Edwards Lifesciences Q2 2007 Earnings Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Amit Bhalla - Citigroup Investment Research - Analyst : Hi, thanks for taking the question. Just first a quick housekeeping, LifeStent and FloTrac revenues -- can you give us those for the quarter?

Question: Amit Bhalla - Citigroup Investment Research - Analyst : You mentioned the CoreValve litigation in Europe. Obviously you can't comment on your strategy, but can you tell us what's taken place so far in the courts there and what are some upcoming events to look for in that litigation?

Question: Amit Bhalla - Citigroup Investment Research - Analyst : And then in the heart valve business, can you give us a little bit of a sense here on price mix in the quarter? Give us a little better idea of kind of what's happening here?

Question: Tim Nelson - Piper Jaffray & Co. - Analyst : Hi, guys. Let's dissect the valve business a little bit more if we can. Did you change your tone a little bit on the unit growth rate? You said 3 to 5 and previously you talked about 5 at the low end of the range. Can you talk about what's happening in the market, particularly the U.S. market if it's really down that low given a change in the guidelines, given the underpenetration you guys have highlighted, why would it be declining?

Question: Tim Nelson - Piper Jaffray & Co. - Analyst : Okay, it seems to me that on the competitive front that Edwards has certainly been at least in past quarters hurt more by [St. Jude] than some of the competitors are. Is there a reason why that, what that dynamic is?

Question: Tim Nelson - Piper Jaffray & Co. - Analyst : Finally on repair, we've seen growth rates below the double digit rates we're used to for the Second Quarter in a row. What's going on in the repair market?

Question: Tim Nelson - Piper Jaffray & Co. - Analyst : Okay.

Question: Tim Nelson - Piper Jaffray & Co. - Analyst : Okay, thanks.

Question: Larry Biegelsen - Wachovia Securities - Analyst : Good afternoon, everyone. Can you hear me okay?

Question: Larry Biegelsen - Wachovia Securities - Analyst : First, on Magna Mitral, my understanding is you responded to the FDA around January with a six-month clock. Could you give us any color on the dialogue with the FDA and my second question is on a finance question for Tom. On the SG&A of 39% in the second half, R&D of 12% in the second half, should we expect that going forward? I know you're not giving 2008 guidance but that's a significant increase from where you've been in the past. Thank you.

Question: Larry Biegelsen - Wachovia Securities - Analyst : Tom, I'm sorry, you said stay around 12?

Question: Larry Biegelsen - Wachovia Securities - Analyst : Thank you.

Question: Glenn Reicin - Morgan Stanley - Analyst : Good afternoon, folks.

Question: Glenn Reicin - Morgan Stanley - Analyst : So based on sort of the math I think you're giving us, it sounds like the incremental spend is somewhere between $20 to $25 million for this year. Is that -- if you can just confirm that first?

Question: Glenn Reicin - Morgan Stanley - Analyst : Okay. And then what would be the breakdown then? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Glenn Reicin - Morgan Stanley - Analyst : I'm sorry, I was combining SG&A and R&D together on a pre-tax basis.

Question: Glenn Reicin - Morgan Stanley - Analyst : Okay. Right, on the back half of the year, and then what would be the breakdown between Europe and the United States?

Question: Glenn Reicin - Morgan Stanley - Analyst : Okay, so here is the question and it's sort of multi-dimensional. In the U.S, why are you guys convinced adding sales resources will help, given your market share? I would assume that your customer awareness of your products has to be extremely high and they are pretty low touch at this point, so that's the first part of the question. And secondly, on SAPIEN, you always had the intentions of launching at around year-end, so why is this incremental and then what, you're saying $20 million next year for sales -- we have about half that in our model and I'm just curious what happened on the reimbursement front that gives you confidence in that $20 million number.

Question: Glenn Reicin - Morgan Stanley - Analyst : I know, I know.

Question: Glenn Reicin - Morgan Stanley - Analyst : It was all asked as one.

Question: Glenn Reicin - Morgan Stanley - Analyst : So any way to judge your success here sort of through milestones?

Question: Glenn Reicin - Morgan Stanley - Analyst : Yes, I'll move on.

Question: Glenn Reicin - Morgan Stanley - Analyst : Thank you.

Question: Dhulsini de Zoysa - Cowen and Company - Analyst : Hi, good evening. I wanted to just pick up on that last question. In terms of the European launch plans, Mike, could you talk a little bit about what gives you the increased confidence? Is it the communication with the European regulatory body? Is it the strength of the data? Are you just feeling some pressure because you got a competitor who is talking about going in and so you want to sort of grab some land early?

