Edwards Lifesciences ( EW)

Q3 2011 Results

October 19, 2011 5:00 p.m. ET


David Erickson - VP, IR

Michael Mussallem - Chairman of the Board and Chief Executive Officer

Thomas Abate - Chief Financial Officer, Principal Accounting Officer and Corporate Vice President


Larry Biegelsen - Wells Fargo

Tom Gunderson - Piper Jaffray

David Roman - Goldman Sachs

Bruce Nudell - Crédit Suisse

Amit Bhalla - Citigroup

Glenn Novarro - RBC Capital Markets

Michael Weinstein - JP Morgan

Imran Zafar - Jeffries

David Lewis - Morgan Stanley

Kristen Stewart - Deutsche Bank

Bob Hopkins - Bank of America

Jason Mills - Canaccord

Matt Taylor - Barclays Capital

Joanne Wuensch - BMO Capital Markets

Suraj Kalia - Rodman & Renshaw



Greetings, and welcome to the Edwards Lifesciences Corporation Third Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, David Erickson, vice president of investor relations for Edwards Lifesciences. 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 third quarter 2011 financial results. During today's call, we'll discuss the results included in the press release and accompanying financial schedules, and then we'll 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 and net income growth, earnings per share and earnings per share growth, SG&A, R&D, tax rates and free cash flow, outstanding foreign currency impacts, product mix, shares, and other financial expectations including our assumptions regarding the timing and extent of the U.S. approval, launch, 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 the potential impacts of economic conditions and competitor products.

These statements speak only as of the date on which they were made, and we do not undertake any obligations 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.

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

Michael Mussallem

Thank you David. We’re pleased to report strong third quarter sales growth of 18%, highlighted by increased demand for transcatheter heart valves and sustained strength in critical care. And on our fourth anniversary of commercial sales outside the U.S., it’s gratifying to see our transcatheter heart valves addressing the large unmet patient need and driving strong growth. And the FDA approval, which we expect any day, will allow SAPIEN to reach many inoperable patients in the U.S. suffering from severe aortic stenosis.

On a reported basis, third quarter sales were $413 million and underlying growth rate of 11%. Sales outside the U.S. grew 26% on a reported basis, and represent nearly two-thirds of our total sales.

Turning to product line results, for the third quarter, we reported heart valve therapy sales of $246 million from transcatheter heart valves. On a regular basis, global heart valve therapy grew 23%. Surgical heart valves grew 8% over last year or 1.5% on an underlying basis. Overall, we believe surgical valve procedures in the third quarter were moderated by slower economic conditions.

New competition in our core markets also affected our growth rate as previously projected. Although pricing remains stable in each geography, strong growth in emerging markets changed the country mix, which slightly lowered our global average price.

Our premium products are representing an increasingly greater portion of our sales, which we expect to continue with the growing adoption of our recently approved Magna Ease aortic valve in Japan.

We continue to make progress on our Edwards INTUITY rapid deployment aortic valve system and clinician interest is building. Presentations at the recent EACTS meeting reinforced earlier data regarding the safety and efficacy of INTUITY and the benefits of faster, less-invasive procedures. In the fourth quarter, we continue to expect a CE mark and remain hopeful for a U.S. IDE approval.

In summary, based on our year to date performance, we now expect surgical heart valves to achieve underlying sales growth between 3% and 5%.

Now turning to transcatheter heart valves, sales of $83 million were up 69% over last year and 50% on an underlying basis. Strong procedure growth was the primary driver of these results, which was also assisted by our recently enhanced product portfolio.

Transapical sales aided by our new 29-millimeter SAPIEN XT, still comprise nearly half of our total commercial THV revenue. We continue to receive positive feedback on our new eSheath and NovaFlex Plus delivery systems, and to date nearly all of our European customers have adopted these advancements.

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