Edwards Lifesciences Corporation (EW) Q3 2007 Earnings Report, Transcript and Summary

Greetings, ladies and gentlemen and welcome to the Edwards Lifesciences Third Quarter 2007 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief 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, Mr. David Erickson, Vice President, 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 third quarter 2007 financial results. During our call today, we'll focus our prepared remarks on information that complements the material included in the press release and financial schedules, and then allocate the remaining time for Q&A. Our presenters on today's call are Mike Mussallem, Chairman and CEO; and Tom Abate, CFO and Treasurer. 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 aren't limited to sales, gross margin, net income, earnings per share, and free cash flow targets for 2007, the regulatory approval and sales of Heart Valve Therapy products including Magna mitral and Magna Ease, the competitive dynamics and market fundamentals of the Heart valve market, the continued adoption, expected sales and product enhancements of the FloTrac system and/or the LifeStent product line, the timing, progress and results of the PARTNER, RESILIENT and EVOLUTION clinical trials and the market opportunity for transcatheter technologies in general and European launch in 2008 sales of the Edwards SAPIEN valve. Although we believe them to be reasonable, these statements involve risks and uncertainties that could cause actual results to... or experiences to differ materially from the forward-looking statements. Information concerning factors that could cause actual results to materially differ from those in the forward-looking statements, may be found in our Annual Report on Form 10-K for the year ended December 31st, 2006 and our other SEC filings which are available on our website at edwards.com. With that, I will turn the call that Mike Mussallem. Mike?

