Edwards Lifesciences (

EW

)

Q4 2011 Earnings Call

February 2, 2012 5:00 p.m. ET

Executives

David Erickson - VP, IR

Michael Mussallem - CEO

Thomas Abate - CFO

Analysts

Steve [Busha] - Morgan Stanley

Raj Denhoy - Jefferies & Co.

Jason Mills - Canaccord

Larry Biegelsen - Wells Fargo

Michael Weinstein - JP Morgan

Glenn Novarro - RBC Capital Markets

Miroslava Minkova - Leerink Swann

Bruce Nudell - Crédit Suisse

Adam - Citigroup

Kristen Stewart - Deutsche Bank

Tom Gunderson - Piper Jaffray

Spencer Nam - ThinkEquity

Presentation

Operator

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Greetings, and welcome to the Edwards Lifesciences Corporation fourth quarter 2011 earnings conference call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Erickson, vice president of investor relations. Thank you, Mr. Erickson, you may begin.

David Erickson

Welcome, and thank you for joining us today. Just after the close of regular trading, we released our fourth quarter 2011 financial results. During today's call, we'll discuss the results included in the press release and accompanying financial schedules, and then use the remaining time for Q&A. Our presenters on today's call are Mike Mussallem, chairman and CEO; and Tom Abate, CFO.

Before I turn the call over to Mike, I'd like to remind you that during today's call we will be making forward-looking statements that are based on estimates, assumptions, and projections. These statements include, but aren't limited to, our expectations regarding sales and sales growth, gross profit margin, net income growth, earnings per share, SG&A, R&D, tax rates and free cash flow, diluted shares outstanding, foreign currency impacts, and other financial expectations including our assumptions regarding the timing and extent of the additional U.S. approvals, launches, and reimbursement for the SAPIEN Transcatheter Heart Valve.

These statements also include our current expectations for regulatory submissions and approvals related to a variety of new products and indications, as well as the timing, status, and expected outcomes of new or currently ongoing clinical trials; the expected impact, ramp-up, and benefits of new product introductions; and potential impacts of economic conditions and competitive products.

These statements speak only as of the date on which they are made, and we do not undertake any obligation to update them after today. Although we believe them to be reasonable, these statements involve risks and uncertainties that could cause actual results or experiences to differ materially from the forward-looking statements.

Information concerning factors that could cause these differences may be found in our press release, our annual report on Form 10-K for the year ended December 31, 2010, and our other SEC filings, which are available on our website at edwards.com.

Also, a quick reminder that when we use the terms “underlying” and “excluding special items”, we are referring to non-GAAP financial measures. Otherwise, we are referring to our GAAP results. Additional information about our use of non-GAAP measures is included in today's press release. Also note that we calculate operating leverage as gross profit minus SG&A and R&D expenses divided by net sales.

Now I'll turn the call over to Mike Mussallem. Mike?

Michael Mussallem

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

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

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

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

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

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

Turning to cardiac surgery systems, sales for the quarter were $27 million, up 8% on a reported basis and 7% on an underlying basis. These results was primarily due to growth of MIS products, which are recovering from the product availability issues earlier in 2011.

Late in the fourth quarter, we received both a CE Mark and a 510K clearance for our IntraClude aortic occlusion device, designed to reduce the learning curve for MIS mitral valve surgery. We continue to expect the limited launch in the first quarter as we collect additional clinical evidence. IntraClude is the first of several new products we expect to introduce into our MIS portfolio in 2012.

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