(Adds CEO and analyst comments, updates shares)
By Susan Kelly
May 20 (Reuters) - Medtronic Inc agreed to pay more than $1 billion to rival Edwards Lifesciences Corp to settle patent litigation and keep its CoreValve artificial heart valve on the U.S. market.
The settlement announced Tuesday ends years of litigation between the two companies over technology for implanting replacement valves that spares patients from open-heart surgery.
The U.S. market for the procedure is expected to top $500 million this year and double in size by 2018, Jefferies analysts predict. Edwards was first to market with its Sapien technology in 2011 in the United States, while Medtronic received U.S. regulatory approval for CoreValve in January.
"We think it is an important breakthrough in many ways for people with this disease, and we are focused on aggressively rolling this out as quickly as we can," Medtronic Chief Executive Omar Ishrak said in an interview.
Medtronic, the world's largest standalone medical device maker, also posted fiscal fourth-quarter earnings and gave an initial forecast for its 2015 profit that disappointed some investors. Its shares slumped about 1 percent midday.
Edwards stock fell 1.8 percent as investors braced for further market share shifts to Medtronic.
"Edwards could have forced Medtronic off the market. The settlement caps the potential of the litigation win," said Jefferies analyst Raj Denhoy.
Medtronic said it would give Edwards a one-time payment of $750 million, plus royalties through April 2022 based on a percentage of CoreValve sales. A minimum annual payment was set at $40 million a year.
CoreValve replaces diseased aortic heart valves in patients considered too frail for open-heart surgery, which requires separating the chest bone. Medtronic was the first device maker to compete against Edwards' Sapien valve.
In April, a U.S. court issued an injunction that would have stopped Medtronic from selling CoreValve. The injunction was later suspended while an appeals court reviewed the case.
Earlier court decisions had found that CoreValve infringed Edwards' Sapien product.
Medtronic said net earnings declined to $448 million, or 44 cents a share, in the quarter ended April 25, from $969 million, or 95 cents a share, a year earlier.
The company recorded $746 million in charges for the Edwards settlement and a product liability settlement for its Infuse bone-growth stimulator.
Excluding items, Medtronic said it had earned $1.12 a share, matching analysts' average forecast.
Revenue increased 2 percent to $4.57 billion as stronger sales of diabetes products offset weakness in implantable heart defibrillators and spine devices.
"Overall, the earnings are what's weighing on the stock today," said Edwards Jones analyst Jeff Windau.
Medtronic forecast fiscal 2015 earnings of $4 to $4.10 a share. The average analyst forecast was $4.09, according to Thomson Reuters I/B/E/S. (Reporting by Susan Kelly in Chicago; Editing by Lisa Von Ahn and Grant McCool)