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Therasense v Becton Dickinson – A case study in US litigation

The Medical Technology Blog

Guest contributor, Louise Campbell, takes a look at a recent patent dispute involving two of the biggest names in diabetes and explains why a legal ruling could have implications on challenging patents in the US.

On 25th May 2011, the US Court of Appeals for the Federal Circuit handed down their judgment from Therasense v Becton Dickinson, radically changing the way inequitable conduct (unfair or inappropriate conduct) is to be treated as a legal defence in a patent dispute, imposing much higher standards and essentially limiting a doctrine that some of the residing majority described as an “absolute plague”. A claim of inequitable conduct, if successful has harsh consequences and can result in the patent being unenforceable. When considering the gravity of this consequence, it may be suggested that a high standard of proof is necessary, which may have further adverse effects on quality and cost of US patents.

About the case:

The case largely revolved around two patents for Abbott’s disposable blood glucose test strip with an electrochemical sensor. The initial patent No. 4,545,382 (the ‘382 patent) for a sensor consisting of an electrode with an enzyme bound to its external surface included the following sentence, and the cause of the claim: “Optionally but preferably when being used on live blood, a protective membrane surrounds both the enzyme and the mediator layers, permeable to water and glucose levels.” It was later contended that someone skilled in the art would have known it was necessary to employ the protective membrane when used in whole blood and that the “Optionally but preferably” language was ‘patent phraseology’ and should not be considered a technical disclosure. However, it was this disclosure that prevented the issuing of a second patent (No. 5,820,551 – the ‘551 patent) for an extended period of time.

In securing a European equivalent to its ‘382 patent from the European Patent Office (EPO), Abbott, which bought TheraSense in 2004, overcame a German reference requiring the use of a diffusion-limiting membrane by stating that theirs was a protective rather than diffusion-limiting membrane and that the protective membrane was optional. However, following this, they did not submit this to the US PTO when applying for the ‘551 patent and this was the centre of the challenge. Becton Dickinson unsuccessfully sued Abbott in 2004 seeking a non-infringement judgment on two other patents that Abbott held. Abbott countersued and also sued Bayer, Roche, and one of its suppliers, Nova Biomedical, for infringement of the two other patents as well as the ‘551 patent. Roche settled on the eve of the trial but the other parties held out and were successful in the District Court after successfully highlighting Abbott’s failure to disclose EPO argument as inequitable conduct. The panel of Federal Circuit judges, however, departed from this, in a shake-up of the way inequitable conduct is to be viewed in patent cases.

Becton Dickinson has until 23rd August to file an appeal. Even if they do file for an appeal, this is unlikely to be considered until the Supreme Court’s next conference in late September.

Prior to the case:

Under the previous standard, in order to invalidate a patent, the party alleging inequitable conduct had to show “clear and convincing evidence” that the application misrepresented material fact, failed to disclose material information, or submitted false material information and intended to deceive the US PTO. Prior Federal Circuit case law had created and allowed the use of at least five different standards of materiality, creating inconsistency and uncertainty which indicates why a panel hearing was granted in this case. Furthermore, intent to deceive could be evidenced by negligence or gross negligence.

The changes:

With a minor exception, the ruling in the case introduces a two-part test to establish inequitable conduct in the US. Litigants must now persuade the Court that there is “specific intent to deceive and that the deception was material”. These are two separate elements; the majority forbade inferring intent solely from a high showing of materiality and vice versa. These ‘parts’ have been tightened and a higher standard of proof required from that described above. Consequently, specific intent to deceive cannot lightly be inferred merely because information was not disclosed, even if it is important to patentability.  Intent to deceive must be “the single most reasonable inference able to be drawn from the evidence.”

Furthermore, the patentee need not offer a good faith explanation unless the accused infringer first proves a threshold level of intent to deceive. Proof of negligence or gross negligence is no longer sufficient. In the case of nondisclosure, the evidence must show that the applicant “knew of the reference, knew that it was material, and made a deliberate decision to withhold it.” Materiality is to be decided on a “but-for” basis, meaning that the patent would not have been issued if the information had been known to the examiner. This change was arguably prompted by the fact that the prior tests were so easily satisfied.  – “but-for” is a test widely used across many jurisdictions and is notoriously hard to prove.

