Volcano gains 7% on legal win over St. Jude Medical as 2nd trial begins

St. Jude Medical, Volcano Corp.

UPDATED 11:00 a.m. Oct. 23, 2012, with new Volcano product launch.

Volcano (NSDQ:VOLC) shares jumped 7% yesterday after it won the 1st of 2 lawsuits against St. Jude Medical (NYSE:STJ), as the 2nd trial gets underway in Delaware.

St. Jude sued Volcano in July 2010 in the U.S. District Court for Delaware, accusing it of violating a quintet of patents St. Jude acquired in its 2008 buyout of Radi Medical Systems AB, a Swedish guidewire maker.

In the 1st trial, a Delaware jury ruled that 2 Volcano patents for fractional flow reserve technology don’t infringe St. Jude Medical and that 2 St. Jude patents are invalid.

The news sent VOLC shares up 12.3% yesterday to a near-52-week high of $30.15 on heavy volume, before prices subsided to a $28.74 close, for a 7.0% gain on the day. VOLC shares were trading at $28.41 as of about 10:45 this morning, down 1.2%.

The patents at issue cover devices that use a sensor to measure arterial blood pressure by calculating fractional flow reserve associated with stenosis in patients with coronary artery disease. The original lawsuit alleges that San Diego-based Volcano’s PrimeWire system violates the patents; Volcano’s countersuit alleges that St. Jude patents violate the IP with its PressureWire device.

During the first day of the trial yesterday, lawyers for both sides claimed their clients were the originators of the technology, according to Bloomberg.

Volcano “invented the technology,” attorney Frank Scherkenbach told jurors, saying that STJ’s versions “perform substantially the same way.”

St. Jude attorney John Allcock claimed the title of “true innovator” for STJ, according to the website.

“They came up with a revolution,” Allcock said.

The jury’s decision in the 1st trial is a best-case scenario for Volcano, according to Leerink Swann analyst Danielle Antalffy, "as it removes a headline risk."

"Regardless of what happens in the VOLC patent trial this week, STJ is likely to appeal last week’s ruling – potentially dragging out litigation for some time. But with this ruling now in hand, VOLC seems to have – for now, depending upon appeal – avoided a worst-case scenario," Antalffy wrote in a note to investors this morning, re-affirming Leerink’s "outperform" rating and $32 price target.

The outcome of the trial slated to begin today could go either way, she noted.

"Despite VOLC’s undisputed win in last week’s trial, this week’s trial evaluating STJ’s infringement of VOLC’s patents, as well as the validity of VOLC’s patents, is too uncertain, in our view, to call up front. Coming out of claims construction, both parties have strong cases on different VOLC patents: 1) STJ has the upper hand on the ‘856, potentially leading to non-validity or non-infringement for STJ, while 2) VOLC has the edge on its ‘994 patent – especially since the ‘Paris video’ was ruled as inadmissible – leaving open the possibility of STJ infringement and possible damages or ongoing royalties to VOLC."

Volcano also today announced the launch of its latest FFR device, citing 6 upcoming studies it’s sponsoring for the PrimeWire Prestige Plus.

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