Greeting ladies and gentlemen and welcome to the Edwards Lifesciences Third Quarter 2008 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. [Operator Instructions]. As a reminder this conference is being recorded. It is now my pleasure to introduce your host 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 2008 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 use the remaining time for Q&A. Our presenters on today's call are Mike Mussallem, Chairman and CEO; and Tom Abate, CFO and Treasurer; and Don Bobo, Corporate Vice President of Heart Valve Therapy. 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 profit margin, net income, earnings per share, and free cash flow goals for 2008. The regulatory approvals and sales of Heart Valve Therapy products including Magna Mitral and Magna Ease, the competitive dynamics of the Heart Valve market, expected sales and product enhancements for the FloTrac system, the timing, progress, and results of clinical studies including the partner trial, the market opportunity for Transcatheter Heart Valve technologies and the adoption in Europe, and expected 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 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 maybe found in our Annual Report on Form 10-K for the year-ended December 31, 2007 and our other SEC filings which are available on our website at edwards.com. With that, I'll turn the call to Mike Mussallem. Mike?

Thank you, David. We're very pleased to report strong third quarter sales and earnings growth lead by our Heart Valve Therapy franchise. We also benefited from a lot of visibility about Edward's mew technologies during the quarter. At the recent EACTS and TCT meetings, our Transcatheter technology was show cased by leading clinicians with growing enthusiasm that this therapy will have a prominent place in the future treatment of heart valve disease. In addition, we also received U.S. approval for Magna Mitral during the quarter and expect it to be a future contributor to our growth. Now, turning to results, on a reported rate basis total sales for the quarter grew 16% to $304 million and grew 12% on an underlying basis. Currency again helped sales this quarter. Before I provide, a more detailed review of our sales results, Don Bobo, Corporate Vice President for Heart Valve Therapy will discuss our surgical heart valve franchise. Following my remarks Tom will review the financial results and with that I'd like to introduce Don Bobo. Don.

Thanks, Mike. I am very pleased to have the opportunity to discuss our surgical Heart Valve Therapy franchise with all of you. At last year's investor conference we laid out our 2008 forecast for the Heart Valve Therapy franchise and as you will remember we planned for U.S. growth rate in the 0% to 2% range for the year which included the impact of competitive launches. Outside of the U.S., we expected significant growth in the double digit range and forecasted a 4% to 6 % growth globally on a blended basis. When you add Transcatheter Valve revenue, we forecasted a heart valve franchise growth rate of 8% to 10%. We're executing on this balance plan and are exceeding our growth projections. Reported sales for Hearth Valve Therapy were a $148 million for the third quarter, an increase of 21% which included a $5.4 million positive contribution from foreign exchange. On an underlying basis growth was 16.7% for the quarter lead once again by strong performance in international region including Transcatheter Heart Valves in Europe. Transcatheter heart valve therapy is generating additional market growth in Europe, as patients who were previously untreated now have more options for therapy. The introduction of this technology has dramatically lifted market growth in Europe from its historical rate of 3% to 5% to more than 25%. Mike will provide more detail on Transcatheter Heart Valves later, my comments will focus primarily on our surgical heart valve franchise. In the U.S., valve sales growth was 4% driven by gains in both units and price. We are particularly pleased to see this progress in the face of two comparable launches earlier this year. Outside of the U.S. our base heart valve business continued to achieve double digit underlying sales growth driven by the expanding adoption of…