Impact of the ruling:

The dissenting judges argued that the ruling comes “close to abolishing” the inequitable conduct doctrine. They wished to maintain the US PTO rule 56 or “duty of candor” (duty to disclose material facts). Judge Kathleen O’Malley agreed that intent to deceive  should drive inequitable conduct cases but dissented from the “but-for” materiality standard arguing that the district courts should have more say in shaping inequitable conduct cases. Her judgment provides a critical analysis of this system. In consequence, the US PTO is to issue guidance in the near future regarding the materials that are required under their duty of disclosure. A US PTO press release on May 26th said this about the decision “The Court’s decision resolves uncertainties in many aspects of how district courts must apply the inequitable conduct doctrine. It also directly affects applicant behaviour in front of the US PTO and, in particular, their disclosure of information relevant to the patentability of their inventions.”

Conclusion:

As US patent law is one of the most expensive areas to litigate, for companies, this is a winning situation, inequitable conduct is harder to challenge and it could theoretically mean less litigation and lower legal fees. However, these new standards are now open to interpretation so it will be interesting to see how these doctrines will be shaped by the district courts.
This case is one of the reasons why fewer inequitable conduct suits are expected to be filed in future.  The America Invents Acts bill passed the Senate on 8th March and the House of Representatives on 22nd June and creates a new supplemental examination procedure. The new procedure allows patent owners to return to the patent office to cite previously undisclosed prior art or correct errors and omissions made during the original prosecution, thereby allowing companies to remedy acts or omissions that could be used as the basis for an inequitable conduct claim. However, the downside of this is that it may reduce opportunities for well-founded inequitable conduct claims. The Therasense v Becton Dickinson dispute has clarified the expectations for attorneys and applicants and provided them with more effective tools to address difficult situations.



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The Medical Technology Blog

US regulatory bodies respond to rapid rise of modern wireless technology and apps for medical devices

Latest news from Medical Industry Week

The proliferation of broadband and wireless-enabled medical devices has prompted the FDA and US Federal Communications Commission (FCC) to issue a joint plan aimed at bringing clarity to the issue.

Although these devices represent the opportunity to enhance health and reduce the costs of healthcare, they aren’t without a few risks too. The devices, which include wireless sensors that remotely monitor heart rhythm and portable glucose monitoring systems, are increasingly playing a major role in treatments.

The US government agencies have come to the conclusion that clear guidelines are needed to make sure these devices are operated in a safe, reliable and secure manner. The FDA, in particular, is of the opinion that the industry, healthcare providers, patients, and other interested stakeholders in the medical environment should have clear regulatory pathways, processes and standards to bring the technology to market.

Although specific details are thin on the ground at the moment, the aim still pretty noble enough. “All Americans should be afforded the opportunity to benefit from medical technology advances with improved broadband and wireless technology” – the communiqué boldly claims.  At the end of the day though, by clarifying each agency’s scope of authority with respect to these devices, the hope is that interested parties will get a clearer picture of the regulatory process, streamline the application process, and make sure that innovation doesn’t get stifled through bureaucracy.
The move comes as the FDA grapples with even more complex issue of software applications (apps), the likes of which are increasingly been used in mobile medical technology, such as mobile phones, tablet computers and PDAs.

In general, the FDA’s position is that if a mobile app is intended for use in performing a medical device function it is a medical device, regardless of the platform on which it is run. This can range from mobile apps used on mobile phones to analyse glucose meter readings.

In consultation with the US public, the agency is looking to establish formal guidance that define a small subset of mobile medical apps that impact or may impact the performance or functionality of currently regulated medical devices. The offending apps could be used as an accessory to medical device already regulated by the FDA transform a mobile communications device into a regulated medical device by using attachments, sensors or other devices.

There’s an obvious need for some kind of monitoring in this area. Nowadays an app can be used by a healthcare professional to make a specific diagnosis by viewing a medical image on a mobile phone or tablet, whilst some apps can turn a smartphone into an ECG machine and be used to detect abnormal heart rhythms or determine if a patient is experiencing a heart attack. Understandably, the FDA is of the opinion that these particular mobile apps pose the same or similar potential risk to the public health as currently regulated devices if they fail to function as intended.

The FDA has set a deadline for 19th October 2011 for interest parties – including manufacturers and app developers, to submit comments relating to the agency’s draft policy document, with a view to formulating clear guidance on the matter once and for all.  One thing is for sure, it’s a good idea to revise the present guidelines – the FDA’s last significant attempt to address the topic was made in 1989!