Thank you, David. We are pleased to report solid third quarter results. Total underlying sales growth trended up 7.8% with our Critical Care and Vascular franchises once again making significant contributions. In addition, we reached another significant milestone during the quarter as we received CE Mark to begin selling the SAPIEN Transcatheter Valve in Europe. Now turning to the quarterly results. On a reported basis, total sales for the quarter grew 5.7% to $261 million, and grew 7.8% on an underlying basis. Reported growth was aided by foreign exchange and negatively impacted by discontinued businesses. Year-to-date, our underlying sales growth was 5.5%. Now I'll shift to a more detailed review of our product line sales and an update on our new product pipeline and then Tom will discuss the financial results. Reported sales for Heart Valve Therapy grew 4.7% to $123 million, which included a $2.7 million contribution from foreign exchange. We are pleased to see our growth rate accelerate. We gained share globally led by double-digit growth in our line of Magna valves. In the emerging markets, we had very strong growth. In Europe, we had another solid quarter, driven by Magna Ease and Magna mitral and in the U.S. we achieved modest growth, led by a strong performance from Magna. Repair sales grew mid single-digits globally driven by our premium disease specific products. Overall, we continue to believe the heart valve market fundamentals remain unchanged. We continue to estimate that the global market growth averages about 3% to 5% annually, led mainly by unit growth, we believe that for the first nine months of the year U.S. growth has been at the lower end of this range. On a global basis, the market continues to be driven by mechanical to tissue valve conversion, and new product launches. We're pleased with the clinical performance of Magna mitral in Europe and believe that this is also an important valve for U.S. patients. We are looking forward to gaining U.S. approval as rapidly as possible. We recently received additional questions from the FDA regarding pre-clinical bench testing and are actively preparing our response. As a result, we're no longer confident that we'll obtain U.S. approval in the fourth quarter. During the second quarter, we launched Magna Ease, our next generation aortic valve in Europe. This valve builds on Magna's best-in-class hemodynamics and includes our ThermaFix enhanced tissue treatment. We are pleased with the level of enthusiasm this valve has generated with initial users because of its low profile and ease of implantation. European sales continue to ramp up steadily and we are looking forward to a U.S. introduction by the end of 2008. Additionally, we anticipate approval of our Magna aortic valves in Japan in the first half of 2008. We believe this market-leading valve's superior patient benefits will make it the number one heart valve in Japan. Our Edwards' ONE Surgeon Education Program continues to generate strong interest and we've added sessions to meet the increased demand. Edwards' ONE help repair surgeons for future transcatheter interventions by exposing them to the latest and innovative heart valve technologies and basic transcatheter training as well as intensive simulator-based learning experience. As we mentioned last quarter, in an effort to increase our field presence in the U.S., we have completed the initial cross training of our cardiac surgery sales force and they have already begun to sell heart valves in the fourth quarter. Edwards has built its leadership position in the heart valve market through close collaboration with leading clinicians. As examples, we partners with doctors... we partnered with doctors; Albert Starr and Alain Carpentier over the past several decades. Just this quarter, these innovators were honored by receiving the prestigious Lasker Award for Clinical Medical Research in their pioneer... and their pioneering efforts in heart valve therapy. We are very proud of their accomplishments. Critical Care had its strongest quarterly growth rate of the year, with sales of $97 million. The third quarter reported sales increased 13.7%, which included a $2 million contribution from foreign exchange. Global sales of FloTrac continued to be the biggest growth driver this quarter. In addition, continuing shares gains in our world leading pressure monitoring products also contributed to our growth. Earlier this month, at the European Society of Intensive Care Medicine in Berlin, we hosted several round table discussions on FloTrac and sponsored an educational symposium on hemodynamic monitoring. At the symposium, Professor Joachim Boldt presented his study of FloTrac showing improved accuracy in a broader range of patients. This study will be published in the Journal of Anesthesia. We are very pleased by the positive response of our FloTrac technology... the positive response that our FloTrac technology is receiving from leading European clinicians. We continue to make investments in FloTrac that enable it to address an even wider range of patients. We expect another enhancement to be introduced in the fourth quarter with additional enhancements coming throughout 2008. In August, we introduced our PediaSat Oximetry Catheter, the first continuous venous oxygen saturation monitor designed specifically for children. This advanced technology previously available only for adults, builds on our history of critical care innovations. We are receiving strong positive feedback from clinicians who currently have few options for monitoring children. In addition, our PreSep Central Venous Oximetry Catheter received reimbursement approval in Japan during the quarter, which further strengthens our large hemodynamic monitoring franchise in this market. For 2007, we remain confident in our ability to double our FloTrac sales and achieve a year of outstanding growth in Critical Care. In Cardiac Surgery Systems, reported sales for the quarter decreased from $21 million to $14 million; due to last year's sale of our Brazil-based profusion product line and this year's sale of the TMR product line. Cannula sales grew 3% during the quarter. Total reported sales of Vascular products grew 27.3% this quarter. The very strong growth was driven by global sales of LifeStent products, both U.S. and European physicians continue to adopt our FlexStar technology, in addition, base vascular products reported a slight increase. As we previously reported, 6 months data from the RESILIENT pivotal trial was presented last May at Euro PCR and the Phase II results were very encouraging. Tomorrow morning at TCT one year results from our RESILIENT trial will be presented. This important study has been designated as the blockbuster trial of the day. As a result, there will be an hour long session in the main arena dedicated to the RESILIENT trial including a presentation of the most recent results by Dr. Barry Katzen. During the second quarter, we submitted our application to the FDA for pre-market approval for an SFA indication. In addition to the RESILIENT data, this submission also incorporated both the new FlexStar delivery system and longer stents up to a 170 millimeters. During the third quarter, we received questions from the FDA which will require additional bench testing and we expect to respond in November. Although this did not reset the 180-day PMA clock, it has extended the approval time line and as a result, we will not receive an SFA indication by the end of this year. In 2007, we continue to expect to double our global stent sales and will maintain a 40% sales force in the U.S. while waiting to receive this landmark PMA approval for the SFA. As part of our ongoing strategy, the focus on proprietary products, we've decided to terminate our distribution of a third party's line of intra-aortic balloon pumps in Japan. This will enable our Japan operations to increase their focus on selling FloTrac and PreSep, our recently approved Critical Care products. This product line represents approximately $27 million in annual sales and we are terminating the distribution agreement at year-end. We anticipate that this action will have a moderately diluted impact in 2008. However, in... with an increased sales focus is expected to be accretive in 2009. At TCT, Edwards' leadership in transcatheter heart valves is being showcased in numerous presentations highlighting our clinical experience in over 500 cases. These presentations include data on the safety profile and outcomes in a high-risk patient population with limited life expectancy. In addition to these presentations, live cases are being performed which provide a good opportunity... a great opportunity to demonstrate the clinical progress we've made on this promising technology. In the U.S. we continue to make progress in our PARTNER trial, that's the pivotal trial of our SAPIEN valve and have currently enrolled over 60 patients. As expected during the quarter, we received FDA approval to expand to the 415 trial sites and 600 patients. It's taken us longer than expected to get the required individual site approvals however, its still our goal to have all 15 sites trained and enrolling patients by the end of the year. Our Ascendra transapical system is an important delivery alternative which will enable cardiac surgeons to also provide a minimally invasive treatment option. The FDA is allowing us to do additional feasibility cases in the U.S. as we seek approval to add Ascendra to the PARTNER trial. While we had hoped to have this completed by now, we'll continue to work with FDA to finalize the trial design. Although patient interest remains high, we now anticipate that enrollment in the PARTNER trial will be completed closer to the end of the 12 to 18-month timeframe that we initially projected. We continue to believe our progress in the U.S. gives us at least a two year lead over the next closest competitor. As we announced last month, we received CE Mark to begin selling the SAPIEN valve in Europe with our RetroFlex transfemoral delivery system and we remain confident that we will receive the CE Mark for the Ascendra transapical delivery system by the end of the year. As expected, we reached our goal of having 15 European reference centers trained by the end of the third quarter. Our European commercialization activities have begun and we are currently implementing a disciplined launch in training centers with available funding. Since receiving our CE Mark, we've seen an increase in the level of interest and enthusiasm for both cardiac surgeons and interventional cardiologist. We continue to expect to generate more than $20 million of transcatheter valve sales in 2008. We continue to be pleased with our progress and the development of a next generation transcatheter heart valve with the reduced delivery profile, enhanced durability and unsurpassed hemodynamics. With our smaller delivery profile, we will make this technology available for an even wider group of patients. We anticipate the first clinical use of this new valve in the first half of 2008. Recently, we also secured full ownership of the Andersen family of patents which relate to the transcatheter heart valve technology. Edwards previously had an exclusive license to these patents, they were acquired as part of the purchase of PVT in 2004. Last month, we entered into a transaction with Dr. Henning Andersen and his two co-inventors who assigned full ownership of the global Andersen patent portfolio to Edwards. We also acquired Johnson & Johnson's remaining license right to the Andersen patent which were obtained as part of the Heartport acquisition in 2001. These two transactions provide Edwards with greater overall control of the prosecution and enforcement of the Andersen patents in Europe and the U.S. Turning to transcatheter mitral repair, you'll recall during the first quarter, we completed enrollment in the 60-patient EVOLUTION I feasibility study of our MONARC system for the treatment of functional mitral regurgitation. Yesterday, at TCT, Professor Alec Vahanian [ph] presented updated interim results from the study which demonstrated encouraging efficacy in the majority of patients in six months. Professor Vahanian also reported that the number of the patient experienced an undesirable compression of the coronary vessel, three of which resulted in clinically significant events. We'll be collecting and analyzing additional clinical data and have decided to postpone enrolment of EVOLUTION II until 2008 when that analysis is complete. We are continuing to pursue this technology and remain confident of patients with functional mitro-regurgitation represent a very large and attractive potential market with few treatment options. As TCT continues, there will be additional clinical discussions and case presentations featuring our transcatheter technologies and peripheral vascular products. In addition, on Wednesday we will be hosting an analyst lunch featuring Dr. Gus Pichard who will share his clinical experience with our SAPIEN transcatheter valve and RetroFlex delivery system. And Dr. Alex Powell will discuss the one year results from our RESILIENT trial. For more information or to RSVP to this event, please contact our Investor Relations department. Now I will turn the call over to Tom.