Thanks Don. So turning to Transcatheter Heart Valves sales, although we experienced the expected seasonality during the third quarter, we finished the quarter strongly achieving $13 million in sales most of which was in Europe. Continued clinician enthusiasm combined with an increase in the number of active centers drove both procedures and sales. In Europe we implanted approximately 400 valves during the third quarter and our selling price remained within our previous range of 15,000 to 22,000 euros. Our sales continued to be driven by implants with 90% of the units sold being implanted in the quarter. We expended from about 50 centers performing cases in the second quarter to 70 centers performing cases during the third quarter. We continued to be... there continues to be centers eager to join our program and we have expanded our training capabilities. We expect to add at least five centers per month for the remainder of the year. I'm very pleased to report, that in our year-to-date commercial sales that combined acute procedural success rate remained high at around 95%. Regarding reimbursement, we continued to expect most European countries to establish formal reimbursement in 2010. In the meantime the same dynamics surrounding funding continued to exist, although interim funding is not assured, we're pleased that hospitals are currently able to support these procedures, we expect this to continue as we make progress for securing formal reimbursement. Based on our momentum in Europe, we expect our global Transcatheter Heart Valve sales to surpass $50 million for the full year. At last week's TCT meeting in Washington D.C., our SAPIEN Transcatheter Valve was featured in large number of clinician presentation in live cases, including showcasing our new RetroFlex III delivery system, which will be rolled out later this year. Early experience with the transapical deliveries…

Thanks Mike. In addition to the strong sales as Mike and Don have already discussed, I am pleased to highlight that excluding last year's special gain, our diluted earnings per share grew more than 20% during the quarter. As previously announced during the quarter we discontinued securitizing our U.S. accounts receivable, resulting in a $50 million reduction in our free cash flow. Terminating our U.S. program was a financing decision and did not affect our working capital. Our balance sheet remains strong with our cash and short-term investments exceeding our total debt. For the third quarter our gross profit margin 65.4% compared to 65.3% in the same period last year. This nominal increase resulted from a more profitable product mix which was largely offset by the temporary impact of foreign exchange hedges and contract manufacturing. In the fourth quarter we expect our growth profit margin to increase 200 basis points sequentially to approximately 67.5% as a result of our strengthening product mix and improving foreign exchange hedge outcome. For the full year 2008 we expect gross profit margin to be approximately 66%. Looking forward based on the continued strengthening of our product mix, we continue to expect the gross profit margin to exceed 70% within the next few years. Third quarter SG&A expenses were 39.3% of sales or $119 million. The $16 million increase versus last year was due primarily to a significant impact in foreign exchange, higher levels of sales related spending for the SAPIEN launch in Europe, and compensation expenses related primarily to our strong sales performance. In the fourth quarter, we expect SG&A to be nearly flat in dollars, while SG&A as a percentage of sales is expected to decline to approximately 38%. For the full year 2008, we continue to expect SG&A to be between 38%…

Thanks, Tom. We're continuing to drive strong growth in our core franchises. Our product lines are generally not susceptible to weakening consumer spending and our underlying sales growth rate expectations remain unchanged. 2008 is shaping up to be an excellent year with strong earnings growth momentum really accelerating in the second half. We're very pleased with our Transcatheter sales ramp in Europe and expect full year sales results will surpass our previous guidance even with a weaker Euro. And importantly, from a long term perspective, the impressive clinical results reported on our Edwards SAPIEN valve in Europe continue to improve and our Transcatheter Valve platform represents a truly transformation of long term growth opportunity. Before we open it up to questions, I'd like to remind you about our 2008 Investor Conference which will be held in New York on Thursday, December 11th. At this event we will provide an update on our new technologies as well as a detailed financial outlook for 2009. We've also lined up leading clinicians who will share their experiences with our Transcatheter Valve technologies. Additional details will be sent out shortly. And with that I will turn it back over to David.

Thank you. In order to allow everyone a chance to participate we ask that you limit the number of questions and if you have additional questions please re-enter the queue and we'll take as many as we can during the remainder of the call. Operator we're ready to take the questions Question And Answer

[Operator Instructions]. Our first question is coming from David Lewis with Morgan Stanley. Please state your question.

Good afternoon.

Hi, David.

Mike, could you talk about two things, one transfemoral transapical mix at the end of the third quarter and I also wonder if you could give us even qualitatively from the second to third quarter, how did growth trends look like on the transapical arm and transfemoral arm from second to third quarter?

Yes. Broadly, David, the mix transfemoral transapical is about 60% transapical to 40% transfemoral. And that's pretty similar, I think for the second and third quarter. I think in terms of growth rates from second to third quarter, I think we reported in the third quarter, we had around implants of 350 and in the fourth quarter, we had implants around 400. We think that's pretty impressive growth considering that it is the seasonably weak quarter. There really is a hiatus during August. We saw things pickup nicely in September. So you can sort of do the math here in terms of what that does for both transfemoral and transapical growth.