Thanks to Lawrence Miller for yet another great article, Lawrence is the Espicom’s editor for Medical Industry Week, and medical newsletter teamleader. For more articles like this, or to start your subscription please click on the link to Medical Industry Week

 



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The Medical Technology Blog

Welcome back to The Medical Technology Blog, todays article is taken from Espicom’s business publication Diagnostics Focus, please read on…

Johns Hopkins University (JHU) scientists have developed a gene-based test to distinguish harmless from precancerous pancreatic cysts, and which could eventually help some patients avoid needless surgery to remove the harmless variety. The investigators estimate that fluid-filled cysts are identified in more than a million patients each year, most of whom have undergone CT or MRI scans to evaluate non-specific symptoms, such as abdominal pain and swelling.

Dr Bert Vogelstein, co-director of the Ludwig Center at JHU and a Howard Hughes Medical Institute investigator, and his colleagues analysed precancerous cysts from 19 patients and searched for mutations in 169 cancer-causing genes. They found mutations in the KRAS gene, known for its prevalence in pancreatic cancers, and the GNAS gene, which had not previously been associated with pancreatic cancer. In both KRAS and GNAS, the mutations occur at a single coding spot in the DNA, the equivalent of a typo in a word within an entire encyclopaedia. KRAS and GNAS genes produce signalling proteins, relaying signals from the cell surface to areas within the cell.

The researchers then tested a total of 132 precancerous pancreatic cysts for mutations in KRAS and GNAS. The latter were found in more than half of the samples (87 of them), and KRAS mutations occurred in 107 samples. Nearly all (127) had mutations in GNAS, KRAS or both. The mutations occurred in large and small, high- and low-grade cysts, and in all major types of the most common precancerous pancreatic cysts. There were no major differences in age, gender or smoking history for people with GNAS or KRAS mutations in their cysts’ cells. Finally, the investigators tested tissue from pancreatic cancers that had developed in eight people with GNAS-mutated cysts. Seven of the eight had GNAS mutations in their cancer, as well as cells in the cysts.

GNAS and KRAS mutations were not found in benign cysts, although KRAS mutations did appear occasionally in a rare type of cyst with a relatively low potential to become cancerous. These rare, mostly benign cysts are less challenging to diagnose because of their location within the pancreas and type of patient, according to the investigators. Genetic analysis of the kind reported in the new study offers a new way to sort the potential of these cysts to cause malignant trouble.

The investigators caution that cyst fluid removal, an invasive procedure, also has its drawbacks and can cause bleeding, infection and inflammation in a very small percentage of patients. Further studies on a larger number of patients are expected to be done before the gene-based test can be widely offered. However, Vogelstein says that the technology for developing a gene-based test in this case is relatively straightforward because “the mutation occurs at one spot in both of the genes.”

Major funding for the study was provided by the Lustgarten Foundation, a private foundation that provides to funding pancreatic cancer research. Other funding was provided by the Virginia and D K Ludwig Fund for Cancer Research, the Sol Goldman Center for Pancreatic Cancer Research, the Joseph L Rabinowitz Fund, the Michael Rolfe Foundation, the Indiana Genomics Initiative of Indiana University, which is supported in part by Lilly Endowment., the J.C. Monastra Foundation, Swim Across America and the National Institutes of Health. JHU has filed a patent application on inventions described in the study.

Thanks to Lawrence Miller for this post, if you woul like more information like this, or to start your subscription please click on the link  Diagnostics Focus Newsletter



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The Medical Technology Blog

Results of a survey conducted at europacolon’s European CRC Patient Conference show that patients believe tests using blood samples would encourage more people to participate in regular screening for colorectal cancer.

The survey was jointly conducted by Epigenomics and europacolon, a European non-profit organisation dedicated to colorectal cancer. Of the participants in the survey, more than 50 per cent had previously heard of the possibility of colorectal cancer blood testing and more than 70 per cent thought that using a blood test would encourage more people to participate in regular screening for the condition. Some of the most often mentioned reasons that survey participants gave for preferring blood tests were ease-of-use and simplicity, not having to handle stool samples as necessary for conventional non-invasive testing, and overall fit with other routine blood tests.

