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Will Edwards Snatch Defeat From The Jaws Of Its Victory Over Medtronic?

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This article is more than 9 years old.

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On the heels of a sweeping victory in the courts over its rival Medtronic, Edwards Lifesciences is poised to dominate the TAVR (transcatheter aortic valve replacement) market-- the revolutionary new catheter technology that offers some patients with life-threatening aortic valve disease an alternative to chest-splitting surgery. Although the legal wrangling is not quite over-- Medtronic is appealing the decision and has requested that enforcement of the injunction be postponed-- it appears likely that Edwards will ultimately achieve a broad legal and business victory.

But Edwards' unprecedented victory also presents an unprecedented challenge to the company . While the court appears to have given Edwards everything it wished, the ultimate result could produce significant harm to Edwards' relationship to the interventional cardiologists who are its core customers. More importantly, there is now a distinct possibility that at least for several years many people who could possibly benefit from the Medtronic technology will not be able to get it.

A Decisive Victory

In last week's ruling a federal judge delivered a broad ruling in favor of Edwards:

Enforcing patent rights is especially important where there is egregious conduct to be addressed and deterred, as there is here. Medtronic disregarded the law in infringing Edwards' patent and boldly continued to thumb its nose at the law by continuing its conduct even after being found to be a willful infringer. The court cannot ignore the fact that it would serve as a reward of sorts to Medtronic and an incentive for onlookers to behave as Medtronic has should the court permit Medtronic to freely commence sales of its device. In light of all the relevant considerations, the court finds that the public interest weighs in favor of granting Edwards a preliminary injunction, subject to an accommodation for Medtronic to sell its devices to those patients who cannot be helped by Edwards' devices.

Most observers believe that Medtronic has known for a long time that it was likely to lose the case but decided that the long-term advantage of a secure foothold in this lucrative new market was worth nearly any short-term penalty. From a legal and business perspective it is hard to disagree with the judge when he states that "the public interest weighs in favor" of the injunction against Medtronic.

But it's also possible that Medtronic is simply in a state of denial. In a press release issued on Saturday Medtronic completely ignores the fact that a jury found that it had infringed on the patent, that this decision was upheld by an appeal court, and that the Supreme Court declined to review the case. Medtronic's logic appears to be that it can simply ignore court decisions with which it disagrees. It's easy to imagine that Edwards may find it difficult to negotiate with the company in this circumstance.

In a letter (PDF] sent to its "trusted clinical partners" the CEO of Edwards laid out his company's case:

To fully understand the court’s extraordinary ruling, it is important to review the extraordinary history of how we got here. As an investor in Percutaneous Valve Technologies (PVT) in 2002, Medtronic was well aware of PVT’s foundational Andersen patent. Edwards acquired PVT in full in 2004, and incorporated its technology into what is today the SAPIEN family of valves. As a result, Medtronic has known for more than a decade about the significance of the Andersen patent for transcatheter valve development. CoreValve, then an independent company, was informed in 2005 that their device infringed the Andersen patent, and this case was filed by Edwards in 2008. Despite this information, Medtronic decided to acquire CoreValve in 2009. A federal jury in 2010 found Medtronic to be a willful infringer of the Andersen patent. Additionally, in 2014, Medtronic CoreValve was found to willfully infringe a second Edwards patent.

A Lesson From The Past

There is an instructive, but by no means perfect, historical analogy here. In the 1990s Johnson & Johnson pioneered the stent market. In the early 2000s it pioneered the drug-eluting stent market. On both occasions, as I've previously written, the company completely revolutionized the field of interventional cardiology, and on both occasions the company spectacularly lost its leading position and failed to build a successful long-term stent business. On each occasion the company sought to exploit its early monopoly position by charging exorbitant prices for its stents. The result, on each occasion, was that the company alienated its core customers, hospitals and interventional cardiologists. As soon as alternative devices became available they were rapidly adopted by a marketplace weary of J&J’s strongarm tactics. In 2011 J&J announced that it would no longer complete in the multibillion dollar stent marketplace.

The J&J cases were not primarily about patents, but it should be noted that shortly before it exited the market J&J collected a $1.75 billion dollar payment from Boston Scientific for patent infringement. J&J won the patent battle and collected a big check but it lost the stent wars. Boston Scientific, by contrast, paid a huge penalty but today plays a major role as an active participant in the lucrative stent market. One lesson to be learned is that a strong patent position is no guarantee of long-term market domination.

