Edwards Lifesciences Corporation's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Edwards Lifesciences Corporation (EW)

Q1 2012 Earnings Call

April 24, 2012 5:00 p.m. ET


David Erickson - VP, IR

Michael Mussallem - CEO

Thomas Abate - CFO


Bruce Nudell - Crédit Suisse

Tom Gunderson - Piper Jaffray

Bob Hopkins - Bank of America

Amit Balla - Citigroup

Raj Denhoy - Jefferies & Co.

Glenn Novarro - RBC Capital Markets

Larry Biegelsen - Wells Fargo

David Roman - Goldman Sachs

Kristen Stewart - Deutsche Bank

Michael Weinstein - JP Morgan

Jason Mills - Canaccord

Spencer Nam - ThinkEquity

David Lewis - Morgan Stanley Smith Barney


Greetings, and welcome to the Edwards Lifesciences Corporation’s first quarter 2012 earnings conference call. [Operator instructions.] 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 first quarter 2012 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, operating margin, 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 in the U.S., Europe, and Japan, as well as the timing, status, and expected outcomes of new or currently ongoing clinical trials; the expected impact, benefits of, and market potential for new product introductions; expectations regarding market growth; 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, 2011, 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.

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

Michael Mussallem

Thank you David. This quarter was highlighted by an impressive first quarter of SAPIEN commercialization in the United States. Additionally, we’re pleased that the growing body of longer-term evidence further supports the Edwards SAPIEN transcatheter valve as an important therapy. And, with a scheduled FDA panel for cohort A and our approaching national coverage decision, the near term U.S. transcatheter opportunity will become more clear.

At the same time, given current dynamics, which we’ll discuss shortly, we are tempering the full year forecast for THV sales. And although we are lowering our overall 2012 expectations, excluding special items, we continue to expect underlying sales growth to be approximately 20% and earnings per share growth of 30%.

Before turning to the quarterly results, as a reminder, this year we’ve begun reporting sales in three new product groups: surgical heart valve therapy, which combines surgical heart valves and cardiac surgery systems; transcatheter heart valves and critical care, which includes vascular.

Reported sales grew 14% to $459 million, primarily driven by the U.S. launch of SAPIEN. On an underlying sales basis, they grew 13%. Sales outside the U.S. grew 7% on a regular basis, and represent approximately 60% of total sales.

For the first quarter, the surgical heart valve therapy product group grew 3% to $204 million, which included $28 million from cardiac surgery systems. Within this product group, surgical heart valves grew 2% over last year. Outside the U.S., our surgical heart valves grew 7%, driven primarily by penetration of our premium products in Europe and Japan.

Product pricing remains stable in each region. However, strong growth in emerging markets changed the country mix, which slightly lowered our overall global average price. In the U.S., the continued impact of a competitor’s product introduction last year led to a modest decline in surgical heart valve sales this quarter. In the second half of 2012, we expect the impact to diminish as the competitive introduction annualizes.

In Europe, we believe we gained share through the growth of our premium products. In Japan, we’re pleased that our Magna Mitral Ease valve was approved in the first quarter, and customers are actively converting to this state-of-the-art mitral valve. Recently, a competitor received an earlier than expected approval of an aortic pericardial valve. We expect these impacts in Japan to be somewhat offsetting for the remainder of the year.

We continue to make good progress on our pipeline and are excited about the promise of these technologies. As previously announced, during the quarter we received CE mark for our Edwards INTUITY rapid deployment aortic valve system. As expected, we are initiating our CADENCE and Foundation European post-approval studies focused on the patient benefits and health economics of this new procedure compared to traditional open heart surgery. With this focus on clinical studies, we expect the INTUITY revenue contribution in 2012 to be modest, and to begin contributing to growth next year.

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