Okay, Mike if... on a relative basis, if you had to say which arm was stronger in the third versus the second, was it transapical or transfemoral?

I would say the mix state-of-art is same, so they both picked up, I would say very similarly David.

Okay. And just look at your Heart Valve business, it looks like from second to third quarter, the business... the growth rates were largely flattish... should we expect a reacceleration into the fourth quarter with the new product launch?

Don, why don't you take that one?

Hi, David. This is Don. As I said in the call, we got to prove it late in the third quarter... and so we do more growth than we experienced in the third quarter. So that does represent in the U.S. an acceleration in the growth rate in the fourth quarter .:

Okay, last question and I'll jump back in queue. I may have missed it, but on the medical management on Mike, could you give an updated enrollment number for that arm, has the time lines for fourth quarter changed?

We typically don't give enrollment by arm, David, we just give total enrollment. So, I think we said more than 450, I want to say the precise number that was reported was like 456 for the trial at this point in time, that is the end of September.

But you expect to continue enrollment or complete enrollment for the medical margin [ph] in the fourth quarter still?

Yes, what we said is yes, Cohort B we said we expect it to be around year around .:

Great, thank you very much.

Our next question is coming from Larry Biegelsen with Wachovia. Please state your question.

Hi, good afternoon, and thanks for taking my call.

Hi, Larry.

First, Tom, R&D tax credit wasn't in the original guidance, is that right?

One more time Larry, which grade are you referring to?

Your R&D tax credit wasn't in the original guidance.

No, absolutely not.

And my math adds about $0.03 from the prior guidance but you raised low-end of your guidance by about $0.02, is my math accurate?

Well, yes. We lowered the low-end by $0.02 and the impact is roughly about $0.03, but you can keep in mind that we also had the foreign exchange that was going the other way.

I think he meant to say, we raised our low-end by bottom of this area?

I'm sorry, so we raised. So that part's correct Larry. I just... when we look at the fourth quarter and we look at the pluses and minuses we had $15 million upside, we are very pleased with the outcome of our hedging program, but there's a sense too that comes to the bottom line. So I look at that and the tax upside is sort of evening out and I'm happy under these conditions to say we're sticking and taking the guidance. So did you follow it Larry. So, you know we had... so at the same time we get the improvement from R&D we have a lowering of sales forces the last time we gave guidance, right.

I got it, thanks. And regarding the U.S. partner trial; a lot of people including the speaker through analyst meeting the other day have been concerned that the patients on medical management in Cohort B, will do too well and there won't be enough deaths to 12 months to show significant difference between medical management and SAPIEN. Do you think this is a legitimate concern, and if you don't have enough deaths to 12 months does the trial continue until there is at least 150 deaths and does this increase the likelihood that this trial succeeds in your view?

Okay, thanks Larry. Let me try to take that on sort of multi faceted. First of all as it relates to that group of patient that's one of the things that's on melanin, so we really don't know how that group is going to do. But at the same time, we're probably having better clinical results in our SAPIEN treated patients than we anticipated when we designed the trial. So overall, we're very comfortable with the trial design. As I tried to mention in my comments, remember the partner trial measures, both mortality and patient benefits like quality life and functional improvements. So we think that would all get considered and we really expect SAPIEN to distinguish itself in terms of what it does for patients. In terms of the 150 tests, we really don't think that's going to come into play, Larry I think that's more of a safeguard that's out there, that's not going to be relevant. We think that timelines that we provided are consistent with what we believe is going to happen in terms of approvals.

And lastly, valves per center per month on the last call you said is about three to four, how did that compare in the third quarter. Did it increase or decrease?

Could you repeat that again, Larry, I'm not sure we understood it.

Valves per center per month. I think you said about three to four in the second quarter. Was that consistent in the third quarter or did it increase or decrease?

I would say it's unchanged. It's still pretty consistent, three to four. We don't know that we said that there were around 50 centers in planning in the second quarter and the third.

