The race for a new type of heart valve is getting serious.
Last week, Medtronic Inc. said it is paying $700 million plus future payments to buy CoreValve Inc., an Irvine up-and-comer in heart valves that don’t require major surgery.
CoreValve, which has annual sales of $35 million, makes a valve and catheter that’s inserted through an artery in the groin, rather than during open heart surgery.
Minneapolis-based Medtronic’s buy catapults CoreValve into direct competition with Irvine-based Edwards Lifesciences Corp., which has an early lead in less invasive valves.
Edwards is doing a U.S. trial of its less invasive Sapien valve with an eye toward a launch here in 2011. Sapien already is used in Europe and had $53 million in 2008 sales.
CoreValve’s product also is sold in Europe. Medtronic doesn’t expect it to be sold here until 2014.
The deal transforms CoreValve from a small challenger to Edwards to a key rival as part of Medtronic, the largest pure play medical device maker and second overall to Johnson & Johnson.
CoreValve expects to benefit from Medtronic’s “global footprint and resources,” CoreValve Chief Executive Daniel Lemaitre said.
“Whatever we thought we could do on our own, Medtronic is going to be able to take this technology farther and faster,” he said.
Less invasive valves are seen as the biggest development in the business in years. They’re inserted via a catheter through blood vessels in the leg or through an incision in the ribs,instead of cracking open the rib cage for open heart surgery.
Catheter valves are seen as broadening the market to patients who are too old or sick for major surgery.
CoreValve was seen as a takeover target as the No. 2 catheter valve maker after Edwards. But it wasn’t shopping itself, according to Lemaitre.
“To be fair, we were trying to keep our heads down and keep doing what was best for patients,” he said.
But CoreValve found it “hard to stay under the radar screen when you’re having that much commercial success,” Lemaitre said.
CoreValve’s sold more than 2,600 of its ReValving systems, which include its valve and catheter. They sell for $23,500 to $25,500 in Europe and other countries, including Canada.
Medtronic, which employs some 550 people at a heart valve plant in Santa Ana, came to CoreValve in November, after CoreValve had secured financing terms from a venture capital firm and what Lemaitre called “another strategic company.”
“The reality is that once a strategic (investor) was threatening to put money in it, I think it encouraged the Medtronic folks to be somewhat pre-emptive,” he said.
Lemaitre declined to say what other company was interested. Those that could have been interested include Johnson & Johnson and St. Paul, Minn.-based St. Jude Medical Inc.
Edwards, which would have faced regulatory scrutiny over competition concerns, wasn’t believed to have been involved.
“Just for pure competitive reasons, it would have been highly unlikely that Edwards would have been looking to invest in us,” Lemaitre said.
CoreValve and Edwards have been involved in patent infringement scraps in recent years.
Edwards could be looking to build on its early lead in catheter valves. Last month, Chief Executive Michael Mussallem told Reuters the company is looking at smaller players as valuations have come down.
“We are fortunate to have a strong balance sheet and we believe valuations are becoming more attractive,” Mussallem said. “This encourages us to seriously evaluate these kinds of opportunities. We would love to make some investments.”
Analyst Sean Lavin of Lazard Capital Markets LLC in New York said he sees Medtronic’s buy of CoreValve and Ventor Technologies Ltd., an Israeli company, as a “major negative” for Edwards.
Edwards, St. Jude Medical Inc. and others “may go shopping” for catheter valve developers, according to Lavin.
Edwards didn’t comment about the CoreValve deal except to say, “Our plans have always addressed the expectation that (rivals) would enter this field.”
“Edwards has a two-year lead,” said Tim Nelson, an analyst with U.S. Bancorp’s FAF Advisors Inc., an investment manager. “CoreValve hasn’t started a U.S. clinical trial yet. They have a lot of catching up to do.”
Edwards got into catheter valves in 2003 when it paid $125 million for New Jersey startup Percutaneous Valve Technologies Inc.
Medtronic is paying nearly six times that for CoreValve, William Blair & Co. analyst Benjamin Andrew noted.
Even so, Nelson said he doesn’t think Medtronic overpaid.
Catheter valves are “one of the most exciting new technologies and new growth areas in all of cardiology,” he said. “It’s in the heart of Medtronic’s sweet spot; they’re going to have to be there.”
Medtronic spokesman Daniel Beach declined to give a timetable for when the CoreValve buy will close. The deal has been cleared by CoreValve’s board but requires regulatory approval.
CoreValve, which has 115 employees in Irvine, was founded in 2001 by Jacques S & #233;guin, a French heart surgeon. The company originally was based in Paris before switching its corporate headquarters to Irvine in 2006.
Lemaitre, who became CoreValve’s chief executive in 2008, said that most of CoreValve’s management team is expected to stay with the company.
MEDTRONIC
– Paying $700 million-plus for Irvine’s CoreValve
– Headquarters: Minneapolis
– Business: heart, diagnostic, spinal implant devices, other
– Projected sales for 12 months through April: $14.6 billion
– Market value: $35 billion
– Employs 550 workers at Santa Ana heart valve plant
EDWARDS LIFESCIENCES
– 2003: paid $125 million for New Jersey’s Percutaneous Valve Technologies
– Headquarters: Irvine
n Business: heart valves, related products
– Projected 2009 sales: $1.3 billion
– Market value: $3.2 billion
– 2,000 local workers, plans to hire 250