Thank you, Mike. Reported Earnings per diluted share for the third quarter were $0.48 compared to $0.45 last year. Excluding special items, our third quarter 2007 non-GAAP EPS was $0.46 compared to $0.47 last year. Our gross profit margin for the third quarter was 65.3% compared to 64.7% in the same period last year. This 60 point basis point improvement was due to a more profitable profit mix and the positive impact from foreign exchange, partially offset by operating costs specific to the quarter. For the fourth quarter, we expect the rate to improve, but fall below our prior guidance of 66%. Due to our hedging contracts, today's exchange rates have a slightly negative impact on our gross margin. For the full year 2007, we continue to expect an improvement between 100 to 150 basis points. Third quarter SG&A expenses were $103 million or 39.5% of sales. This expected higher level of spending was due to additional investments for the SAPIEN valve launch in Europe, higher sales related spending in the U.S. and the impact from foreign exchange. For the fourth quarter, we expect SG&A as a percentage of sales to fall below 39%. R&D investments in the quarter were $31 million or 11.8% of sales compared to $28 million last year. The increased level of spending was focused primarily on our transcatheter valve and Critical Care development efforts. For the fourth quarter, we expect R&D as a percentage of sales to remain at approximately 12%. Net interest expense of $400,000 was lower than the same quarter last year, primarily due to lower interest expense on our declining average debt balance. For the fourth quarter, we expect net interest expense to remain around this level. During the quarter, a third party warehouse fire destroyed our inventory in Brazil, but did not result in a significant destruction of operations. We recorded a $2.5 million special pre-tax gain in the quarter in connection with the estimated insurance settlement. In the fourth quarter, we expect to close our Puerto Rico employee pension plan by distributing the assets to the beneficiary. To fully fund the distribution in accordance with IRS rules, we will record a pre-tax charge of approximately $9 million For the third quarter, our reported tax rate was 25% compared to 24.3% a year ago. Excluding special items in both years, our tax rate was 24% for third quarter of 2007 and 25.1% for 2006. The reduced rate in 2007 resulted primarily from the favorable results of our 2006 U.S. tax return filing and the settlement of a foreign tax order. For fourth quarter, we expect our rate to be approximately 26%. When compared to the same quarter last year, foreign exchange rates positively impacted the third quarter sales by approximately $6 million. At current foreign exchange rate, we estimate a $10 million benefit to sales in the fourth quarter. Free cash flow generated during the third quarter was $43.7 million, which we define as cash flow from operating activities of $59 million minus CapEx of $16 million. For 2007, we continue to expect free cash flow of $145 million to $155 million. During the third quarter, we repurchased 1 million shares of common stock for $47 million. We have now repurchased 2.2 million shares this year for $107 million and expect to continue to actively repurchase. As previously announced, during its regularly scheduled meeting at September, our Board of Directors authorized a new share repurchase program to acquire up to $250 million of additional shares. On the balance sheet, total debt at September 30th was $211 million, which included $61 million of long-term debt and $150 million of convertible debentures. Net debt at the end of the quarter was $35 million, a decrease of $7 million from the second quarter. Including receivables and our asset-backed securitization program, day sales outstanding for the quarter was 73 days; inventories were up from the prior quarter to $158 million. Now, turning to guidance. Our previous full year expectations remain unchanged. However, results may trend towards lower end of our sales and earnings guidance ranges, if mitral Magna is not approved in the fourth quarter. Just as a reminder, we expect our full year 2007 sales to be between $1.070 billion and $1.110 billion. For Heart Valve Therapy, we expect sales between $510 million and $512... $520 million. In Critical Care, we expect $385 million to $395 million. In Cardiac Surgery Systems, we expect $55 million to $60 million and lastly, in Vascular, we expect $85 million to $95 million. All of these projections assume foreign currencies remain at current level. For the fourth quarter 2007, we are projecting total sales of $275 million to $285 million. We estimate that fourth quarter diluted EPS will be between $0.52 and $0.54 and continue to expect full year non-GAAP diluted earnings per share between $2.08 and $2.12. With that I'll turn it back over to Mike.