Thank you.

Our next question is coming from Jason Mills with Canaccord Adams. Please state your question.

Thanks, Mike, Tom, Dave for taking the question. Mike, the underlined sales growth for U.S. Surgical was a bit better than expectations. Not withstanding, you didn't have Magna Mitral, it was I think 4% you said right, versus 0% to 2% of your original expectations. Just wondering if you could give us a sense for where you are seeing it go in the fourth quarter. You mentioned Don, that you expect it to accelerate but I assume modestly, so perhaps you could give us a little bit more granularity and your expectations for underlying Heart Valve sales growth in the U.S. in the fourth quarter? And then I know you probably not prepared to talk specifically about 2009 but directionally, could you give us some color on where you expect underlying U.S. growth to be in 2009, given that you won't have comp to Magna Mitral until the third quarter?

Yeah. Thanks, Jason. Since we've got Don here, why don't we let Don take this on?

Hey, Jason. Thanks for the question. So as you think about, first of all going back to Q3, we do feel pretty good about how the business performed in the U.S. given the late approval of this product and as we look at Q4, we do expect Magna Mitral to contribute to the quarter say $2 million to $3 million. And then as we go in to 2009 we have a couple of other products that will be coming out. I mentioned Physio II in the script and we also are very hopeful the Magna Ease product receives approval. So 2009 is a year that we expect, we will continue to see more growth, more momentum in the U.S. and probably in December at the investors conferences where we will bring the life exactly, how we're framing 2009 and what we would expect.

That's perfect. Just two quick follow-ups. One, I suppose for Mike and then one for Tom. Mike, your Critical Care business is now starting to bump up against some more challenging comps given your significant growth rates over the last fourth quarter. Could you give us some thoughts on the trajectory of growth in that business in Q4 and perhaps directionally in 2009? And for Tom, you said that... I think you said free cash flow guidance, you expect to be in the upper end of your original range for 2008, could you also give us some thoughts on what you're planning for 2009 on that front, and then an update on where you stand on the share buyback as well? Thanks guys.

Hi, Jason. First on Critical Care, you will recall that when we started 2008, we gave guidance that we thought Critical Care would grow in the 8% to 10% growth rate. And for the first couple of quarters of the year it actually exceeded 10. This quarter was 9. We expected to stay in that 8% to 10% growth range. We had a strong fourth quarter last year, so you're right, comparisons are tough, but we still see the business operating at a very high level, there's great momentum, this was in FloTrac. And we really don't have anything more to change in terms of going forward. Does that answer the critical care question, then I'll turn it over to Tom.

Yes. You can see a pretty stable business as you move into 2009 at 8% to 10% level at this point?

We do, we haven't changed anything there.

Okay.

And Jason regards to cash flow, we don't typically get dollar guidance but there's no reason, there's nothing unusual this year that would cause me to think of it any differently than in the past then I would expect it to grow right along with earnings in a similar percentage and then we come out with that that will all be consistent. Share buyback, I'm particularly proud of where we are at this point. We've exceeded all the expectations that we put out at the beginning of the year. We purchased somewhere in the neighborhood of 6 million shares for the first three quarters which... with the 58 million will end the year, that's about 4 million share improvement of where we ended 2007. So we obviously remain very bullish on the shares.

Great. Thanks, guys.

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

Hi, good evening. Just wondering if you could you talk a little bit about the number of centers that you've added? Previously looking to add kind of three to five a month, and I know now you're looking at five; you were at 50, now you're at 70, I think that was kind of around where you were targeting originally at the onset of the year. So can you just talk about what's kind of going a little better than expected, and I have to imagine when you bring a new center on board, you're feeling pretty good about the outlook from the reimbursement standpoint. So, any comments on that would be helpful?

