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Japan Earthquake Aftermath: Challenges for Device Makers

This month’s 9.0 earthquake and tsunami in Japan could disrupt sales for Irvine-based Edwards Lifesciences Corp. and other American medical device makers, some of which also are likely to see production problems, according to a Deutsche Bank analyst.

Japan is a major market for device makers, accounting for about 8% of the combined sales of a dozen top device makers.

The island nation has a prosperous, aging population and a strong healthcare system. It’s the second-largest market for medical devices after the U.S., with $25 billion in annual sales, according to figures from Bethesda, Md.-based consulting firm Pacific Bridge Medical.

The March 11 earthquake and tsunami in Japan killed at least 10,000 people and damaged a nuclear power plant in Fukushima, north of Tokyo.

Edwards and other heart-valve makers—including Boston Scientific Corp. of Natick, Mass., and Little Canada, Minn.-based St. Jude Medical Inc.—face hurdles in the aftermath of the disaster, said Deutsche Bank analyst Kristen Stewart in a recent client note.

Edwards has an office and distribution center in Japan and gets 17% of its annual sales of $1.45 billion from the country, Stewart said.

The device maker told Reuters in an e-mail that it expects some temporary disruption of its distribution in Japan but does not expect the earthquake to materially affect financial results.

Deutsche Bank pegs Boston Scientific’s Japanese sales at 12% of its total, St. Jude’s at 11% and Kalamazoo, Mich.-based Stryker Corp.’s at 10%.

Other device makers are seeing effects of the Japanese disaster.

Volcano Corp., a San Diego company that got its start in Laguna Niguel, saw its shares fall 5% on March 15, four days after the earthquake. The dip came on concerns that it generates 30% of its yearly revenue of $294 million in Japan.

Volcano makes an ultrasound device used to examine blood vessels.

Franklin Lakes, N.J.-based Becton Dickinson & Co., which gets 5% of its total sales in Japan, has a syringe plant in Fukushima that it closed temporarily while assessing the situation. Becton Dickinson has about 550 workers between facilities in Fukushima and Tokyo.

Analysts have said that most medical device makers with a presence in Japan can expect some lost sales.

“We would expect greatest disruptions to the more elective surgical procedures as hospitals in the affected areas focus on critical care in the coming days,” Derrick Sung, an analyst with New York-based Sanford C. Bernstein & Co., told Reuters.

Edwards in $43M Buy

In other Edwards news, the company said it bought Embrella Cardiovascular Inc. for $43 million in cash.

Embrella is based in Wayne, Pa., a Philadelphia suburb. It developed a single-use disposable deflector device that deflects embolic material, or blood clots, away from the area where doctors insert transcatheter heart valves in patients.

Edwards said Embrella’s device can be used during transcatheter heart valve procedures without blocking blood flow to the brain.

Embrella’s Embolic Deflector System was assessed in a limited European clinical trial and received regulatory approval there last year.

Buying Embrella “supports our strategy to extend Edwards’ global leadership in transcatheter heart valves,” said Larry Wood, Edwards’ corporate vice president, transcatheter valve replacement, in a release.

Watson Wins Legal Round

Drug maker Watson Pharmaceuticals Inc.’s generic version of a cancer drug doesn’t infringe on a pair of patents licensed to a big biotech maker, a federal judge ruled earlier this month.

Watson is located just across the county line in Corona.

The U.S. District Court in Wilmington, Del., ruled that Watson’s generic version of the Fentora cancer drug doesn’t infringe on two patents held by Fentora’s creator, Frazer, Pa.-based Cephalon Inc.

Cephalon sued Watson for patent infringement in 2008 after Watson filed applications to produce the generic form of Fentora, which is used to treat breakthrough cancer pain.

Allen Chao, Watson’s founder, lives in Anaheim Hills. His family is a major player in Orange County’s philanthropic scene. The Chao Family Comprehensive Cancer Center at the University of California, Irvine, is named for them.

Bits and Pieces

NextGen Healthcare Information Systems Inc., a suburban Philadelphia business unit of Irvine’s Quality Systems Inc., is participating in a newly formed work group of the Health Information and Management Systems Society’s Electronic Health Record Association. The work group’s duties include making proposals to the government for stage-two meaningful use criteria for electronic health records … Pharmaron Holding Ltd., an Irvine company that helps other companies discover and develop drugs, said it had a deal to supply nucleoside phosphoramidites to Carlsbad’s Isis Pharmaceuticals Inc. Isis is working on what are known as “antisense drugs,” which deactivate RNA in certain genes.

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