In June, Quest Diagnostics, one of Epigenomics’ partners in the US, in collaboration with the non-profit organisation Colon Cancer Alliance, reported the results of a US national telephone survey of more than 1,300 men and women 50 years of age and older. In this survey, 31 per cent of the participants reported that they had never been screened for CRC. Of the respondents between 60 to 70 years of age that had previously participated in screening, 33 per cent stated that they had only been screened once in the past. These results highlight widespread lack of adherence to national guidelines in the US, which recommend regular screening by colonoscopy in combination with other tests for colorectal cancer for all men and women aged 50 and older. When asked about the option of a blood test, 78 per cent of the participants said that they were likely to take a blood test for colorectal cancer screening and 75 per cent said they were more likely to get screened more frequently if a blood test was offered to them.

According to Dr Jürgen Beck, Senior VP Medical Affairs of Epigenomics, the lack of widespread acceptance and regular use of conventional methods for the early detection of colorectal cancer, such as colonoscopy and stool tests, severely limits the potential of screening to reduce mortality from this common cancer. The two surveys in Europe and the US show the potential of blood-based screening as an approach to increase compliance. Epigenomics expects these findings to be substantiated further through studies into patient preferences and screening adherence that are ongoing at clinical centres in the US and Europe.

Epigenomics has developed an in vitro diagnostic blood test for the early detection of colorectal cancer, known as the Septin9 test. Alongside its partner, Abbott, the companies already market their respective first-generation CE-marked Septin9 tests in Europe, the Middle East, Asia/Pacific and further markets. Epigenomics is in the process of developing a second-generation Septin9 assay as a colorectal cancer screening test for the US and European markets. The company expects to submit this enhanced Septin9 colorectal cancer screening test, branded Epi proColon 2.0, to the FDA for regulatory review before the end of the year. Under licences from Epigenomics, Septin9 testing is currently offered in the US by Quest Diagnostics (ColoVantage) and ARUP Laboratories (Methylated Septin9 Test) as laboratory-developed tests aiding in the detection of colorectal cancer.

This article was provided by Sophie Sanderson, editor of Espicom’s newsletter Diagnostics Focus.



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Thoughts on Cordis’ withdrawal from the DES market

The Medical Technology Blog

One step back, two steps forward for Cordis?

Something had to give in the faltering drug-eluting stent (DES) market, but the move by Johnson & Johnson to withdraw from the cardiovascular stent sector by the end of 2011 still raised a few eyebrows at Medical Industry Week. The decision, which will cost the company around US$600 million and the closure of two factories, is a bitter pill to swallow but looks set to be the right decision in the long run. It brings to an abrupt end Cordis’ participation in a market that it had played such a pivotal role in developing.

The DES industry has always suffered to a degree by over expectations. When Cordis won the race to get a DES onto the market in the US back in 2003, it could be forgiven for giving itself a pat on the back and a “well done” to its R&D team. The company could effectively write its own cheque for the technology and the profits rolled in.

In retrospective, this head start was as good as got for Cordis. It didn’t take long for others to notice the profits rolling in and soon enough, Boston Scientific, Medtronic and Abbott responded with their own stent programmes and it didn’t take long for Cordis’ lead at the top to be usurped by Boston Scientific. Chasing the dream led the two to lock horns together in a multi-billion dollar duel for Guidant back in 2004.

Boston Scientific may have won the battle for Guidant, but Cordis didn’t wait too long to hit back and paid US$1.4 billion in February 2007 for a cardiovascular start-up, Conor MedSystems, an astonishing sum considering the relative size of Conor. It would prove to be a costly mistake as barely a year later Conor’s core DES programme – the CoStarr paclitaxel programme – failed to meets its primary endpoint in a pivotal trial, leaving Cordis to focus entirely on sirolimus.

By 2008, however, the signs were clear that the DES market was suffering from a significant downturn in its fortunes. Although not alone in the industry, J&J’s Cypher DES sales, which peaked at the US$2.5 billion mark at one stage have annually declined and reached barely US$627 million in 2010, with sales expected to nearly halve again in 2011.

In truth, the DES market hasn’t helped itself either by failing to adapt quickly to the environmental challenges out there. In a contracting market for healthcare spending, DESs biggest selling point – their cost effectiveness against bare metal alternatives – ultimately proved to be its Achilles heel. When questions were raised over their long-term restenosis rates, the industry struggled to persuade the market not to ditch their use in preference to alternatives. In the UK, National Institute for Clinical Excellence went from recommending the device in 2003 to limiting its use in only 30 per cent of UK patients.