Yes, what we said is that we'll expect to plan... to add more than five centers a month for the remainder of the year. So part of what's going on here is we have increased our capabilities because we've added a second center that does training... our training capability has gone up. And we're... we have a good understanding on how to do this, we've maintained our high standard that says that we really would expect that... to have the ability to purchase valves before we train them and add them to the program. But the other thing I will add is, where it's a very first quarter of the year we had the track things like training centers, it was one of the few leading indicators we have on how sales were going to go. At this point, its probably getting a little bit more complicated. You have some centers that are just excelling on their enrolment and others that are going slow, and so the mix is changing to some extent. But the center addition continues to be one that will drive growth and it continues to be a very, lets say popular amongst European Centers the one will be added to this technology.

Okay and just the higher guidance for the full year for Transcatheter Valve with just the additional centers that are coming online and continued optimism on the underlying procedure growth rate?

Yes. It is a combination of both. We are just real pleased with the ramp. One of the things that I think is noteworthy and I don't know if everybody keeps track of this but when we consider how much the euro has changed here that's probably a 10% change in itself to not only to hit the top end or exceed the top end of the range really says that it is continuing to grow very well, even better than we expected right along the way. So, we are pleased with our sales force ramping in Europe and there are going to be more centers doing it and probably doing the case is a bit more.

And then just real quickly for Tom, foreign exchange, I know you touched upon it but what can we expect, you are not going to get 2009, but obviously can you just talk a little bit about your hedges, you commented there is a little bit of headwind impacting earnings this quarter, how much is impacting the 4Q and what can we expect in broad terms for '09?

You know, for 2009 what I can give is just a general as we don't have the sales detail out and so forth but I would estimate somewhere in the neighborhood of 40 million headwind from currencies from where they stand today. In the fourth quarter versus our prior guidance we probably saw about 15 in sales negative impact as a result of those currencies, but the hedge program is in great shape for the quarter and have a nice... looks like they produce the nice results if everything works the way we think, and it should be very minimal on the bottom line, very minimal. And next year we are also pleased that we would continue to maintain a hedging program this year that's composed of both forward and collars and the rates what we generally do is we go one year in advance. So if you are looking at Q1, you can look at the prior Q1 and get a good idea of where the rates are going to go. And GP obviously, what's happened and what we are predicting in Q4 is a bit of alleviation of the hedge contract that we've been dealing with all the years finally lifting in the first quarter to be essentially negligible.

Okay, great. Thank you.

The next question is coming from Mike Weinstein with JP Morgan. Please state your question.

Good evening. Thanks for taking the question. I guess a couple of questions on SAPIEN, you commented that the transfemoral and transapical had shifted now to about 60% transapical, can you give us a sense of where you think that is going to be in a quarter or two, that is going to keep shifting in that direction and then what can you do in the short term to offset the core valve size, I know they commented at TCT, that they were up sequentially in the third quarter? Thanks.

Yes, actually we do not expect a big shift in terms of that mix Mike going forward. We think that the transapical seems to be going even better in sales than we thought, it is popular, one surgeon and there is a lot of surgeon support. So, that's going well. Transfemoral is going well also, but clearly the profile is an issue especially with the sick group of patients and so the smaller profile is preferred by cardiologists at this point and it is one of the reasons why we are very excited about moving forward with SAPIEN XT. Because we think that at that point when we have that available with clinicians it puts them in a position where they won't have to compromise between profile and valve performance.

And so is there anything you think that, that might I guess change the current pace. It just looks like just [indiscernible] that you are seeing a sequential growth in your transfemoral business, euro growth is covering the transapical businesses is the only way to take back some of that transfemoral business between now and mid 2010?

Well, we haven't lost transfemoral business if that is what you are wondering here. I mean we have had growth in transfemoral, it is just that I would think that there is more transfemoral share today that is with core valve than it is with us. We think the strength of our results pretty much speak for themselves. We're experiencing some nice growth. Remember that transapical happened after transfemoral so you had some pent up demand and part of that, part of what you're seeing right now and just the shift was just that coming into play but, we really like our chances in transfemoral to be a share leader in the long run. We think we're very well positioned to do that.

Yes, the question or two some of the partner trial. Marty, may this had the slide which Larry was asking a bit about earlier, where the primary end point for Cohort B appears to have changed, from 12 month mortality to the later 12 month mortality or 150 death which would be 43% mortality rate for that arm of the study. When did that occur?

