(Adds CEO and analyst comments, updates shares)
By Susan Kelly
May 20 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)