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Heart-Valve Win May Prod J&J, Abbott to Buy Companies

Edwards Heart-Valve Win May Spur J&J, Abbott Push to Acquire
The Sapien transcatheter heart valve made by Edwards Lifesciences Corp. Source: Edwards Lifesciences Corp via Bloomberg

Abbott Laboratories and Johnson & Johnson, pursuing a potential $2 billion market for heart valves that don’t require rib-cracking surgery, are shopping for companies with the new technology.

The two device-and-drug makers are seeking to catch up with Edwards Lifesciences Corp., the Irvine, California-based device maker whose new valve, called Sapien, cut death rates in a study in patients too sick to have open-heart surgery. Edwards is testing whether the technology, which inserts the valve using a thin wire threaded through arteries, works as well in less-feeble patients, trimming recovery time to weeks from months.

Edwards’ finding “tilts the probability of earlier stage merger and acquisition transactions,” said Jed Cohen, a managing director at Leerink Swann in New York. J&J, of New Brunswick, New Jersey, and Abbott, of Abbott Park, Illinois, are likely to target smaller, more-efficient technology to help them overcome Edwards’ head start.

“All the big corporations that are not in this space, and even some that have their own internal programs, are looking” to buy, said Antoine Papiernik, managing partner at Sofinnova Partners in Paris, in a telephone interview. “People are opening up their eyes to the idea that transcatheter valves are a revolution, like stents were to coronary artery bypass.”

If the ongoing trial is as positive as the initial result, the market for the new aortic valves may reach $2.1 billion by 2015, said Larry Biegelsen, a Wells Fargo Securities analyst based in New York, in a note to investors.

First U.S. Clearance

Edwards may seek U.S. marketing approval for its valve by the fourth quarter of 2011, said Michael Weinstein, of JPMorgan Securities in New York, in a Sept. 23 note to clients.

The device maker fell 30 cents, or less than 1 percent, to $66.16 at 4 p.m. in New York Stock Exchange composite trading, and has increased 64 percent in the past 12 months. J&J fell 36 cents, or less than 1 percent, to $63.95, and Abbott dropped 12 cents to $50.17.

Edwards already sells its Sapien heart valve in Europe, and reported worldwide sales of $112 million from transcatheter valves in 2009. It competes there with Medtronic Inc.’s heart-valve device acquired through a $700 million purchase of CoreValve in February 2009.

“With a very large market, people tend to think it is winner-take-all, and it looks that way in the beginning,” said David Singer, a partner at the San Francisco office of Maverick Capital Ltd., a Dallas-based hedge fund that was an early investor in CoreValve. That doesn’t mean that companies that aren’t first to market won’t be able to capture sizable sales if they can show their products work better for some patients, Singer said.

Valve Companies

Closely held companies working on heart-valve technology include Munich-based JenaValve Technology; Direct Flow Medical Inc., of Santa Rosa, California; Sadra Medical Inc., based in Los Gatos, California, and Symetis SA of Lausanne, Switzerland.

Founded in 2006, JenaValve has raised $46.8 million (33.5 million euros) from six European and one U.S. venture capital firm to develop its technology.

The company is developing two valves that can be implanted through incisions in either the upper leg or chest, said Helmut Straubinger, the company’s chief executive officer. The system is designed to enable doctors to position the valve more accurately, he said.

A smaller delivery system would allow doctors to maneuver the device more easily through patients’ arteries, especially people with tinier blood vessels. An easier-to-maneuver system may persuade more doctors to adopt the technology, growing the market, said Dan Gladney, CEO of Heart Leaflet Technologies of Maple Grove, Minnesota, acquired in April by Bracco SpA of Milan.

Cost for Studies

Clinical studies needed to get a heart valve approved in the U.S. may cost $40 million to $50 million, Gladney said.

“It’s a significant cost, but at the same time you’re looking at an opportunity that will be in the neighborhood of $2 billion,” Gladney said.

It’s unlikely that any of the smaller valve makers will fetch the $700 million price tag that Medtronic paid for CoreValve, said Leerink Swann’s Cohen. Medtronic also bought another heart valve maker, Ventor Technologies Ltd., for $325 million, in February 2009.

J&J, the world’s largest maker of health products, had $12.7 billion in cash and cash equivalents as of June 10 to pursue acquisitions. Sales of medical devices and diagnostic equipment, comprising 38 percent of its 2009 revenue, were $23.6 billion.

‘Very Interested’

J&J’s Cordis unit no longer has an internal program to develop a transcatheter aortic valve, though the company remains “very interested” in the technology, said Seth Fischer, Cordis group chairman, in a June investor call. Bill Price, a spokesman for J&J, declined to comment about potential acquisitions.

Abbott, a maker of drugs and medical devices, had $4.3 billion in cash as of June 10. In November 2009, Abbott acquired Evalve Inc., which makes transcatheter devices for a different part of the heart --the mitral valve -- for $320 million. Evalve’s product can also be implanted without the need for chest-cracking surgery.

Jonathon Hamilton, an Abbott spokesman, declined to comment about potential acquisitions.

In the Edwards’ study, published Sept. 22 in the New England Journal of Medicine, the company’s Sapien heart valve reduced death rates by 20 percentage points in frail, elderly patients with heart valve damage compared with standard treatment. The valves are used to treat a condition known as aortic stenosis, a narrowing of the heart’s aortic valve that ordinarily ensures proper blood flow.

Findings in 2011

Edwards is expected to present findings from a second phase of the trial involving hardier patients in the first half of


Edwards’ success “helps us from the exit-strategy standpoint because it increases the value in the eyes of the acquirers,” said Peter Barrett, an investor in JenaValve and a partner at Atlas Venture, a life-sciences and technology venture capital firm in Waltham, Massachusetts. “It does increase the likelihood of someone wanting to acquire in this space.”

Medtronic, which doesn’t break out sales of individual products, said more than 12,000 CoreValve devices have been in 35 countries. Medtronic received Food and Drug Administration approval on Oct. 15 to begin U.S. clinical studies of its CoreValve device.

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