Ongoing litigation between rivals Edwards Lifesciences Corp. and Abbott Laboratories is over, with the two settling all outstanding patent disputes in cases related to transcatheter mitral and tricuspid repair products. Details of the settlement remain confidential.
Abbott had sued Edwards for patent infringement related to Pascal in several markets and already had at least one win. Earlier this year, a court in the U.K. ruled that Pascal infringed two of Abbott's European patents on Mitraclip. Now, with this agreement, all pending cases or appeals in courts and patent offices worldwide will be dismissed. It also includes a provision that the parties will not litigate patent disputes with each other in the field of transcatheter mitral and tricuspid repair and replacement products for 10 years.
The U.S. also was a venue for litigation between the two parties. In late April, Well Fargo’s Larry Biegelsen noted that a jury trial related to Pascal had been delayed from May to Aug. 10, to respect social distancing rules. At the time, he wrote that the resulting actions could take some time. “A jury trial in August would likely last roughly one week, with the jury announcing its decision at the end of trial. The court would then have some work to do, including evaluating various motions to overrule the jury, and then the case would go up on appeal. The court could take roughly six months for its work, and the appeal could take roughly one year.”
But that is apparently all over now. In a filing with the Securities and Exchange Commission, Edwards Lifesciences said in the wake of the agreement that it will take a pretax charge of about $368 million in the quarter ended June 30. It also will incur royalty expenses through May 2024. These pretax royalty expenses will total about $100 million and will be reported as a cost of sales.
For its part, Edwards Lifesciences expressed confidence in its long-term prospects as a result of the sizeable untreated patient population that could benefit from transcatheter mitral and tricuspid therapies.
Moving on from underperforming?
Looking ahead, the settlement could represent great news for Irvine, Calif.-based Edwards Lifesciences, which also saw the injunctions in place against the sale of its transcatheter mitral and tricuspid repair system lifted. Cowen’s Josh Jennings wrote that the company’s shares have underperformed in part because of concerns that injunctions resulting from patent litigation could hurt Pascal's evolution into a meaningful growth driver.
“The settlement with [Abbott] removes a significant overhang and will allow investors to focus on Pascal's potential to penetrate the flourishing edge-to-edge mitral repair opportunity,” he added, while reiterating his outperform rating.
Meanwhile, at last month’s virtual Jefferies Healthcare Conference, analyst Raj Denhoy asked about the prospects of Pascal in the U.S. and the potential timing of approval. “So, we're expecting to complete the CLASP series of trials, or at least CLASP IID, and hopefully get into the market in a partial way in 2022,” replied CFO Scott Ullem.
He went on to note that the company has three studies for the device: for patients suffering from degenerative mitral regurgitation, functional mitral regurgitation and tricuspid regurgitation. COVID-19 had forced the company to put those studies on hold, but he foresaw them restarting as centers gained bandwidth.
“We've got a lot of momentum that we're excited about, and it's a big population of patients with unmet needs that we think is going to look like a $3 billion total addressable market in 2024,” Ullem continued.
Denhoy then asked about the litigation with Abbott, with Ullem replying that his company did not view it as in the best interest of patients. Jennings appeared to echo that view in one of the notes written in the wake of the July 13 announcement. “Given historic [transcatheter aortic valve replacement] litigation (EW vs. MDT, EW vs. BSX) never resulted in an injunction, we saw the brand risk as a significant deterrent as clinicians would look unfavorably upon companies when they remove transcatheter technologies that provide meaningful clinical value to patients. While not knowing the details of the impetus for the settlement, we would surmise this played a factor along with avoiding a prolonged legal battle,” Jennings added.
Also at last month’s meeting, Ullem noted that Edwards Lifesciences had appealed the decision in favor of Abbott in the U.K. "Our U.K. revenue is not expected to be meaningful in 2020, and it's not going to affect our disciplined commercial launch in other parts of Europe,” he added.
Optimism for litigation
In a separate, Abbott-focused note, Jennings said that company, which is based in Abbott Park, Ill., had expressed optimism about its chances in future trials. Still, “this settlement removes any risk that existed while also yielding the company a payment reward that could approach $500 [million] when factoring in potential milestone payments.”
Still, Biegelsen wrote in a note that Abbott had described the agreement differently, noting that it would receive a one-time payment and ongoing payments based on Pascal sales through 2025 and not 2024, in addition to a potential sales milestone payment in 2026. He went on to explain that Abbott should record the one-time payment in the third quarter. “It's our sense that the ongoing royalty payments may be higher for [Abbott] than [Edwards Lifesciences] given the different accounting treatments of the agreement.”
Still, he said the agreement should be a boon to both parties, with the litigation being more of an overhang for Edwards Lifesciences. In the end, "this agreement will likely benefit [Edwards Lifesciences] shares more so than [Abbott’s] shares. Our patent consultant's analysis and precedents in the UK and Switzerland lead us to believe [Edwards Lifesciences] likely infringed [Abbott’s] IP and this agreement validates our concerns.”
He also wrote that while Edwards Lifesciences can market Pascal globally, his group has modest expectations for the device, pointing to the slow development of the transcatheter mitral valve market. In addition, clinicians tend to be satisfied with Mitraclip, especially the new Gen 4 version. That should give some pause to switching to Pascal. “Therefore, while the agreement ... is positive for [Edwards Lifesciences], we continue to be concerned about the sales potential of Pascal,” Biegelsen wrote. His group modeled the company’s transcatheter mitral and tricuspid therapies sales, primarily related to Pascal, increasing from $39 million this year to $394 million in 2024.
While Abbott now may face competition from Edwards Lifesciences, Jennings foresaw continued momentum for Mitraclip. He highlighted a recent proposed coverage expansion of transcatheter mitral valve repair to include functional/secondary mitral regurgitation (FMR) from CMS.
“The coverage proposal stemmed from Mitraclip’s FDA approval for FMR last year, which in turn resulted from the device’s stellar COAPT study data, presented in late 2018,” Jennings explained.
A U.S. FDA approval and CMS coverage in FMR is expected to roughly double or triple the U.S. patient population eligible for Mitraclip, Jennings added. “Specifically, we estimate that the degenerative/primary MR (DMR) indication addresses 60,000 to 70,000 U.S. patients and that the FMR indication will address another 60,000 to 140,000 patients. Commercially, Mitraclip has significant traction that we anticipate will continue.”
In addition to COAPT, he also highlighted what he called impressive data that was unveiled at this year’s TVT and EuroPCR meetings. “For example, as seen at EuroPCR last month, four separate analyses of the global Expand trial demonstrated that Mitraclip consistently achieved significant MR reduction in patients with either DMR or FMR. The device was associated with MR reduction to ≤1+ in 87.1% of patients at 30 days for DMR and 90.1% in patients with FMR.”