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Edwards Lifesciences Corp 8-K Report, Material Agreement (May 20, 2014)

Filed May 20, 2014For Securities:EW

Summary

Edwards Lifesciences Corporation (EW) announced a significant settlement agreement with Medtronic, Inc. on May 20, 2014, resolving all outstanding patent litigation between the two companies, particularly concerning transcatheter heart valves. This agreement includes an eight-year non-litigation pact in the field of transcatheter heart valves, providing substantial clarity and stability for both entities. Key financial implications for Edwards include an upfront payment of $750 million from Medtronic and ongoing quarterly royalty payments through April 2022. These royalties are expected to range from $40 million to $60 million annually for U.S. sales of Medtronic's transcatheter aortic valves, with additional modest royalties on valves manufactured in the U.S. but sold abroad. The company plans to use the net proceeds from this settlement, after an estimated 36% tax rate, to repay outstanding bank debt and for strategic long-term investments.

Key Highlights

  • 1Settlement of all patent litigation with Medtronic, Inc., including transcatheter heart valve disputes.
  • 2Eight-year agreement preventing future patent litigation between Edwards and Medtronic in the transcatheter heart valve space.
  • 3Upfront payment of $750 million received from Medtronic as part of the patent cross-license agreement.
  • 4Quarterly royalty payments from Medtronic projected from May 2014 through April 2022.
  • 5Annual U.S. transcatheter aortic valve royalty payments expected between $40 million and $60 million.
  • 6Edwards plans to use post-tax upfront payment proceeds to reduce debt and fund strategic investments.
  • 7Estimated 36% tax rate on royalties and upfront payment.

Frequently Asked Questions

The primary impact is the resolution of all patent litigation with Medtronic, Inc., which provides significant legal and operational certainty. This settlement includes a substantial upfront payment and ongoing royalties, positively impacting Edwards' financial position and future revenue streams.

Edwards Lifesciences intends to use the net proceeds from the $750 million upfront payment, after accounting for an estimated 36% tax rate, to repay outstanding bank debt under its credit facility and for other investments aligned with the company's long-term strategic objectives.

Medtronic will pay Edwards quarterly royalty payments through April 2022. For sales in the United States, these royalties are based on a percentage of Medtronic's transcatheter aortic valve sales, with a minimum annual payment of $40 million and a maximum of $60 million. Modest royalties will also apply to U.S.-manufactured valves sold internationally.

The agreement specifically prevents patent litigation between Edwards and Medtronic in the field of transcatheter heart valves for an eight-year term. However, it does not preclude either company from innovating or competing in the market, as long as it does not infringe on existing patents covered by the cross-license.