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Boston Scientific Keeps Us Guessing on Recent Legal Victory

Boston Scientific won the right to stop Edwards Lifesciences from selling its Sapien 3 Ultra valve in Germany, but whether or not the company will exercise that right is unclear.

Boston Scientific has a big decision to make in Germany, and the clock is ticking.

Earlier this week, a German court sided with Boston Scientific in a patent case involving its transcatheter aortic valve replacement technology. The court decided that Edwards Lifesciences' Sapien 3 Ultra device infringed on a patent by Boston Scientific subsidiary Symetis that has to do with the fabric used on the valve seal. Edwards plans to appeal the decision and said the German court will hold a full hearing on the dispute next year.

In the meantime, Boston Scientific has the right to prevent sales of the Sapien 3 Ultra in Germany. It is unclear at this point if the company will enforce that right or not, but it only has 30 days to decide, putting the deadline at Nov. 23.

The Sapien 3 Ultra valve is not on the market yet and the latest court decision has no effect on sales of the Sapien 3 or Centera valves. Edwards expects to receive a CE mark for the Sapien 3 Ultra valve during the fourth quarter and is planning to implement a controlled rollout of the new device that will include training.Boston Scientific currently offers the Acurate neo transcatheter aortic valve system (inherited through its Symetis acquisition) in some European markets and is seeking a CE mark for a second-generation version of that device, which is expected during the first half of next year. The company also has the Lotus Edge system, which received a CE mark in 2016 but has been plagued by problems ever since. The company now expects to have the Lotus Edge system on the European market early next year, with FDA approval anticipated in the middle of the year.

In 2017 the same German court ruled that Edwards' Sapien 3 device, which is on the market, infringes two Boston Scientific patents. That ruling, which Edwards also appealed, gave Boston Scientific the right to stop Sapien 3 sales in Germany, but the company has not yet enforced that option.

Both companies held third-quarter earnings calls shortly after the latest court decision was announced, so naturally, analysts on both calls probed for insight into how the injunction decision might play out.

"If you don't exercise your option on Ultra, you'd lose some of your leverage," Larry Biegelsen, a medtech analyst for Wells Fargo Securities, said during the question and answer portion of Boston Scientific's call. "Investors have assumed that you haven't enjoined Sapien 3 in Germany because you've been supply constrained, but that situation, I believe, is changing."

CEO Mike Mahoney assured Biegelsen and other listeners that the company has made strong progress with both Lotus and Acurate.

"Our ability to supply with Acurate has been significantly enhanced over the past year, the ops team has done a great job with that and we continue to actually build another facility to support Acurate. And we're excited about the launch of Lotus in Europe."

As for the Sapien 3 Ultra enjoinment question, Mahoney declined to comment except to say that, "We've got some options here and I think we'll continue to play it out."

During Edwards Lifesciences' third-quarter earnings call, Biegelsen also asked CEO Mike Mussallem about the latest legal development in Germany.

"I spoke with an investor today, he said, 'I love what Edwards is doing in transcatheter heart valves and I’d like to buy this stock. But frankly, I’m concerned Boston could potentially enjoin both Sapien 3 and Ultra in Germany any day.' And I know you’re appealing those decisions, but in the meantime, Boston does have that option," Biegelsen said. "So Mike, if you were speaking to that investor, how would you relay his or her concern?"

Mussallem acknowledged that Boston Scientific has initiated litigation involving a number of patents in multiple countries which is likely to yield a number of court actions over an extended period of time. However, he said the recent developments have not changed the company's view that Boston Scientific's patents are invalid and he said the company is confident in its leading IP position.

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