Question: Dhulsini de Zoysa - Cowen and Company - Analyst : Okay. If I could, this is a bit sort of off field for you, but I wanted to get your thoughts. It seems that in the last six months or so, both J&J and Medtronic have stepped up their interest or at least their communication about the commitment to the Transcatheter valve replacement opportunity. I think Medtronic even said they anticipate CE Mark this year. On the one hand you must feel validated, and on the other are you worried about the resources these companies can bring to bear? Any thoughts would be interesting.

Question: Dhulsini de Zoysa - Cowen and Company - Analyst : Okay, I'll get back in queue. Thank you.

Question: Mike Weinstein - JPMorgan Chase & Co. - Analyst : Thank you, good evening. Just want to follow-up on a couple of the questions here. So the math, Mike, is an extra like $13 million to $15 million of spending in the second half of the year, if that's the right math? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Mike Weinstein - JPMorgan Chase & Co. - Analyst : Okay, and half of that you're saying is Europe and thoughts about building out ahead of the SAPIEN launch?

Question: Mike Weinstein - JPMorgan Chase & Co. - Analyst : And just the timing question, which people are asking is that -- so if you're going to spend $6 million more on SAPIEN, what are you spending on that wouldn't have come this year, would that have all come next year? Is there some spending here that you're doing that you wouldn't have done anyways, maybe just three months later?

Question: Mike Weinstein - JPMorgan Chase & Co. - Analyst : Yes, right. And so then Mike, you threw out that $20 million plus number for next year which I think was the first time we had heard that. So I don't know exactly where you guys are going to come out on pricing, but my guess is from that commentary you're assuming you'll treat 1,500 or so patients, something in that ballpark range next year. That seems like a big number to get out of Europe in year one given the breadth of experience at this point and the challenge of learning curve with the patients. That doesn't seem like a big number to you?

Question: Mike Weinstein - JPMorgan Chase & Co. - Analyst : Okay, so higher than I was assuming, all right.

Question: Mike Weinstein - JPMorgan Chase & Co. - Analyst : Yes, that helps a little bit, but you're still just, so we're thinking about it correctly -- you're still thinking about a relatively broad rollout then. And as we think about the first half of next year, if you are going to do that broad of a rollout I would assume there's a fair amount of expenses you would incur in that rollout early on in the year. So we think about the cadence of 2008, there's obviously more dilution from the SAPIEN program in the first half of the year than the back half of the year, fair statement?

Question: Mike Weinstein - JPMorgan Chase & Co. - Analyst : Okay and last question, and I'll drop. The LifeStent program, how are you feeling about it right now, the strength of that program and the pace of the development of that business?

Question: Mike Weinstein - JPMorgan Chase & Co. - Analyst : Okay, thank you, guys.

Question: Tim Lee - Caris & Company - Analyst : Hi, good afternoon. Thanks for taking the question. Just wanted to follow-up on the previous question regarding the accelerated investment on the SAPIEN launch. I guess what I'm trying to calibrate is -- how quickly do we get a return on investment. Just looking at the mid points of your current '07 goals and your prior '07 target I think you've turned around $0.17 for this year in aggregate, so do we recoup that over two year time frame, a three year time frame, just any kind of framework you could provide, that would be appreciated. Thank you. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Tim Lee - Caris & Company - Analyst : Okay, just one quick follow-up if I may, just given the news this morning about the merger between ev3 and FoxHollow, does that change your strategic thinking on how quickly or how big you build out your peripheral salesforce?

Question: Tim Lee - Caris & Company - Analyst : Great. Thank you.

Question: Paul Choi - Merrill Lynch - Analyst : Hi, thanks, guys, for taking the question. If you could just maybe clarify one point on the salesforce. You said that 20 of your former TMR salespeople are going to transfer to HRT (sic). Is that the total incremental salesforce you're going to add to heart valve therapy this year and is that just U.S. or worldwide?

Question: Paul Choi - Merrill Lynch - Analyst : Great. Thanks for clarifying that, Mike. And then as a follow-up, I think you guys said you were targeting to have 15 reference centers in Europe by year-end. With the -- can you tell us where you stand currently with that, and how we should think about the incremental centers being added on by year-end? Thanks.

Question: Paul Choi - Merrill Lynch - Analyst : Oh, okay.

Question: Gil Gabbay - Bear, Stearns & Co. - Analyst : Hi, good afternoon, this is actually Gil Gabbay for Rick. Two questions, first on the LifeStent. You mentioned in your script that you submitted data the PMA to the FDA and you submitted data on the longer stent version than the new delivery system. Do you expect approval to include both the longer stents and the new delivery system?