Thanks, Tom. You know even with the more unpredictable new product approval environment, our Heart valve Therapy growth rate is improving, in part due to the decisive actions we are taking to increase our market share. Further, we believe the heart valve market is poised for additional growth in 2008 with the introduction of our transcatheter heart valve technology in Europe. In addition, our Critical Care franchise is evolving into a robust platform that's lifting the growth rate of the company and will continue to contribute more significantly to Edwards' performance than it has historically. In all, we remain convinced that Edwards has a bright future as the leader in the treatment of the advanced cardiovascular disease. Before I open it up for questions, I would like to remind you about our 2007 investor conference which will be held in New York on Friday, December 7th. At this event, we'll provide an update on our new technologies as well as a detailed financial outlook for 2008. We've also lined up several leading clinicians who will share their experiences with our transcatheter valve technologies. Additional details will be sent out shortly. And with that, I'll turn the call back over to David.

Thank you, Mike. In order to allow everyone a chance to ask a question, we ask that you limit your questions. If you have additional follow up questions, please re-enter the queue and we'll answer as many as we can during the call. Operator, we are ready to take questions. Question And Answer

Thank you. Ladies and gentlemen, we'll now be conducting the question-and-answer session. [Operator instructions]. Our first question is coming from Paul Choi with Merrill Lynch. Please state your question.

Hi, thank you, good afternoon. Could you Mike, please give us a little more color on the sort of data that the FDA is requesting with respect for the Magna mitral and your expectations for a time of delivery of those particular responses to their question.

Yes, thanks Paul. Yes we were... we are a little surprised by this Paul. Recall, this is a PMA supplement and what they've asked us for actually is some more detail and some more analysis around bench testing that's been associated with this valve and so we are going through that right now and we expect to respond to them shortly. But frankly, its... it had surprised us and so this is why we are showing uncertainty and exactly when we are going to be able to get this approval. So although I would like to be able to really pin it down to a more precise date, we just don't know right now, Paul.

So, it's more... there is no safety data request, just performance that you can do in-house, correct?

Yes, you know the... this platform is really built off the very same platform that's out there in our Magna valve which is the market leading valve and has an incredible profile in terms of safety and performance, but what FDA has asked us for is beyond what they have asked us for historically and so that's why we have not anticipated this and so we are generating additional data and again it... it's bench testing and analysis that supports that.

Okay. Thank you very much, I will jump back in queue.

Thanks.

Thank you. Our next question is coming from Larry Biegelsen with Wachovia Securities. Please place your question.

Hi, thanks for taking my call. Can everybody hear me okay?

Yes, I can hear you great, Larry.

Hi Larry.

Mike, last call you said that you would expect double-digit EPS growth in 2008. Is that still intact and can you be more specific on what you meant by double-digit growth and also how dilutive will the Japanese deal be?

Yes, thanks Larry. I am not going to give you a real satisfying answer here, what we do is, we go through a very detailed process that's actually going to be completed at the end of this month and the first of next month, when we go through and make all our trade-offs for 2008. And following that, we will have some very detailed guidance that we'll be able to provide when we come to you and see you at the investor conference in early December. What I said on the last call is we have an internal goal, we would like to get this to double-digits, we would like to get this to 10% for next year, but we really need to work through the trade-offs and make sure that its in the best interest of the business and shareholders to run it that way. In terms of this particular transaction, as I mentioned, its $27 million worth of annual sales and so when that goes away, the gross profit contribution associated with that also goes away. That's in the... say in the $10 million neighborhood. Now, we have a couple of choices in terms of the way we run that. We can... this is sold by the same sales force that sells our Critical Care products in Japan. So we can either reduce that expense or we can redeploy the sales force to sell more of our new exciting Critical Care products like FloTrac and PreSep and it's probably going to be a balance of both. And so the reason that we said that there will be some moderate dilution in '08 is we are anticipating that we're going to do some redirecting of that sales force, which means that we... while they are ramping up here, we won't get the full benefit of their efforts. But we expect to get the full benefits to that and that will turn out to be a good deal for people from 2009.

And percutaneous valves or transcatheter valves in the fourth quarter, should we expect any sales at all in Europe in 4Q 'O7 and if so, can you give us a little bit of sense of what that looks like?

Well thanks, Larry; and again we're going to have to let the others ask questions as well. But in the fourth quarter, we've already begun sales for transcatheter valves, but as we said before, we expect these to be really insignificant, pretty modest in the fourth quarter, while we are ramping up. So if we do get better sales there sort of it will be an upside to what we are projecting, its not really in our numbers for Q4.

Thanks, I'll get back in the queue.

Our next question is coming from the Glenn Novarro with Banc of America Securities. Please state your question.

Hi, yes. Two questions; first, it really sounds like Magna mitral won't be approved here in the fourth quarter. So just to clarify, are you more comfortable therefore at $0.62 in terms of EPS and $275 million in revenues, is question one. And then, can you remind us, the PARTNER trail, just to clarify, when do you now expect that trial to officially end enrollment? Thanks.