Mike, there hasn't been any changes in the partner trial. The change in the partner trial occurred back when we added transapical. Remember that was about a year ago now. I guess it was at the investor conference, that we lightened that all out when we talked about it and we really haven't had any changes to the partner trials since then Mike.

So that 150 death possibility as end point, that was incorporated when you made the changes last December-January?

Yes, to the best of my knowledge, this one is really an obscure one Mike and we don't expect it to really be a factor in this whole equation.

And my last question is I guess is why not, why don't you think there will be 42% of patients dead and Cohort Billion by 12 months?

Remember its not just in 12 months its all the cumulative experience, and the short answer is, yes, yes we do.

Okay, that's helpful. Thank you.

Yes, Mike.

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

Hi, good afternoon, I wanted to ask question about reimbursement. I know you said that interims through 2009 you don't have a reimbursement secured, but could you give us a better... could you give us a feel for which countries have done a better job of securing '09 reimbursement and which have higher hurdle rates?

Yeah, we know this is an area of high interest Amit, we're just not prepared at this point to layout country level detail on reimbursement. But when we get to our Investor Conference in December, we'll try and provide some more visibility on that. It's possible for us to even have a country come in towards the end of '09 or two, we're working hard on that, it's a high priority, but we're trying to indicate that there is a bulk of countries probably put formal reimbursement in place in 2010.

Maybe I can just get two more in then, question for Don, Physio II, you indicated that there is some changes you need to make with the accessories? What are different about the accessories for Physio II versus the other disease specific range, and then if you could also just give us an update on the progress with the FDA for the SFA indication for LifeStent, maybe just indication of the dialogue you are having with them? Thanks.

Alright. Let me go ahead and take the Physio II questions and maybe Mike, you can take the SFA, PMA question. So, going back at Physio II is an important product for us, because it really goes out the biggest segment of mitral valve degenerative segment, as we had a chance to get some usage with some of our closest physician partners in this product. They identified the way the ring is sized. So the accessory is the size in some of the larger sizes of the ring, were not optimal. So we made the call to step back and actually modify two or three of the sizes for the largest size rings, so that has physicians pick this up, they're able to have an easy time sizing the ring to disease. So it was... it came out of an experience we had with some of our KOL's and we made to call the stop and fix it, before we broadened it to more physicians.

And LifeStent, because this product line has been sold to Baird and it's far more material to them then it is to us at this point. We really think that future guidance should be provided by them and I'd encourage you to talk to them about it. I'll just add that we are highly aligned. I think they're very anxious to get the product line and have it approved. And we are anxious to have them get it. We would just assume discontinue our contract manufacturing and have them take that over as well. So we're working together in a very positive way but we let them give back guidance.

You are responsible though for the PMA, correct?

Yeah. That's what was in the contract?

Okay. Thanks.

Sure.

Our next question is coming from Paul Choi with Merrill Lynch. Please state your question.

Hi. Thanks for taking the questions. If we can go back to SAPIEN for a moment, can you breakout what the clinical trial sales were versus the commercial? And secondly, with respect to the European market next year, given that hospital funding is starting to tighten up a little bit. I am sure many hospitals have sort of planned for this for next year. But can you forecast what you think a potential market growth rate could be in 2009? I think you guys mentioned 25% so far for this year.

Yes. So Paul, I would say this year most of the sales obviously was Europe. If you say, Abate, what was outside Europe? That was about $1 million. That's a combination of what happened in the partner trial in Canada et cetera. In terms of what we are trying to represent by that 25%, we would say the European market, which typically grows at 3% to 5%. If you take our sales plus what we think we hear about what per valve sales are and combine that, we would say the European market has accelerated to around the 25% growth rate. That's been the case since I don't know probably second quarter of this year. We would expect that to continue for some time. I can't give you exact projections. We're really going to work this hard during our planning process, and we'll have that in place to be able to discuss in greater detail by the time we get to the December investor conference.

Okay, great. Thank you for that. And then for Tom, a question on the guidance. I think you said SG&A in Q4 would be flat on a dollar basis. Is that relative to sequentially to Q3? Is that what you meant?

