Medtronic Inc. (MDT:US), the world’s biggest maker of heart-rhythm devices, will pay Edwards Lifesciences Corp. (EW:US) at least $1.1 billion to settle a patent dispute over their minimally invasive valves.
Edwards will receive $750 million upfront and royalties of at least $40 million a year through 2022, Minneapolis-based Medtronic said in a statement. The companies agreed to dismiss all pending litigation over the valves and refrain from filing additional lawsuits for the eight years of the agreement.
The settlement will give Medtronic free rein after years of litigation to develop the market for the valves that it estimates at $2 billion to $2.5 billion a year. A federal court last month had granted, then stayed, a preliminary injunction that would have prevented Medtronic from selling CoreValve, used to treat aortic stenosis, in the U.S. because it infringed a patent held by Irvine, California-based Edwards. Edwards sells the Sapien valve.
“We see this settlement as a clear financial positive for Edwards,” David Roman, an analyst at Goldman Sachs Group Inc., said in a note. He estimated that royalty payments of $40 million to $60 million would mean a earnings boost of 24 to 36 cents a share this year.
Edwards declined 1.5 percent to $85.15 at the close in New York. Medtronic fell 1.5 percent to $59.41.
The U.S. market will be bigger than Medtronic anticipated when it purchased CoreValve in 2009 for $700 million plus milestone payments, Chief Executive Officer Omar Ishrak said. Patients getting the device, which is inserted without cracking open the chest, had better results and were more likely to survive than those undergoing traditional surgery in a U.S. study released in March.
“Our projection for growth in this market more than justifies what we have spent,” Ishrak said in a telephone interview. “This kind of an impact is very rare,” he said.
“It can create a whole new industry that revolutionizes the way aortic valve replacement is done,” Ishrak said. “Removing this distraction helps us focus on that.”
Edwards said it will set aside $50 million from the settlement for its foundation to raise awareness about aortic valve disease, educate doctors and support efforts to improve patient care.
Medtronic also reported fiscal fourth-quarter earnings, excluding one-time items including a $746 million charge for litigation, of $1.12 a share, meeting the average of 21 analysts’ estimates compiled by Bloomberg. Revenue (BSX:US) in the three months ended April 25 rose to $4.57 billion from $4.46 billion a year earlier, according to a separate statement.
The company forecast (MDT:US) earnings of $4 to $4.10 a share for fiscal 2015, bracketing the average of $4.09 from 23 analysts’ estimates compiled by Bloomberg.
Newly approved products, including CoreValve for patients who can’t tolerate open-heart surgery and the MiniMed 530G insulin pump that automatically shuts off if blood sugar gets too low, bolstered sales during the quarter. Demand for older devices, including bare metal stents to prop open clogged heart arteries and defibrillators to shock a stopped heart back into a normal rhythm, continued to decline.
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