Okay, Yes, Glenn, I'll start out here and Tom can add to this. Yes, what we said about mitral Magna is, if it doesn't show up in the fourth quarter and again maybe for being conservative, we should have assumed that say it doesn't happen, we give $0.52 to $0.54 range and we said, we'll be at the low end of sales and profit. So you interpreted that correctly Glenn to say, yes, closer to the $0.52 on profit; yes, closer to $2.75. Obviously there is many other variables, but that's sort a bit on a high level. Tom, do you have any thing to add to that?

No, that covers it, Mike.

And the... PARTNER trial, again what was your question specifically about?

Like you to add, can you... because you said, there is a little bit delay in terms of enrollment --

Yes.

And then on the call that it looks like its going to be closer to 18 months in terms of enrollment. So I just wondered if you can just clarify to us, exactly you know, it is early '09, specific in terms of when you expect to enroll?

No, we are still about... thanks very much for that Glenn. No, we are still talking about 2008 there. Then just to give you a little bit more color there's two specific reasons that probably heard us here, that we said... remember, we started this trial at the end of Q1 of last... of this year and so we are talking about... that was the guidance we gave at that time that would take us 12 to 18 months to enroll from there. The reason that we've gone slower than we would have liked is one, we have added a tougher time getting centers up. It's a combination of... it took a little longer to get through the IRBs. These were just the fairly complex protocol for them, they have proven. And also FDA has plugged themselves in the process and probably added an extra 30 based on top of it that we hadn't anticipated. And though that's over at this point, we don't think that the FDA is going to do that any longer and we do expect to have 15 sites off then hopefully enrolling here before the end of the year. But the other thing that's happened Glenn is, because we don't have transapical in the trial, it takes a group of patients out of that and again we're working hard to get transapical added into the trial but that also slows things down a little bit.

Just one more... one last follow-up on Magna mitral. Is there... lets say the FDA approves this December 15th. In your booked revenues, the last two weeks, can you ship product or post a certainty in December, its best just to launch it in January.

Yes, in general there Glenn, I think you should anticipate that we would have sales up, if we got it in the 15th of December, but this isn't one of those product lines where you would do a lot of stacking of shelves and get a whole quarter's worth of sales on the last two weeks. So I wouldn't look it at that way, I would look at it more, little bit more, sort of measured across the quarter.

Okay, Thanks for the clarity. Thanks Mike.

Our next question is coming from Tim Nelson with Piper Jaffray. Please state your question.

I just... on the PARTNER's trial, if you will. If you got the Ascendra approved, how fast could you... how much of that is enrollment?

You know this could have a... we think it could have a substantial difference. Of course it's a little bit of speculation, Jim, but when we think about people that now they don't get into the trial. One of the key reasons why they don't get into the trial is access reasons and so the transapical, the Asendra delivery system makes a difference. And so, it certainly steps up the rate substantially from where we would be today. So I don't know how to put that exactly in time. It depends on when we get it, but I think enrollment would be substantially faster.

What are the issues with the FDA in allowing you to include that material and what you need to do?

There... one of the things they'd like to do is they have all the data be poolable, Tim and so they're going through and analyzing our results as it relates to transapical and they also want to make sure the trial is very statistically sound. And so these are things that influence and then... we're talking through two different options in terms of how it might be able to add it to the trial. We're confident we're going to be able to ultimately do it. But we're trying to end up with the trial that's really good for patients and also going to have a favorable outcome.

But one way or the other, would you take a decision on that in this quarter?

I'd like to think so. Our goal is to certainly have a decision this quarter, but it's possible that it could drag out. If they agree with us, we'll have a decision this quarter but we're... this is kind of a top priority for us Tim.

On license, can you give us a little better feel for when that final approval might come. What that delay is about and when in '08 you may?

Okay thanks Tim. And we're going to have to make sure that we get everybody a chance to ask questions. Right now, we would say that we expect to have our LifeStent response in by November and so it would restart the clock. So if everything went just great, we will have an approval in the first quarter; if we get additional questions, it will go beyond that, but right now we are hopeful that it's more near term.

Thanks.

Our next question is coming from Glenn Reicin with Morgan Stanley. Please state your question.

Hi, can you hear me?

Yes,hear you great, go ahead.

Okay, two questions. If in fact LifeStent, the approval doesn't come in the first quarter but it comes later. Is that actually material to 2008 sales and which is that label really make a difference at the end of the day? And then on the transapical delay, are you absolutely certain that it will be part of the PARTNER's trial and what are the prospects for you doing just the whole separate approval track for that approach?

Okay. Yes, let's try and work through those, Glenn. So, your first question is, if we didn't get it in Q1, will that be material to us? I would say, the ability to promote is certainly a positive, when we say, that's a big positive. You know we have not given guidance for 2008, so it's probably little tough to talk about materiality, but the other thing that goes along with that is our sales force. And because we haven't made decisions yet on ramping up sales force, that's an additional factor and we are probably going to tie our sales force addition to the approval, Glenn and those will go together. In terms of the transapical delay and will we be able to add up to the PARTNER trial; if you were to ask us internally, we do believe that we are going to be able to add up to the PARTNER trial. We don't think that there is any philosophical or fundamental issue that's going to keep it out of that. But you know we are still also considering the option of a separate trial and that's something we will consider in addition to adding to the PARTNER trial and we're working through that whole internal decision process ourselves.

And what's the give and take, I know... how does that really affect, whether it's a separate trial or PARTNER?

