Edwards Lifesciences Q3 2010 Earnings Conference Call Transcript

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

Question: Mike Weinstein - JPMorgan - Analyst : Thanks for taking the question. I guess two items I'd be interested in you commenting on. First is could you talk about implant trends post the presentation of PARTNER TCT whether you've seen a pickup in your volumes outside the US now that that data is out there? And second could you talk a little bit about 2011 and the expected buildout of your US sales force and infrastructure ahead of the US launch and how we should be thinking about that? Thanks.

Question: Mike Weinstein - JPMorgan - Analyst : Okay. Just one follow up, if I can. If you could just touch on maybe on, maybe -- this is Tom -- the use of cash. The Company has been buying back stock but that's been principally just to offset your option program at this point. As we move forward in your cash generation ramps particularly with the US launch, can you just talk about how you view your spending plans?

Question: Mike Weinstein - JPMorgan - Analyst : Okay. Great. 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 - Piper Jaffray - Analyst : Hi, good afternoon and thanks for taking the question. Mike, if you can kind of expand on your comments regarding just the overall US heart valve environment? You said it was challenging and seeing a modest slowdown. I mean are these patients deferring procedures, or -- I'm trying to grapple with those comments and trying to see how that goes on a going forward basis?

Question: Tim Lee - Piper Jaffray - Analyst : Got it, thank you. And then just one follow up on your XT rollout in Europe, I think you'd noted that the transapical/transfemoral is about half and half right now in terms of your mix. What -- XT, where do you see that going? I mean a year from now will XT be the predominantly -- the major product line? Would the transfemoral -- excuse me, transapical being a lesser portion, or how should we see that playing out over the next 12 to 24 months?

Question: Tim Lee - Piper Jaffray - Analyst : Got it. Thank you.

Question: Kristen Stewart - Deutsche Bank - Analyst : Hi, thanks for taking the question. I was just wondering if post kind of the -- obviously the really good Cohort B data that came out at TCT, if you could comment on any discussions that you've had with any of the European countries with respect to formalized reimbursement, if that's making any more progress? And then if there's been any kind of things that you can tell us about just kind of the FDA maybe with the randomization scheme, if there's any desire for them to maybe loosen that and look to go to more of a single arm study given that the results were so positive?

Question: Kristen Stewart - Deutsche Bank - Analyst : For PARTNER -- for PARTNER II because you had mentioned that the FDA did not see the PARTNER Cohort B data before giving the conditional approval for PARTNER II Cohort B like patients. I'm just curious if there's been any change in tone from the FDA on their desire to make sure that it's recognized?

Question: Kristen Stewart - Deutsche Bank - Analyst : Okay. And when should -- you said by the end of the year we should hear on the second group with PARTNER II and that's a high-risk group? And that's also for 450 patients?

Question: Kristen Stewart - Deutsche Bank - Analyst : Okay, thank you very much. 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: Amit Bhalla - Citigroup - Analyst : Hi, good afternoon. I wanted to start with SAPIEN XT and I was hoping you could elaborate a little bit more about penetration. Last quarter you talked about a push within existing accounts, is that still the focus? And in the terms of new procedure share, is 75/25 versus Medtronic still the mix in the transfemoral space?

Question: Amit Bhalla - Citigroup - Analyst : Okay, thanks. And my follow up, could you give us just the unit verses price contribution for the worldwide Heart Valve Therapy growth rate? And just comment on European austerity, if you're seeing any impact there? Thanks.

Question: Amit Bhalla - Citigroup - Analyst : Sure. And if you have the US number that'd be great too. Thanks.

Question: Amit Bhalla - Citigroup - Analyst : And the European austerity? 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: Amit Bhalla - Citigroup - Analyst : Yes, no problem. Just wondering what kind of impact you're seeing. I think last quarter you said European austerity measures were impacting your more mature products, is that still the case?

Question: Amit Bhalla - Citigroup - Analyst : Thank you.

Question: Glenn Novarro - RBC Capital Markets - Analyst : Hi, thanks. Mike, I want -- if you could clarify something. Did you say that transcatheter valve pricing was up 10% year-over-year? And if that is the case, I'm just curious how sustainable that pricing is given the pending austerity measures. And I'm wondering if you've gotten any recent push back on pricing with XT? That is question one. And then at TCT, there was almost a whole day dedicated to mitral valve. I'm wondering if you could update us on what you've got going on in the mitral development side? Thanks.

Question: Glenn Novarro - RBC Capital Markets - Analyst : And -- can I just one quick follow up -- ? 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 - RBC Capital Markets - Analyst : For Tom. The tax rate, is that -- have you lowered the tax rate guidance for the full year?

Question: Glenn Novarro - RBC Capital Markets - Analyst : Okay. Thank you very much.

Question: Bruce Nudell - UBS - Analyst : Good afternoon. Thank you. Mike, one of the things that we noticed and was related to your comments about vascular complications was that PARTNER B was burdened with an early generation delivery system. To what extent will that also kind of impact PARTNER A? And then I have a follow-up.

