Edwards Lifesciences' Gain, Medtronic in Pain - Analyst Blog

Shares of Edwards Lifesciences Corp. EW soared 11% to close at $81.00 as on Apr 14 with the company's shares surging in the wake of a favorable ruling by U.S. District Court for the District of Delaware. The court granted Edwards Lifesciences a preliminary injunction blocking sales of Medtronic, Inc.'s MDT CoreValve in the U.S.

An Insight into the Patent Battle

Edward's Lifesciences had initiated this case in 2008. On Mar 19, 2010, the U.S District Court for the District of Delaware added Medtronic CoreValve as a party to litigation. On Apr 1, 2010, a federal jury found Medtronic willfully infringed Edwards Lifesciences' U.S. Andersen patent and awarded the latter $74 million. Notably, on Nov 13, 2012, the appeals court affirmed the jury decision and remanded to the District Court to reconsider issuing an injunction. Finally, after Medtronic's petition for certiorari was rejected on Oct 7, 2013 by the U.S. Supreme Court, the final verdict was announced on Apr 11, 2014. Per the verdict, Edwards Lifesciences has been granted a preliminary injunction, effective after seven business days, thereby limiting the sale of Medtronic's CoreValue system in the U.S.

Moreover, the court ordered Medtronic and Edwards to build a mutually agreed upon mechanism for physicians who are already trained in using Medtronic's CoreValve in the U.S. The mechanism will enable physicians to exercise their own clinical judgment on the device to be used for the treatment, free from the limitations of injunction.

Edwards Lifesciences had also called for action against Medtronic's CoreValve in Europe alleging patent infringement. On Jul 12, 2013, the German District Court of Mannheim declared that Medtronic's CoreValve and CoreValve Evolut systems infringe Edwards' Spenser patent for transcatheter heart valve technology. Medtronic had to recall and discontinue the sale of the products in Germany from Aug 26, 2013 to Nov 20, 2013.

Also in another case, on Jan 15, 2014, the Delaware court found that Medtronic's CoreValve had willfully infringed Edwards Lifesciences' U.S. Cribier transcatheter heart valve patent, and therefore, awarded Edwards Lifesciences $394 million in that trial.

Edward's Sapien versus Medtronic's Corevalve

Edwards Lifesciences launched its transcatheter heart valves commercially in Europe in 2007, in the U.S. in 2011, and in Japan in 2013. In 2013, transcatheter heart valves sales contributed approximately 35% to Edwards Lifesciences' net sales. The major driver of transcatheter aortic heart valves sales growth was increased net sales of transcatheter heart valves in the U.S.

Medtronic's CoreValve falls under the Structural Heart business of the company and is under the Cardiac and Vascular Group operating segment.  For the first nine months of fiscal 2014, the Cardiac and Vascular Group contributed 52.1% to total net sales. Moreover, the Structural Heart business contributed 13.5% to net sales in the Cardiac and Vascular Group in the first nine months of fiscal 2014. Growth in this segment was driven by strong sales of the CoreValve transcatheter aortic heart valves in Western Europe. Medtronic's CoreValve was granted U.S. Food and Drug Administration (FDA) approval in Jan 2014.

Conclusion

Edwards Lifesciences has filed a petition with the U.S. Patent and Trademark Office to extend the U.S. Anderson patent into early 2016. If the extension is granted to Edwards Lifesciences and Medtronic fails to get a stay on the injunction order from a higher court, then we believe Edwards Lifesciences' Sapien will be able to strengthen its foothold in the U.S. market to a considerable extent.

Other stocks to Consider

Currently, Edwards Lifesciences carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader healthcare sector are Enzymotec Ltd. ENZY and Covidien plc COV. Enzymotec sports a Zacks Rank #1 (Strong Buy) and Covidien carries a Zacks Rank #2 (Buy).