By Joseph Walker
Volcano Corp. (VOLC) won a legal victory in a patent dispute
with larger competitor St. Jude Medical Inc. (STJ) Friday that has
lessened, though not completely removed, a large risk factor
hanging over the company.
A Delaware jury ruled that Volcano's heart artery diagnostic
tool did not violate four of St. Jude's patents. St. Jude filed the
infringement claims in 2010, asking the court to award it cash
damages and to place an injunction on sales of patent-infringing
Volcano products. Volcano has since counter-sued, and a jury trial
began Monday in that suit. A verdict is expected by the end of the
week.
Though St. Jude is expected to appeal Friday's decision,
Volcano's win is encouraging for investors attracted to its growth
potential, but who were weary of the company losing the patent
battle with St. Jude.
"We view this win as a best-case scenario for VOLC as it removes
a headline risk," Leerink Swann analyst Danielle Antalffy wrote in
a research note.
Volcano shares are up 4.9% Monday, to $28.18.
Shares of St. Jude were at $39.48, down 2 cents.
St. Jude declined to comment, citing the ongoing litigation.
Volcano had the most to lose in last week's decision, analysts
said, as the products in question account for nearly a quarter of
its revenues. The company faced losing $30 million in an upfront
payment, and then between 15% and 25% of its free cash flow over
the next five years, Goldman Sachs estimated.
St. Jude, with a market capitalization nine times that of its
smaller competitor, relies less on the diagnostic tools, which make
up just 2% of its revenue, Goldman estimates.
The patent litigation relates to diagnostic tools that monitor
how much blood is flowing through heart arteries, also known as
fractional flow reserve. The tools are used by physicians to decide
whether patients need to have stents implanted to clear pathways
for blood to get to the heart. The market for such devices is
expected to nearly triple, to $600 million by 2016, Goldman
projects.
The jury verdict was disclosed by Volcano in a Securities and
Exchange Commission filing after the bell on Friday. A Volcano
spokesperson said the company was not able to comment until the
completion of this week's trial.
Write to Joseph Walker at Joseph.Walker@dowjones.com
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