Well I guess it's just its additional patient experience. It allows more surgeons to get involved with the transapical procedure, which we... there is a tremendous amount of demand out there for them to be able to do exactly that.

Okay. I'll get back in line.

Our next question is coming from Michael Weinstein with J.P. Morgan. Please state your question. Chris Pasquale - J.P. Morgan Chase & Co.: Hi, this is Chris Pasquale here for Mike.

Hey Chris. Chris Pasquale - J.P. Morgan Chase & Co.: Couple of topics. First, the valve repair growth has been down in the mid single-digit range now for about three quarters. And this was a segment that had been growing I think low double-digits prior to that. Is this an inflection point in the market growth, or you guys loosing share, can you help us understand what's happening there and whether we should model it like this, going forward?

Yes. I think your observation is correct. It has been growing more slowly, recently. What we have is that most of our growth here is coming in our premium products, our more indication specific product. And we've had increased competition in the products that are more matured. And so I don't think it's a change in the market growth rate. I do think that we have had some share loss in the more matured product. Chris Pasquale - J.P. Morgan Chase & Co.: Is there something that's likely to change in the near future or...

Well, we constantly are going to keep working on that. But clearly, the competitors, I think are focused on being able to get into this repair marketplace and I think that although repair will continue to grow, that will probably be a more competitive segment. Chris Pasquale - J.P. Morgan Chase & Co.: And then on PARTNER, I don't think you mentioned how many centers were possible for the interim in the quarter, can you just update us on how many centers --

I am sorry. Can you clarify that question? Chris Pasquale - J.P. Morgan Chase & Co.: How many centers are up and running right now and actually enrolling patients in the trial as of 15th?

You know, I don't want to... I am guessing right now that we have six centers up in PARTNER right now that are actually up there. They are certainly more than that trained, you know what, I am not certain of Chris is the difference between the trained numbers and the enrolling numbers. Chris Pasquale - J.P. Morgan Chase & Co.: Right.

I think we are in the 5-6 range on the enrolling, but the trained numbers is... may be twice that. Chris Pasquale - J.P. Morgan Chase & Co.: Okay, thanks.

Yes.

Our next question is coming from Tim Lee with Caris & Company. Please state your question. Tim Lee - Caris & Company: Hey, good afternoon. Just two quick questions here; first, from a housekeeping standpoint, can you give us the numbers for FloTrac and LifeStent and then just on that kind of same vein, looking at fourth quarter then what should we kind of think of the contribution from discontinued products are? Hope we're trying to get what your organic growth could be in the fourth quarter? Thank you.

Let me take a shot at it. FloTrac and LifeStent Tim, we're trying to stay out of reporting quarterly numbers on those product lines, around both those product lines what we indicated at the start of the year as we expected those, their sales to double in 2007 versus what they did in 2006, and we are right on track to do that. I think if you looked at the growth rates in Critical Care and in the Vascular product line, you'll see that they're driven by these new products and so they are growing nicely. We get back into it and maybe our guys can give some additional color here, if you want to talk to him after the call. Tom, can you get back to --

You may have here on Tim. Fourth quarter, you are looking for specific things.

You want a full year or run rate or what would be ideal, Tim? Tim Lee - Caris & Company: All the above. How's that?

Well, let me talk about what it is -- Tim Lee - Caris & Company: No, or... its fourth quarter is fine, I mean whatever these are?

Well, you know third quarter we've got $10 million and nine months to-date it's about $31 million, $32 million and that should be... I don't have this full year number in front of me, but it should probably drop down. I want to say something around in the neighborhood, 6 or 7 in the fourth quarter, but you can double check on that detail.

But again it will pop up again starting in 2008 as we discontinue our distributed business in Japan.

That will start over the next year, that's correct. Tim Lee - Caris & Company: Thank you.

Our next question is coming from Amit Bhalla with Citigroup. Please state your question.

Hi. Thanks for taking the question. First question, you mentioned you are designing a new valve for the transcatheter program. As you move to smaller valve sizes, do you need to move to a self-expanding stent platform?

You know what, we've not spoken to that particular, but the short answer is almost no, that's not a self-expanding platform, we're able apply technology to our balloon expandable platform and be able to do that. What we're excited about is that we're going to be able to take substantial size out of this system maybe four French sizes out of this which will make it far more deliverable and applicable to more patients.

So what does that get you down to?

Well, you know there what happens is always difficult for us to throw out a specific number because in our case, we have various valve sizes. Recall, we have a 23millimeter, a 26 millimeter, we're going to have a 29 millimeter valve and each of those will have slightly different delivery dimensions. So, we'll have some that are below 20 French, but we might actually have some that are... I don't know 21 French. So, it sort of... it depends on valve size, but usually in the good news is that you need a big valve usually your anatomy feel bigger too.

Okay. And just second question here, there's been some discussion at TCT about pacemakers being implanted in the older patients post transcatheter valve procedures. Can you comment on that? What kind of experience you are seeing in your patients?

Yes I think... if I remember correct what John Webb reported recently and maybe also was repeated out of Colombia was a pacemaker implantation and what I want to say was in the maybe the 3% 4% rate and as far as I understand the competitive valve had one... its may be 10 times that rate or running much higher and I can't explain exactly why that is, but it appears that there is a difference at this point in time although we will say that the data is still early for both valves.

But is that due to a geographic difference or is there a products difference?