Question: Gil Gabbay - Bear, Stearns & Co. - Analyst : Wonderful, and the second question relates to a comment you made as well. You were saying the competitor valves are making inroads, at least on the aortic side, into Edwards older base products. Could you share with us what percent of your total heart valve revenues are underneath older base products?

Question: Gil Gabbay - Bear, Stearns & Co. - Analyst : Yes, it does. Thank you very much.

Question: Jason Mills - Canaccord Adams - Analyst : Hi, guys. Thanks for taking the question. Hi, Mike. A couple of questions, one on LifeStent and one on Magna Mitral. I'll start with the second one first. Could you maybe talk about your strategy for launching that product in the U.S, specifically with respect to pricing. Clearly I think we all know Edwards has been typically a price premium player in the market and I wouldn't expect you to be a price discounter, but I know that's what you're facing. So can you talk about just generally I guess your strategy for launching that product specifically in the mitral position against a valve you feel is inferior and with respect to pricing and then I'll ask the LifeStent question.

Question: Jason Mills - Canaccord Adams - Analyst : Okay. So 10% premium, great.

Question: Jason Mills - Canaccord Adams - Analyst : Okay. And then on the LifeStent side to follow-up on a few questions with respect to the ev3/FoxHollow merger -- seems like one of the driving forces behind that if you talk to those two companies is the desire to have a toolbox approach for lack of a better term and having multiple products to treat the PAD patient which tends to be sort of a heterogeneous patient population in terms of what you see in any given patient, what kind of disease you see. So would be interested your thoughts, Mike, with respect to that market, having in your mind the best stent. Do you feel like that precludes your Company needing sort of other products to treat other areas of the anatomy or having atherectomy products or having multiple products in that area generally? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Jason Mills - Canaccord Adams - Analyst : So in light of that sorry about it just to follow-up to that, are you planning additional trials? You've been mentioning a lot of additional spending in the heart valve area, where you're clearly a market leader. It would stand to reason with respect to the transformational opportunities that you cite that you would be maybe devoting more resources to bear out these opportunities going forward. So can you talk about maybe your plans for additional spending on the vascular business?

Question: Jason Mills - Canaccord Adams - Analyst : Thanks.

Question: Josh Zable - Natexis Bleichroeder - Analyst : Hi, guys. Thanks for taking my question. Most of my questions have been answered but just a follow-up to LifeStent. Obviously your vascular business is doing pretty well here and can you just kind of talk about the environment, maybe clinicians -- are they expecting what they're expecting out there and if it is sort of driving the potential approval is driving sales now or we should expect to see some strong growth once we get approval?

Question: Josh Zable - Natexis Bleichroeder - Analyst : Great. And then just quickly on FloTrac. I know you guys are continuing to sort of develop a market there. Can you just kind of talk about the growth trajectory there? Obviously it's been very strong. How long do you think you can keep it up obviously without talking specifics for '08 -- but give us a general idea?

Question: Josh Zable - Natexis Bleichroeder - Analyst : Great. Thanks very much.

Question: Kristen Stewart - Credit Suisse - Analyst : Hi, good afternoon.

Question: Kristen Stewart - Credit Suisse - Analyst : I was just wondering, you mentioned that most of St. Jude -- you said you were seeing a little bit more success from them on penetrating into your older generation valves. And I was just wondering as they rollout next generation with anti-calcification -- what you thought on that end in terms of whether it would just be converting existing Biocor users or do you think they will have additional success? And whether you'll have any sort of marketing campaigns to go along with the additional salespeople similar to what you had with the Medtronic situation several years back with the Wyeth compromise campaign. Thanks. Thanks for that, Kristen. We've been actually surprised there's been as much sales in the U.S. of the Biocor valve given the fact there is no anti-calcification treatment and we think it's a credit to that sales organization that's been able to leverage their relationships. We would expect that the primary target of effort would be the Biocor valves themselves and that will be the greatest rate of impact and we wouldn't expect based on the experience that we've had in Europe and elsewhere to really see it have a similar sort of effect that Biocor had when it initially came to the U.S. market. And then just in terms of any sort of campaign on the side of data points like why compromise? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Kristen Stewart - Credit Suisse - Analyst : Okay. And just to clarify your additional sales add, is there more beyond the 20 salespeople that you're going to cross train now? Will you be hiring additional people?

Question: Kristen Stewart - Credit Suisse - Analyst : Okay, thanks.

Question: Glenn Novarro - Banc of America Securities - Analyst : Hi, thanks. Mike, in Europe, I think the plan has always been for SAPIEN to be sold by what I would call your general salesforce. Have the plans changed? Is any part of this increased spend going to be geared towards a specialist salesforce that would be calling principally on interventional cardiologists?

