Edwards Lifesciences Corporation (Edwards Lifesciences) has reported net sales of $1.24 billion for the full year of 2008, up 13.4%, compared with the net sales of $1.09 billion in the previous year-end. It has also reported a net income of $128.9 million, or $2.19 per diluted share, for the full year of 2008, compared with the net income of $113 million, or $1.87 per diluted share, in the previous year-end.

Reported net income for the quarter ended December 31, 2008 of $38.1 million, or $0.66 per diluted share, compared to net income of $15.8 million, or $0.27 per diluted share for the same period in 2007. Fourth quarter 2008 net income was $45.2 million, or $0.78 per diluted share, compared to net income of $33.7 million, or $0.56 per diluted share for the same period last year. Fourth quarter diluted earnings per share excluding special items increased 39.3% over last year.

Fourth quarter net sales increased 5.7% to $309.7 million, compared to $293.0 million in the same quarter last year. Underlying sales growth, which excludes discontinued products, foreign exchange and previously disclosed product retrieval, was 13.2%.

“We are pleased with our strong finish to a very successful year, as we achieved substantial 2008 earnings growth while continuing to invest in our future. Our Heart Valve Therapy franchise achieved very strong growth for the quarter, propelled by the continued momentum of our Edwards SAPIEN valve in Europe,” said Michael A. Mussallem, Edwards Lifesciences’ chairman and chief executive officer.

Sales Results

For the fourth quarter, the company reported Heart Valve Therapy sales of $149.7 million, which was reduced by $3.8 million of foreign exchange and $5.0 million from the product retrieval. This franchise grew 13.9% for the quarter, or 21.2% on an underlying basis.

“In the U.S., our surgical heart valve sales were lifted by the launch of our Magna mitral valve and we continued to see double-digit sales growth outside of the U.S.,” continued Mussallem. “In the quarter, we sold $18.5 million of SAPIEN valves, resulting in impressive first year sales of $53 million.”

During the quarter, the company voluntarily suspended shipments and retrieved Myxo and IMR ETlogix mitral valve repair products from U.S. customers as it awaits clearance of its 510(k) application submissions from the Food and Drug Administration. This action resulted in an approximate $5 million reduction to both sales and pre-tax income.

Critical Care sales of $118.2 million grew 4.6% over last year, which included a reduction of $1.8 million from foreign exchange. Sales of the FloTrac system contributed to underlying growth of 6.5% for the quarter.

“FloTrac continues to be a very strong performer and we expect it will continue to expand the market for minimally invasive hemodynamic monitoring,” said Mussallem.

Cardiac Surgery Systems sales for the quarter grew to $22.9 million from $15.1 million in the same quarter last year due to the acquisition of CardioVations, a minimally invasive surgery product line, which continued to grow at about 25%.

Vascular sales were $18.9 million, a decline from $25.1 million in the same quarter last year, due primarily to the divestiture of the LifeStent product line.

Domestic and international sales for the fourth quarter were $132.8 million and $176.9 million, respectively.

Additional operating results

For the quarter, Edwards’ gross profit margin increased 210 basis points to 68.1% compared to 66.0% in the same period last year, due to a more profitable product mix and the favorable impact of foreign exchange rates.

“Our gross profit margin substantially increased in the fourth quarter and we expect another year of improvement in 2009,” said Mussallem.

Selling, general and administrative expenses were $120.2 million for the quarter, or 38.8% of sales, compared to $114.5 million last year. This increase was driven by spending for the transcatheter heart valve launch and compensation expense related to the company’s strong sales performance, partially offset by foreign exchange.

Research and development expenses were $35.8 million for the quarter, or 11.6% of sales, compared to $33.5 million last year. The increased level of spending was focused primarily on the company’s transcatheter heart valve program.

During the quarter, Edwards recorded a net $15.8 million special charge, primarily resulting from a $23.0 million gain related to the receipt of a LifeStent milestone payment, a $13.4 million charge for a glucose technology transaction, a $13.2 million charge for the purchase of Critical Care monitoring technology, an $8.2 million charge related to previously capitalized patent enforcement costs, and a $5.0 million charge for the purchase of structural heart intellectual property.

Additionally, during the quarter the company settled certain prior year tax audits resulting in a $10.1 million income tax benefit, and conducted the product retrieval that resulted in a $4.7 million reduction to pretax income. The impact of all special items resulted in a reduction to net income of $7.1 million, which is detailed in the reconciliation table below.

Free cash flow generated during the quarter was $75.8 million, calculated as cash flow from operating activities of $80.5 million, minus capital expenditures of $17.7 million, plus $13.0 million to offset the favorable settlement of prior year tax audits.

Total debt at December 31, 2008 was $175.5 million. Cash and cash equivalents were $218.7 million at the end of the quarter, resulting in net cash of $43.2 million.

In the quarter, the company repurchased 395,000 shares of common stock for $21.0 million.

Twelve-Month Results

Excluding special items as detailed in the reconciliation, full year 2008 net income was $150.3 million, or $2.55 per diluted share, compared to net income of $129.4 million, or $2.13 per diluted share for the same period last year. Full year diluted earnings per share excluding special items increased 19.7% over last year.

Underlying sales growth, which excludes the impact from discontinued products, foreign exchange and the product retrieval, was 12.0% for the full year. Domestic and international sales for the full year were $543.6 million and $694.1 million, respectively.

Free cash flow generated for the year was $165.6 million, calculated as cash flow from operating activities of $153.2 million, minus capital expenditures of $50.6 million, plus the $50.0 million impact of terminating the company’s U.S. securitization program and $13.0 million to offset the favorable settlement of prior year tax audits.

For the full year, the company repurchased 5.8 million shares of common stock for $306.5 million.

2009 Outlook

“We look forward to continuing this momentum in 2009, with expectations of strong earnings growth even while we increase R&D investments by more than 20%,” said Mussallem.

“We will remain focused on achieving our annual financial goals. For 2009, we expect to generate total sales of $1.24 to $1.30 billion, which represents 10 to 12% underlying growth. In addition, we anticipate increasing our gross profit margin to between 68 and 70%, achieving diluted earnings per share growth of 15 to 19%, and generating free cash flow of $160 to $170 million.

“Finally, we estimate that first quarter 2009 diluted EPS will be between $0.66 and $0.70, and for the full year between $2.93 and $3.03.”