You know I would be speculating at this point. I think it's probably best to talk to clinicians about what they think the difference might be.

Okay, thanks for the questions.

Sure.

Our next question is coming from Kristen Stewart [ph] with Credit Suisse. Please state your question.

Hi. I was just wondering if you could comment a little bit more on the patents... the Andersen patterns that you have now for ownership of? Did you have to pay anything to support them or pay anything to J&J for them to give up their licensing rights?

Yes, thanks for the question. I know this may be sounds a little bit confusing to the audience because this was one that we already had exclusive license to, but all we've done is to step this up to full ownership and actually there was a financial transaction both with Dr. Andersen and also with Johnson & Johnson, although we are not disclosing the terms of that and then is not really material for Edwards, is pretty nominal sort of terms. But what it does is it puts us in the position to have greater overall control of the prosecution and the enforcement of these which is important, and you know we are already in an enforcement action in Europe and so we wanted to have maximum control as we are going through that process which we would expect to be tested overtime.

Are there any other payments that are required going out?

You know, for the most part, this clears it all up, there is a little bit that we will be going across and that's really nominal, its really not material to us and so really is pretty much all in at this point.

areas, they are increasingly more conservative you're seeing it with the Magna valve and your SFX right now. How do think by going forward just in terms of as you look to further develop the transcatheter program that's bringing in additional sizes, bringing it below a 20 French, is that something that you may consider doing to hold up your existing trial to get that in or is that something where you'd have to start a whole new trial down the road only you have several years to bring that forward to the market?

Well, a couple of things; one is, we know that FDA is working hard to make sure that they protect the public and so they are... I think they're pushing everybody to make sure that we do a great job with the products that we bring to market and we feel like we know more about heart valves than most people and we are pretty expert at this. So we still have struggled to be able to predict our approval times and so we are a sort of taking up our level of effort and our commitment to try and deliver even more than we have in the past and we know that the burden of proof is probably just higher today than it has been in the past. In terms of going forward, I hate to generalize on things. When we go to our next generation valve, we are anticipating that, that will be a new approval process with a new clinical trial. I think when we had changes to delivery systems for the most part, we expect that to be supplements, but it depends on the nature of the change of course, but we've sort of thought this through in terms of what's going to happen next if there is more specificity we are open to the questions.

So 20 French system wouldn't be more of a supplement type of process?

No, its all this specifically, if we talk about our next generation system, we would expect this to be a... we should... we think of it as a new approval process. It's not clear exactly how that will go, but what we are expecting here is that we'll have a new approval process that we'll work through. Although, I would also tell you I don't think that next time through the approval process will be as long as the first time for us.

Okay. Thank you.

Our next question is coming from Alex Arrow with Lazard Capital Market, please state your question.

Thanks. Could you tell us how your inventory is situated for SAPIEN for your European launch, now that you're launched there, should we assume that you got enough SAPIEN to meet whatever demand there is in Europe or is there a supply issue to consider?

We... you may have noticed our... actually our inventory numbers stepped up a little bit this quarter versus last. We built an inventory, it's in place. We feel like we've --.

Definitely one of the reasons for the increases in inventory along with Magna mitral.

So we feel like we have the inventory in place to be able to support the launch and don't expect that to be a constraining factor.

Good. Would you be willing to be quantitative in... how many valves you have ready?

No, probably not. But, I would say we built a couple of million dollars worth of inventory.

Okay. And can you say how long, is it a fair question, that's how long it takes to make a SAPIEN valve?

You know we are not finding making this valve as grossly different than making one of our traditional heart valves. Since all this is a... it's a process and we have actually people that would make the surgical heart valves. Those are the same people have been trained to be able to make this and there is not a big difference Alex between the time and effort. The costs are little higher now, but it's pretty straight forward and we expect here with a little bit of volume that it will be very similar in terms of manufacturing capability and output.

Okay thanks. And I apologize, I jumped on the call late, did you give updates on the enrollment status of the U.S. PARTNER trial, if so I can just go back and get it?

We did. I don't know if we... we said it specifically but in the prepared comments we said more then 60 patients at this point and we expect to have 15 sites that will be trained and hopefully enrolled in by the end of the year in the U.S.

Can you say how many sites have enrolled so far?

We said that it is in 5-6 range.

Great, thanks Mike.

Okay.

Our next question comes from Ashim Anand with Natexis Bleichroeder. Please state your question.

Thanks for taking my call. Two questions, one is, you said you gained market share in heart valve, so if you can comment on from where did you gain that? And second is basically regarding distributor products in terms of corporate strategy; if you can comment, it looks like you are moving away from distributed product and focusing on critical care and this is resulting into a dilution whereas we see that Critical Care actually provides higher gross margins. And also we see that you have an increase in investments from unconsolidated affiliates. Is this regarding this transaction?

Okay, let me try to work to him. The first question related to market share, could you say that again please.

So, you said that you gained market share in heart valves, so if you could comment from where you would have... which firm you would have gained the market share?