Competition has also hit the industry hard, particularly outside of the US where the regulatory framework is much kinder and it’s easier for the devices to be cleared. However, in all markets, margins are forever being tightened and clearly there is just not enough profit to go round. Worse still, the company is not likely to be in pole position for the next chapter in the story of DES – biodegradeable DESs. Abbott, Boston Scientific and Medtronic are all in advanced stages in development. It’s also noticeable that the company has effectively chosen to shut down its operations rather than attempt to find a buyer for the assets.

It’s not all doom and gloom. Although J&J hates not being number one, J&J’s expensive withdrawal will mean the company will no longer have to spend time answering questions about its faltering DES sales from persistent analysts and allow the focus of attention to turn to its more successful cardiovascular technologies. It will also help reduce the over capacity in the DES market going forward, with Boston Scientific and Abbott the strongest placed to benefit.

Thanks to Lawrence Miller for this article, Lawrence is the medical newsletters team leader and editor of Medical Industry Week



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The Medical Technology Blog

Synthes has bowed to intensive media speculation and confirmed that it is in talks with Johnson & Johnson over a possible takeover by the US healthcare giant.

Any deal to acquire Switzerland-based Synthes would represent one of the largest attempted by J&J since it lost out to Boston Scientific in the battle for control of Guidant. J&J is rumoured to be offering around US$20 billion to acquire Synthes, a major player in the spine and trauma markets. If J&J were to secure its target it would return the company’s DePuy business to the top spot in the worldwide orthopaedic market and ending Zimmer’s dominant position. A combined DePuy-Synthes unit could potentially be worth US$46 billion and boast strong positions in orthopaedic, spine, sports medicine and biologic products. Ironically, Zimmer itself went to the number one position by securing another Swiss company, Centerpulse, in 2003.

Since the beginning of the new year, it seems J&J has been looking for a big deal and was strongly linked with a US$11 billion approach for UK-based Smith & Nephew. The pharmaceutical/medical device giant can afford it as well, with around US$28 billion in cash lying in its balance sheet. Whilst it can clearly afford it, the company doesn’t tend to overpay with its purchases – a fact that appears to have been illustrated following the non-appearance of an offer for S&N – and will be hoping that rumours of a rival offer from Medtronic do not materialise.

So what makes Synthes such an attractive proposition to J&J? Although headquartered in Switzerland, the majority of Synthes’ 2010 sales (58 per cent) originate in North America and followed by Europe (23 per cent) and Asia-Pacific (12 per cent). The company increased its sales by 8 per cent to US$3.7 billion in 2010 and net earnings jumped 10 per cent to US$908 million. It has strong trauma and spine products, whilst DePuy’s expertise is particularly focused in hip and knee implant – which means the case for synergies and antitrust approval could also be strong.

Despite its size, J&J is under pressure to react to competition in its medical device fields, particularly within the cardiovascular market. The company’s once dominant position in drug-eluting stents has long been usurped by Boston Scientific, and competition from the likes of Abbott and Medtronic have bitten hard. Within orthopaedics, DePuy has been dogged by a series of recalls that are understood to have cost J&J nearly US$1 billion so far. The unit has also been hit with several lawsuits regarding its recalled ASR hip implant, with complaints rolling in on a weekly basis. Despite these woes, DePuy still upped its net sales during 2010 by 4 per cent to US$5.6 billion, highlighting the potential of orthopaedic products to achieve strong revenues and profit margins.

News that Synthes is even discussing a deal represents a rare opportunity to buy a company that has never really been touted as a bid target. The reason for this is that the company is majority-owned by its Chairman and guiding light, Hansjorg Wyss, and various Wyss-family controlled trusts so any bid will have to meet his approval to stand a chance of success. Switzerland also has complex minority shareholder rights – just ask Novartis after its protracted battle for Alcon – so although the talks are significant, a deal is not entirely certain.

J&J’s approach for Synthes could kickstart a further period of consolidation in the orthopaedic market or alternatively represent an albeit mighty dent. Below the big players, Wright Medical Group is in a bit of a bother having kicked out some its management team recently, whilst the question remains – will anybody make a move for S&N? The rather quiet cosy world of orthopaedics looks like waking from its slumber at last!

Thank you to Lawrence Miller for a great post, Lawrence is Epicom’s medical newsletters team leader, and also editor of the excellent publications Orthopaedic Business News and Medical Industry Week.

Thanks for reading, back in two weeks time, Paul.