I don't want to push the analogy too far. There are many important differences between the J&J stories and the Edwards story. But the analogy does help highlight the danger facing Edwards at the moment of a great success.

The Downside of Victory

Edwards is attempting to portray itself as behaving generously toward Medtronic. In a letter last week to its "Trusted Clinical Partners" the CEO of Edwards wrote that the company was "not seeking a total ban on CoreValve" in order to allow some patients to be treated with CoreValve:

In spite of the violations of our intellectual property, we are not seeking a total ban on CoreValve sales, because we understand the implications that could have for patients and physicians. In fact, we put forward multiple offers, in court and directly to Medtronic, that would allow patients to continue to be treated with CoreValve. But, unfortunately, they have refused these offers. We encourage Medtronic to accept our standing offer to enable use of CoreValve at U.S. hospitals where it is commercially available today.

Here is the danger for Edwards: the availability of CoreValve only at hospitals where it is currently available today means that the majority of patients will have no opportunity to receive CoreValve. But a substantial number of physicians would likely choose CoreValve if they had a free choice. Edwards appears to be determined to minimize the availability of CoreValve in the US.

Clinically, choosing between CoreValve or Sapien is difficult because we are operating with imperfect and incomplete information. There's simply not enough information available now to allow anyone to truly decide which device is best. CoreValve is available in a broader range of sizes than Sapien, so for some patients it is the only option, but for most patients the decision can only be based on opinion and guesswork. There have been no large-scale randomized comparisons of the devices designed to evaluate clinical outcomes.

This problem is compounded because the judge's decision came shortly after FDA approval of CoreValve and the release of a highly positive clinical trial showing that CoreValve was superior to surgery in some patients. Prior to these events a sweeping injunction restricting CoreValve would have been far less problematic.

Then there's the matter of price and related economic considerations. The issue cuts both ways. Clearly patent protection allows a company to charge more for its product. Edwards has argued that Medtronic will charge less for CoreValve and that Edwards will have reduced profitability because it will have to lower its price in order to compete. So, yes, Edwards will be harmed by competition. Payers, of course, may have a different view of the matter but defenders of capitalism and patents will respond that this is the only way to provide economic incentives to true innovation.

An argument in favor of severely restricting CoreValve now is that if it remains on the market Medtronic will probably pay significant penalties until the patent expires in 2016, but the company will benefit enormously after 2016 from having a much larger initial presence in the market. If there are no major restrictions now analysts believe Medtronic could have 50% of the market in 2016.

The dilemma facing Edwards is illustrated in a Wall Street Journal article published on Friday. Its headline-- 'My Father Is Going to Die From Red Tape'-- is a perfect example of the public relations battle Edwards will likely face.

The story focuses on a 78-year-old patient for whom a CoreValve procedure had been planned. Now, WSJ reporter Joseph Walker writes, because of the injunction

His doctor Augustin DeLago, director of interventional cardiology at Albany Medical Center in upstate New York, wants to move up the procedure to implant the valve before the injunction takes effect. But because of the dispute, he isn't sure he can get a valve from Medtronic in time. Dr. DeLago said he was told by a Medtronic representative that the devices are in short supply because of hospitals seeking to move up procedures prior to the injunction on Tuesday.

"My father is going to die from red tape," said Wendy Badala, Mr. Palczynski's daughter.

The emotional impact of these anecdotes will be difficult for Edwards to overcome.

A fair solution may be impossible to achieve. On the one hand, Edwards deserves the full benefit from developing the new technology and Medtronic should not benefit from willfully infringing Edwards' patents. On the other hand, physicians and their patients should be able to choose from products whose safety and efficacy have been convincingly demonstrated. It seems unlikely that these competing interests can be fully resolved. The medical community can only hope that the courts and the companies can somehow reach a compromise that at least approximates a fair balance.

Update:

Late on Monday afternoon Medtronic announced that the Federal Circuit Court of Appeals had granted Medtronic's request to postpone the implementation of the injunction. Medtronic said "the injunction will only take effect if the appellate court determines the injunction was properly issued." Last week the Court of Appeals announced an expedited appeal of the injunction. In a statement Edwards said that the postponement "does not reverse the federal jury’s finding of Medtronic’s willful infringement, for which all appeals have been exhausted, and does not affect the determination of additional damages."

Also on Monday a representative from Edwards said that the company had "cleared the path" for the patient in the Wall Street Journal article to receive a CoreValve.