Ronnie had a presentation at SVS in which he highlighted the fact that a of quarter the patients in the surgical arm of PARTNER IIa also had some other surgical interventions while they were in the operating table, and that those patients then had a higher event rate than those that underwent isolated AVR. One of the questions coming out of that representation was whether that made it a bit of an apples to oranges comparison versus TAVR. Can you comment on the paper?

Well, I'm not intimately familiar with it, it sounds like that's real world and that reflects what patients go through, and so I would say typically when a surgeon opens a patient they are going to consider, from time to time, are there other things that they should do because this is a pretty big procedure to take the patient through and they're not to miss the opportunity to do more. So I think when it's all done it's probably is a realistic comparison of what goes on in the real world.

Okay, thanks. And then in a few weeks [Cloretts] is going to go to a FDA panel and there's another embolic protection system not that far behind them, what are your latest thoughts about the need for embolic protection during TAVR? And do you guys have any plans to revive your internal program?

Yes, our thinking hasn't really hasn't changed dramatically on this Chris. We continue to feel that with the stroke rate that's as low as it is, and you saw what the stroke rate looked like for SAPIEN 3, they're in the neighborhood of 1% at 30 days, that adding another delivery system and another catheter potentially ads as much risk as it erases. So for the additional cost and risk associated with it, we have a tough time endorsing that therapy.

You think that the way you're measuring it in the trials is capturing the full scope of neurological complications? One of the pushback that those companies are saying is that we are missing some stuff and you look at their event rates in the trials are quite a bit higher, although maybe some of those are subclinical.

Yes, I couldn't be more proud of the way that we assess stroke risk in our trials. I don't know if you recall what happened but we actually have a neurologist not a cardiologist but a neurologist do an assessment before the procedure, and then they do the follow-up assessment. So you have a neurological assessment by somebody that's detached from this and they're highly qualified to be able to assess stroke risk.

Now if you compare it to an MRI we'd argue that, that is subclinical often; so it's probably -- we think our trial is probably some of the best and most robust data generated related to stroke.

Great, thanks, Mike.

Okay, well thanks all for your continued interest in Edwards. Scott, David, and I welcome additional questions by telephone, and with that I'll turn it back over to David

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