Yes, most of the... I don't know exactly where it came from in terms of what firms we gained from. But this would have been primarily international growth, that's where we saw specially saw in Europe and in... what we call Intercontinental, which is Asia and Latin America. So that's where the growth in particular came within heart valves. In terms of distributed products and that is the strategy, we don't have very many distributed products, we used to do much more of that in the past, but as we have sharpened our focus on the products that we manufacture, meaning those ones that are in particularly that are proprietary products with leadership position. It's a much better use of our people's time to be able to offer those to physician and so by discontinuing... focusing on the distributed products and focus on our proprietary ultimately this is going to be very good for not only our customers from the technology point of view, but also for our profitability and our growth. And although there maybe some short-term dilution, we don't think that's going to last very long and we think its going to be accretive, as they focus on our new products in Japan, and I am still not sure that I followed the last question as you did, Tom.

Investments in unconsolidated affiliates has gone up. I was wondering if this was related to this Japan transaction?

No, actually it's related to the investments we need to carry on the balance sheet, have to be marked mark-to-market and as a result the Sangamo's appreciation, that's primarily the lion share of that change.

Okay.

Yes, remember we own quite a bit of Sangamo stocks as a result of the most recent transaction.

Thank you.

Sure. Next question?

Our next comes from Larry Biegelsen with Wachovia Securities. Please state you question.

Thanks for taking the call. Mike, could you please just clarify, you said over 60 patients involved in PARTNER, is that the same as treated, if you could just clarify on that. And I still... I wanted to revisit the hang up on Ascendra. You talked about the poolablity, can you talk about whether there is... it has anything to do with the clinical trial results from the feasibility study in the U.S. Is that part of the issue? It's still unclear to me, what the hang up is with the FDA?

Okay. Well first, the 60-patient number is an enrollment number, not a treatment number, okay. And now in terms of the Ascendra trial, we are trying to work through this, right now. There is... the poolability of data; most I think have to do with the maturity of the data. So we've been asked to transfer them all for longer. And we have far fewer cases in the U.S. with the transapical procedure and so trying to do those comparisons, that's been more challenging. FDA has given us more time to collect that data and also given us more patients, gave us an additional group of patients so that we can continue to enroll in the U.S. And we are just been trying to generate that data while we reach a conclusion on how to make sure that this trial is designed in such a way that it's a fair deal.

So, it has nothing to do with the results of the feasibility, with the trial at the U.S. whether with the results and also can you tell us how many patients have been treated in U.S. Mike? Thanks.

Yes.I don't remember how many have been treated in the U.S. area. Its... it must be in the dozens range, but I have to think about what that number is. It must be around 30 or so. But I think it's not so much that results. We don't have enough results to have significance here so that we can say certainly that it is comparable to what we have today.

Thanks.

Our next question is coming from Glenn Reicin with Morgan Stanley. Please state your question.

Just a couple of follow ups here and a little bit in the weeds here, just some clarification. Firstly, on the Puerto Rican situation, the charge in the fourth quarter, I assume that's a cash outlay in the fourth quarter?

Yes that's correct, Glenn.

Okay and then in terms of the distributor products, those are all in that category, distributed, correct?

Correct.

Okay and then the third is can you explain how FX works here. What was the contribution of FX in this quarter? What were you anticipating the contribution of FX being and then next quarter, I just want to think through this, if there is an extra $4 million of FX. How does that affect the bottom line?

You know, I will tell you what' happening Glenn is, we had a little bit more FX than we had planned on and actually what we are... the technique we use is a combination of collars and forwards and the rates we have gotten in the play where they are going through the top end of the collars. So what it tended to do in this quarter, is probably caused us 20-30 basis points in margin. As we have this, we don't get the benefit of that further increase. Looking forward to the fourth quarter, if these rates were to continue, it's about double that size, in terms of basis points. And that's one of the reasons that I talked about the margin, they are a little bit differently than last time and to understand those rates they are pretty well above the top end of the instruments that we have in place.

So,I am just... got a little bit too complicated for me. It's just in terms of maybe a net contribution on a dollar basis, the... or EPS basis this quarter versus next quarter?

This quarter, next quarter. On the sale side, its... we say it's probably going to be $10 million versus $6 million in sales.

Okay.

Alright.But if you remember the improvement and I don't know exactly the number, but the improvement we've seen recently is probably very little. We are going to have the drop through effect because of the fact that we've got to give that back as a result of the contract that we put in place to protect the downside.

Okay. So you are saying, not much.

Yes.

Okay, thank you very much.

Sure

Our next question is coming from Kristen Stewart [ph] with Credit Suisse. Please state your question.

I was wondering if you guys would comment on whether or not one arm of the PARTNER trial may be enrolling faster than the other?

Yes, no, sorry Kris, this is one that we are limited not to comment on that. What we will always try and do is give you a current enrollment number whenever we do this on conference call to let you know where we are, but we are... what we do is we jeopardize the trial itself to get into that kind of commentary, so sorry about that.

Thought I would try, thanks anyway

Okay.

There are no further questions at this time. I would like to turn the call back over to management for any closing comments.

Okay. Well, thanks very much for your continued interest in Edwards and Tom and David and I welcome any additional questions by telephone and with that, 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. If you missed any portion of today's call, a telephonic replay will be available for 72 hours and to access this, please dial 877-660-6853 or 201-612-7415 and use account number 2995 and passcode 256909. I'll repeat those numbers 877-660-6853 or 201-612-7415, the account number is 2995 and the passcode is 256909. Finally, an audio replay will be archived on the Investor Relations section of our website. Thank you very much

Ladies and gentleman, this concludes today's teleconference. You may disconnect your lines.