Question: Bruce Nudell - UBS - Analyst : Yes, I am. 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: Bruce Nudell - UBS - Analyst : Okay. And my final question, Mike, is more of a strategic one regarding to get to about a $1.7 billion mark in 2014 or so, you need 60,000 or so TAVIs -- Perc valves for aortic. 160,000 potential people over 65 who have surgical aortic candidates -- how do you see your ability to grow your surgical franchise in the presence of that huge potential cannibalization from TAVI?

Question: Bruce Nudell - UBS - Analyst : Thanks so much.

Question: Larry Biegelsen - Wells Fargo Securities - Analyst : Good evening, thanks for taking my question. First could -- Mike, could you be a little bit more specific about what the holdup is with the high risk arm of PARTNER II and are you concerned about falling behind CoreValve with the XT in the US?

Question: Larry Biegelsen - Wells Fargo Securities - Analyst : No, PARTNER II, the -- you haven't gotten FDA approval yet if I'm not mistaken for the surgical arm. 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: Larry Biegelsen - Wells Fargo Securities - Analyst : That's helpful. And second, have you been able to leverage the SAPIEN to benefit your surgical valve and Critical Care business in Europe? And do you see this as an opportunity in the US when you launch SAPIEN? Thanks.

Question: Larry Biegelsen - Wells Fargo Securities - Analyst : Thank you.

Question: Bob Hopkins - BofA Merrill Lynch - Analyst : Hi, thanks, can you hear me okay?

Question: Bob Hopkins - BofA Merrill Lynch - Analyst : Great. Mike, so just wanted to follow up on your comments about the data presentation at the American Heart Association on the quality of life side. Could you just remind us exactly what will be presented and your perceptions of the importance of the data and just what we should be looking for?

Question: Bob Hopkins - BofA Merrill Lynch - Analyst : Okay. And then on the PARTNER II centers in the US, I think at TCT you guys said that at first it would be -- the number of centers would be at that 20 area, and I was wondering if you guys have considered ramping that up to a higher number at this point and whether you'll have more centers available as enrolling centers for PARTNER II?

Question: Bob Hopkins - BofA Merrill Lynch - Analyst : All right. Great, thank you.

Question: Jason Mills - Canaccord Genuity - Analyst : Thanks, Mike, for taking the question. I want to follow up on that last comment you made and Bob's question about the PARTNER II sites. Just -- you clearly had to go through the rigor of training these sites initially with PARTNER, you don't have that issue so much this time around, so could you put a finer pin perhaps to your thinking on the ramp of the centers getting IRB approvals this time around? And also maybe also a finer pin to the enrollment timeline relative to PARTNER?

Question: Jason Mills - Canaccord Genuity - Analyst : Okay. That's helpful. My second question in Europe with respect to the number of centers, you guys have continued to add centers, you mentioned that in the third quarter, not surprisingly, there were just a few center adds. Could you talk about what the landscape may provide for you in terms of new center penetration over the next couple of quarters given that first -- fourth and first quarters tend to be a little bit more robust in terms of the European market?

Question: Jason Mills - Canaccord Genuity - Analyst : Great. And just a follow up for Tom on the tax rate question. Tom, your guidance does not include the R&D tax credit insofar as you've given the updated guidance today. Correct?

Question: Jason Mills - Canaccord Genuity - Analyst : Okay. Thank you very much.

Question: David Roman - Goldman Sachs - Analyst : Good evening, everyone. Want to just quickly follow up on the surgical valve business this quarter. Mike, I think in the US you mentioned that it was flat and if I remember correctly, I think that's up against something like a 14% comp that you put up in the third quarter of last year. But on -- I guess first is that, correct? And then on a global basis, could you talk a little bit about if you're seeing any competitive trialing? St. Jude's has just rolled out some new products. What you're -- maybe help us understand how we should think about the surgical valve business going forward. Because up until this quarter you had been generating growth way in excess of I think where the market was growing. And then I have a follow-up on currency. 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: David Roman - Goldman Sachs - Analyst : Yes. And then on currency, Tom, could you just remind us I guess on the top line how you mark-to-market FX in terms of revenue recognition? Some of your peers do it just they pick the rate at the first day of the month and then that's the rate that's used throughout the month. How does it work at Edwards? And then does -- could you just remind us of the P&L impact?

Question: David Roman - Goldman Sachs - Analyst : No, just how it flows through from revenue down to net income. So I know that you hedge through the gross margin line but is there any benefit to EPS from currency or is it completely awash?

Question: David Roman - Goldman Sachs - Analyst : Got it. That's very helpful. Thank you.

Question: Sean Lavin - Lazard Capital - Analyst : Hi, thank you for taking my question.

Question: Sean Lavin - Lazard Capital - Analyst : Just was wondering if you could walk us through I guess your change in fourth quarter margin with the 72.5% this quarter and the guiding to 71% to 72%, what is changing there?

Question: Sean Lavin - Lazard Capital - Analyst : Okay. But the -- I guess the change between the third and fourth quarter that's simply the rates hit the expenses more than revenue?

Question: Sean Lavin - Lazard Capital - Analyst : Okay, that's all I have. Thank you very much.

