Medtronic Catapults Into Transcatheter Valve Market With Billion-Dollar Buys
Full article reprinted from "The Gray Sheet" - March 2, 2009
Find out how Medtronic will enter the high-growth, minimally invasive aortic heart valve market through two acquisitions worth more than $1 billion.
The firm announced Feb. 23 that it will acquire CoreValve for $700 million, plus milestone payments, and earlier-stage Israeli firm Ventor Technologies for $325 million.
The deals are not a big surprise. Medtronic made its plans public last year to enter the nascent transcather aortic valve space, which some analysts project could become a billion-dollar-plus worldwide market in five years.
While the device giant already has some intellectual property covering percutaneous delivery of aortic heart valves, Medtronic was still years away from getting a product into pivotal trials on its own.
With CoreValve, whose CEO Daniel Lemaitre is a former Medtronic senior VP, and Ventor, Medtronic will be in a better position to compete with Edwards LifeSciences, which up until now has been the largest company with a transcather aortic valve.
CoreValve Ahead In Europe, Behind In U.S.
The purchase of privately-held CoreValve immediately makes Medtronic the market leader in Europe for minimally invasive aortic valves. CoreValve's ReValving percutaneous valve, inserted via the femoral artery, controls about 56% of the approximately $80 million-$100 million market against its only competitor, Edwards' Sapien.
But Medtronic will likely still lag well behind Edwards in the U.S., where transcatheter valves have yet to reach the market.
Edwards aims to complete enrollment of its 1,040-patient FDA pivotal trial this year and to launch Sapien in the U.S. before the end of 2011 (though some analysts believe 2012 is more realistic), whereas Medtronic projects a U.S. launch of its first transcatheter aortic valves - an offering each from the CoreValve and Ventor portfolios - in 2014.
The CoreValve deal includes plans for two $75 million milestone payments. The first is contingent on investigational device exemption approval for ReValving's approximately 1,100-patient pivotal U.S. trial by March 2010. The second depends on the product generating at least $150 million in revenue in Europe by December 2012.
Despite its market leadership in Europe, ReValving is only marginally profitable for CoreValve because the firm relies so heavily on third-party distributors. Medtronic does not immediately plan to adjust distribution channels for the valve, though a direct sales operation will be established over the longer term, according to Medtronic spokesman Daniel Beach.
"They have done an excellent job of building the necessary infrastructure to educate physicians and a lot of that is done through their distribution," he said in an interview. Physician education "is going to be as valuable to the long-term future of the transcatheter valve segment as the refinement of the technology."
Medtronic Gains Two Valve-Delivery Approaches
The deal for privately-held Ventor does not include milestone payments. But Medtronic says it plans to hit the ground running in initiating a U.S. pivotal trial for the investigational stage firm's Embracer transapical-delivered valve.
"Our focus for the moment is that we have an IDE approved as rapidly as possible," Beach said.
To compete with Edwards on all fronts, the goal is to launch Embracer domestically alongside ReValving in 2014, he explained.
Edwards' Sapien is available in Europe using two delivery approaches. It can be inserted transfemorally, beginning with an incision in the groin, or transapically, via a small incision in the rib cage. The former is performed primarily by interventional cardiologists and the latter by cardiac surgeons. Edwards' intricately designed U.S. trial is evaluating both approaches.
With ReValving limited to transfemoral delivery, Medtronic's ability to access the transapical market through Ventor is important, particularly since about 70% of patients needing valve replacements have anatomies that don't make them candidates for the femoral approach, Beach explained.
With smaller valve designs, the proportion of patients who are candidates for the percutaneous femoral artery procedure will substantially increase. But, Beach said, "Even when the devices get smaller, which they will with our planned second- or third-generation transfemoral approaches, there is still going to be at least 20% of the market that is going to [need] the transapical approach."
Farther back in Ventor's pipeline is a transfemoral valve technology that Medtronic plans to integrate with CoreValve intellectual property as well as Medtronic IP - providing a next-generation transfemoral product down the road, Beach noted.
The transcatheter aortic valve technology from CoreValve and Ventor also complements Medtronic's Melody transcatheter pulmonary valve, which is available outside the United States and slated to debut domestically by 2010 (1"The Gray Sheet" Nov. 17, 2008, p. 12).
Deals Validate Market, But Challenges Remain
While market analysts agree that Medtronic's move puts more pressure on Edwards, they generally also see it as a positive sign for the market.
For Edwards, "We see Medtronic's deals as more validation than increasing competitive risk," writes Morgan Stanley's David Lewis in a Feb. 23 research note. "This is a large market. Edwards has plenty of resources in valves ... to compete, and remains 2-3 years ahead in the U.S."
Wachovia's Larry Biegelsen points out that Edwards and Medtronic already compete in the surgical valve arena, where Edwards maintains a leadership position and where Medtronic has recently lost some market share. This "suggests to us that Edwards can compete effectively versus Medtronic," he writes Feb. 23.
But how the minimally invasive aortic heart valve market will play out is far from clear, particularly in the U.S., where the path to approval is perilous.
Edwards' PARTNER U.S. pivotal trial required a redesign mid-stream, causing the company to delay its target launch date from 2009 to 2011 (2"The Gray Sheet" Dec. 17, 2007, p. 10). And some cardiologists say the company will be challenged to get good enough mortality data to convince FDA of success in every arm of the pivotal trial.
Patients in the arm comparing transapical delivery and open surgery have a relatively large number of comorbidities, making it difficult to reach a statistically significant result, some point out (3"The Gray Sheet" Aug. 11, 2008, p. 21). Also, a PARTNER U.S. investigator has voiced concerns that the mortality endpoint will be tough to reach in the arm comparing transfemoral valve delivery with drug therapy (4"The Gray Sheet" Oct. 20, 2008, p. 16).
Medtronic will not be immune to clinical development challenges, either. "It is going to be necessary to develop an awful lot of clinical evidence for these valves," spokesman Beach acknowledged.
Further, the different product platforms each have inherent plusses and minuses. The ReValving device is ahead in the European market primarily because it is has a smaller profile compared with Sapien, and, thus, can be used in a greater number of transfemoral procedures. Edwards is developing a smaller diameter version of Sapien that it plans to have ready in Europe in 2010.
Both CoreValve's and Ventor's products are built on a nitinol stent frame, whereas Sapien has a stainless steel foundation. Nitinol allows the products to be self-expanding and to be retracted and repositioned during valve delivery. But FDA's prior experience with nitinol stents has led the agency to take extra care in checking for the likelihood of stent fractures, a matter that may be contributing to delays in getting the ReValving U.S. trial up and running.
The picture could become cloudier before it gets clearer as other big players enter the space. St. Jude Medical announced earlier this year its plans to initiate transcatheter aortic valve trials. While Johnson & Johnson also is developing transcatheter valves, some market watchers speculate that J&J could eventually seek to buy Edwards (5"The Gray Sheet" Feb. 16, 2009, p. 8).
The Medtronic deals, says J.P. Morgan analyst Michael Weinstein in a Feb. 23 note, increase Edwards' "scarcity value, as its Sapien platform now represents the only remaining late-stage asset available for other players eyeing [an] entry."
That said, Weinstein doesn't expect an acquisition of Edwards to be considered until mid-2010 at the earliest, when there could be more clarity on the outcome of the Sapien pivotal trial.
- David Filmore
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