Yes that is, Paul.

Okay, great. And then in terms of SG&A, I think year-to-date, it's grown about 19% versus last year where as your top line has grown about 16%, and it's averaging about 38.8% not quite 39% of sales. How do you realize to continue this sort of spend level in terms of supporting safety. Is there any [indiscernible].

We try to obviously... we're signaling in the direction you're interested and that is, is that as a percentage of sales we see a definite decrease coming in Q4. We'll give more guidance next year but we're pretty much feeling that we hit a high watermark. And if you looked all the way back to last year, we were very specific in the Q2 earnings release and we talked about investing. The investment really showed up, for the first time, in a significant way with Q4 last year. I'm happy to say if you take the guidance range that we gave you and you took it as a percentage increase over prior year, you start to see some big leverage come through as soon as next quarter. I think we're in the mid 30's in terms of earnings growth on fourth quarter over the prior year.

Okay. Thank you for that.

Our next question is from Larry Biegelsen with Wachovia Securities. Please state your question.

Hi, thanks for taking my follow-up. Tom, one for you on the tax rate 24% in a way, is that a good number to use for '09 and beyond? And I just have one other question.

Well, Larry as you asked me earlier, we generally can't put the R&D tax credit until it's approved and each year it ends up being... just a two-year one until that's two year one. So I guess that would be the same, and I'm trying to think it's provisioned, it's a lot of moving pieces. I think there is no reason to see a big fluctuation year-over-year. I'd say I'll give guidance in a few weeks Larry, on taxes; it's a little complex to take a guess for a full year.

Okay. And secondly, again on the partner trial. How will the transapical data in cohort A, the partner trial be evaluated by FDA, if according to the slide that Marty presented last Monday, it said it may not be pullable or to be pullable if possible with the transfemoral data and if not powered independently, according to Marty slide. I'm sorry to ask such a detailed complicated question. But I hope you've seen this slide that I am talking about.

Yes, I think I know what you are referring to, in the cohort A of the trial, the way the trial was designed, Larry is, you combine the transapical and the transfemoral results. And so you are comparing the control in those two different cerebellum methods with the actual valve patients in those two delivery methods. And if those combined results that get evaluated for the ultimate approval of the process. There is an opportunity to do subset analysis to be able to look at those independents but the approval is was driven by combining the transfemoral and the transapical.

Thank you.

Sure.

Our next question is from Kristen Stewart with Credit Suisse. Please state your question.

I think straight on a follow up. I think I could break out what flow tract was in a quarter and I believe you had some new upgrades that you are rolling out over the summer. And just maybe update on the status on where those are and kind of where you see the business?

Yes. Let me try... let me try and dig up that number. Flow tract, remember for the full year what we were projecting is that flow tract would generate around $50 million in sales. We had a really good quarter, again, in the third quarter. I think it would have probably been above the average that is of Q1 and Q2. So we're very much on track with the $50 million for the full year. So, a nice gross rate. We have rolled out one of the... some software enhancement, but the bigger software enhancement is really going to come later around. It's going to come towards the end of this year. We've decided to roll a few things together to make it more impactful. So starting the end of this year, going into the first quarter will be the more impactful rollout of software that really affects the ICU patients.

Okay. I'm sorry if I missed this on Magna Mitral but have you guys quantified if you are pricing on a premium and what that premium level is and how their reception has been through account?

Yes, let me take this over to Don.

Hi, Kristen. Actually yes, this is being priced to the premium as we've been out there just relatively short period of time. The response has been very solid from accounts, from physicians who have used it and we have prices at a premium 10% to 20%.

Okay. Perfect. Thanks, guys.

Sure. Okay. Well, thanks for your continued interest in Edwards and Tom and David and I will take 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 telephone replay will be available for 72 hours. To access this, please dial 877-660-6853 or 201-612-7415 and use account number 2995 and passcode 288895. I'll repeat those numbers 877-660-6853 or 201-612-7415 are the telephone numbers. The account number is 2995 and the passcode is 288895. Finally, an audio replay will be archived on the Investor Relations section of our website. Thank you very much.

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