Question: David Lewis - Morgan Stanley - Analyst : Good afternoon. Tom, maybe I missed it, but can you just update us I think last quarter you talked about just for THV a $20 million FX headwind on the revenue side. Do you have an updated number for that FX hit for THV, Tom? 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: David Lewis - Morgan Stanley - Analyst : Okay.

Question: David Lewis - Morgan Stanley - Analyst : That was my question, very helpful, very clear. And just as a follow up, Mike, just on this issue of TATF mix being 50/50 I guess that number still surprises me so in the quarter in Europe, post XT, in terms of the trends, would you say at a given center you saw more benefit -- or you can talk about it on a multi-center basis. Did you see more benefit from share or would you say you saw more benefit from an expanding patient Cohort perhaps vascular complications? Which do you think was the more prominent driver in the particular quarter?

Question: David Lewis - Morgan Stanley - Analyst : So Mike, I would have assumed that the TF/TA mix would have shifted much more in favor of TF even this early in the third quarter. And so I'm just wondering in light of that, where did you see the most significant gains? Did you see them from share, from other competitors, or did you see them from expanding the usefulness of the 18 French device in perhaps vascularly complicated patients?

Question: David Lewis - Morgan Stanley - Analyst : Yes, that's helpful, Mike. Thank you.

Question: Douglas Tsao - Barclays Capital - Analyst : Hi, thanks for taking my question. Mike, I was just wondering if you could give an update in terms of how widely launched XT is in terms of in Europe? Is it in all customers or is there still a reasonable amount of just the original SAPIEN device being used in Europe?

Question: Douglas Tsao - Barclays Capital - Analyst : Okay, was that throughout the second quarter, was large -- on the transfemoral side was almost all XT, or was that sort of a progression throughout the quarter?

Question: Douglas Tsao - Barclays Capital - Analyst : For third quarter, third quarter.

Question: Douglas Tsao - Barclays Capital - Analyst : Okay, great. And then finally just one question in terms of how you're thinking about the transapical approach. In -- when I was at TCT and talking to a couple of the investigators who were surgeons, they noted that they had certain high-risk patients who didn't qualify for the trial because of the fact -- they didn't have appropriate transfemoral access. Have you ever thought about doing -- but they did think that they would be good candidates for the transapical approach. Have you ever thought about doing clinical work around -- utilizing the TA approach in high-risk patients?

Question: Douglas Tsao - Barclays Capital - Analyst : Okay. Great. Thank you very much.

Question: Paul Choi - Caris & Company - Analyst : Thanks very much for taking the question. Mike, can you maybe just provide an update on the Japan trial with respect to where you are on the enrollment, I know you guys just started it recently, and when you would expect to complete the transfemoral and transapical arms there?

Question: Paul Choi - Caris & Company - Analyst : Okay. That's useful. And then Tom, just if you could clarify did you say the net impact from the hedges in Q4 would be 150 to 150 basis points headwinds, is that correct?

Question: Paul Choi - Caris & Company - Analyst : Okay.

Question: Paul Choi - Caris & Company - Analyst : Okay.

Question: Paul Choi - Caris & Company - Analyst : Okay. Thank you very much.

Question: Joanne Wuensch - BMO Capital Markets - Analyst : Thank you very much for taking my questions. Pulmonic valves, can you give details on what the contribution was in the quarter?

Question: Joanne Wuensch - BMO Capital Markets - Analyst : Yes, please.

Question: Joanne Wuensch - BMO Capital Markets - Analyst : While you're looking can I ask my second question?

Question: Joanne Wuensch - BMO Capital Markets - Analyst : Okay, that's very helpful. SG&A -- sorry, R&D in the quarter as a percentage of revenue was a little bit higher than I was looking for or thinking about. Anything in particular that we should be thinking of that for?

Question: Joanne Wuensch - BMO Capital Markets - Analyst : And what made this atypical?

Question: Joanne Wuensch - BMO Capital Markets - Analyst : Okay. Thank you very much.

Question: Sara Michelmore - Cowen and Company - Analyst : Yes, thank you so much for taking the question. Mike, people have kind of circled around this so maybe a different way to ask the question about what's going on in Europe after the release of Cohort B data. Do you have any sense of the proportion of patients today that are treated with SAPIEN that are inoperable as described by the pertinent criteria? Is that a small number? Or are those patients being treated already in Europe?

Question: Sara Michelmore - Cowen and Company - Analyst : Okay. And -- but as you look out to 2011 and incremental legs of growth for the product in Europe, I mean, is that one of the bigger opportunities that you see? Or how should we think about the trajectory of the product next year?

Question: Sara Michelmore - Cowen and Company - Analyst : Okay, that's great. And then just one last one. On the diabetes product, Mike, you mentioned at the first generation product was on track to be released in Europe. Where are you with the second generation version of the product? Thanks.

Question: Sara Michelmore - Cowen and Company - Analyst : (multiple speakers).

Question: Sara Michelmore - Cowen and Company - Analyst : Yes, I probably misspoke, Mike, I guess there's a version beyond that second generation one, correct?

Question: Sara Michelmore - Cowen and Company - Analyst : All right, thanks so much. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.