Question: Glenn Novarro - Banc of America Securities - Analyst : So then how many of these clinical specialists do you plan on hiring this year and in 2008 for the European launch? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Glenn Novarro - Banc of America Securities - Analyst : Can I just ask one follow-up just on what you just mentioned? You were going to launch into countries where reimbursement is most favorable? Can you list those countries for us?

Question: Glenn Novarro - Banc of America Securities - Analyst : Okay, thanks, Mike.

Question: Larry Keusch - Goldman Sachs - Analyst : Hi, good evening. Mike, two questions for you. First, can we go back to just a competitive situation in the U.S. And I think most people would certainly agree that an uncalcified valve is certainly a different animal as it relates to what you guys are offering. But where and why do you think you are seeing pressure that you're seeing? I just assume you're a bit surprised here, so I'm wondering if it's in a patient population that's older and maybe repeat surgeries don't matter as much or are they playing on price? What is going on that perhaps is a little different from what you're anticipating?

Question: Larry Keusch - Goldman Sachs - Analyst : And then I guess a follow-up is -- so if that is the case in what you're seeing out there, even if you bring some of your new valves into place, your Magna Mitral, et cetera -- again does it really perhaps matter as much in those older patient populations and maybe the only thing that you need to do in this case is perhaps change some pricing strategies there to compete more effectively.

Question: Larry Keusch - Goldman Sachs - Analyst :

Question: Larry Keusch - Goldman Sachs - Analyst : Okay.

Question: Larry Keusch - Goldman Sachs - Analyst : And the $5 million comment was for the full year?

Question: Larry Keusch - Goldman Sachs - Analyst : Okay, great. Thank you very much.

Question: Alex Arrow - Lazard Freres & Co. - Analyst : Thanks, good afternoon. Did I miss or did you give an enrollment update of the PARTNER trial?

Question: Alex Arrow - Lazard Freres & Co. - Analyst : Are there other enrollment milestones that we can anticipate that you can share with us such as at TCT when you have your Analyst meeting will you give us an enrollment update and will you give us specific target goal at that point?

Question: Alex Arrow - Lazard Freres & Co. - Analyst : Do you have a target number that you can share with us or is that too soon?

Question: Alex Arrow - Lazard Freres & Co. - Analyst : Okay, and then you mentioned that you have the less than 20 French version of the Ascendra in development and would begin in 2008. Would that be anticipated to be the size that you'd launch with in 2010 when you're ready to launch in the U.S -- the less than 20 French version?

Question: Alex Arrow - Lazard Freres & Co. - Analyst : Okay, so the whole percutaneous construct, the valve plus the applicator, whether you're talking about retrograde or antegrade, is less than 20 French in diameter if I have that correctly. So I guess what's the difference between this one and the previous one? Why not start with the 20 French when you started this previously?

Question: Alex Arrow - Lazard Freres & Co. - Analyst : Oh, that was my question then. So in 2010 when you launch, it will not be 20 French, it will be what? 24?

Question: Alex Arrow - Lazard Freres & Co. - Analyst : Assuming it's a 26 millimeter, what French would it be?

Question: Alex Arrow - Lazard Freres & Co. - Analyst : Okay, and then is the engineering advanced because you're switching --

Question: Alex Arrow - Lazard Freres & Co. - Analyst : Yes, is it because you're switching from Equine to Bovine, is that the event you're referring to? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Alex Arrow - Lazard Freres & Co. - Analyst : Thanks very much.

Question: Larry Biegelsen - Wachovia Securities - Analyst : Hi, thanks for taking the second round. I know it's early but of the 24 or 25 patients that have been enrolled in the PARTNER trial, could you give us a split between the medical management and the surgery arm, and then a follow-up on the European sites. The 15 sites for the end of the Third Quarter '07, can you give us a goal for how many you hope to have by the end of 08? Thanks.

Question: Larry Biegelsen - Wachovia Securities - Analyst : Just to clarify -- the second half heart valve guidance is $250 million to $26O million and that does not include any Transcatheter valve revenues?

Question: Larry Biegelsen - Wachovia Securities - Analyst : Thank you.

Question: Kristen Stewart - Credit Suisse - Analyst : Hi, I just wanted to circle back on the pricing over in Europe. You mentioned 15,000 Euros and I'm just curious -- I think you previously said 13,000 to 17,000 on a global basis. Is reimbursement just the factor that has prompted you to raise that range a little bit or what's really driving that?

Question: Kristen Stewart - Credit Suisse - Analyst : And are you going to be collecting any sort of economic data in the U.S. trial or have you done so outside the United States to help further support the value difference between this and a surgical valve?

Question: Kristen Stewart - Credit Suisse - Analyst : Okay, thanks.