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The Medical Technology Blog

Today on the Medical Technology Blog we have some Orthopaedic Business News, please read on…

Wright Medical Technology’s President and CEO, Gary D Henley, has resigned from his positions and as a Director of the company. Henley had served as President and CEO and as a Director since 2006. He tendered his resignation prior to a Board meeting called to discuss management’s oversight of the company’s ongoing compliance programme. The Board accepted Henley’s resignation but considered it to be without “good reason” under the terms of his employment agreement, and he therefore is not entitled to severance. In the interim, the Board of Directors has appointed its current Chairman, David D Stevens, as President and CEO with immediate effect. Stevens remains Chairman of the Board.

In addition, the Board has terminated Frank S Bono’s employment, the company’s Senior Vice President and CTO, for allegedly failing to exhibit appropriate regard for the company’s ongoing compliance programme. The company stated that these leadership changes are not related to its operational performance, financial condition or financial reporting. Wright’s Board of Directors has formed a committee comprised of Directors Stevens, Robert J Quillinan, Lawrence W Hamilton and John L Miclot to undertake a search for a permanent CEO. Stevens has asked not to be considered for the permanent CEO position but will serve as interim CEO until the selection process is completed.

In keeping with other orthopaedic companies at the time, Wright signed a deferred prosecution agreement (DPA) with the US Attorney’s Office (USAO) for the District of New Jersey and a civil settlement agreement (CSA) in September 2009. These agreements resolved a USAO investigation into Wright’s consulting arrangements with orthopaedic surgeons relating to its hip and knee products in the US.

Under the DPA, the USAO agreed not to prosecute the company in connection with the matter if Wright satisfies its obligations during the 12-month term of the DPA.  As part of the CSA, the company also shelled out  US$7.9 million to settle civil and administrative claims and entered into a five-year corporate integrity agreement with the Office of the Inspector General of the US Department of Health and Human Services. An independent monitor was also appointed to review and evaluate the company’s compliance with its obligations. So the departure of its top man, and without a pay-off, will come as a worry for Wright’s shareholders, who must be thinking what is going on at the fast growing business. Certainly the departure will raise eyebrows with the USAO and other regulatory bodies amidst concerns that the company may have failed to stick to its commitments.

It’s not the first time the company’s management abilities has been questioned either. The company made a complete mess over its planned closure of a plant in Toulon, France, in November 2010. After failing to convince the court that there was an economic justification for the dismissal of its employees, Wright was forced to pay at least US$.4.5 million to settle that dispute. Could this collectively throw open the door to opportunistic predators interested in the company’s extremity, hip and knee repair and reconstruction assets? Certainly, the company’s management team has never appeared to be so weak and out of its depth.



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A New Year! Must Be Time For a S&N Takeover Rumour!

The Medical Technology Blog

This week’s widely reported rumours that Johnson & Johnson had made a takeover approach for UK-based Smith & Nephew shows that whilst we may have a new year upon us some things never change. The question is will this finally be the year that things actually happen?

Ever since the orthopaedic market decreed that size does matter, and that S&N just doesn’t have the scale to survive on its own globally, speculation has ebbed and flowed in time with the seasons about the company’s future. The latest rumours appear to be no different and all represent very plausible plots. Guessing the one that does happen is another thing entirely.

Leading the market rumour columns this week has been fever pitch speculation that J&J’s hotly-contested battle with Zimmer in the worldwide orthopaedic markets has led to an opportunistic takeover approach for S&N that was swiftly rebutted by the latter. Denials of any dealings were formally issued by both management teams but that didn’t stop a market – thirsty for a megadeal deal to kickstart 2011 – driving up S&N’s shares by over 10 per cent in just one day of trading.

When the J&J rumour died down, it was time for another suitor to return from a hiatus – a possible offer from private equity owned-Biomet. This one at least has some traction. S&N almost merged with Biomet a few years ago but was outbid by a private equity consortium but whether the two companies would still want each other – and be allowed to do so – is a moot point. Medtronic is another party that has been named as a potential suitor, although they seem to be more focused on expanding their cardiovascular business rather than achieving sizeable growth in orthopaedics.

And then there’s the hotly anticipated return of the private equity market, a sector that was so massively wounded by the credit downturn over the last few years. Billion dollar bids have been relatively scarce in all markets, let alone orthopaedics, but there are signs that investors are slowly returning to the fold. Could this be the deal clincher?

So why is S&N the focus of such unrelenting attention? Well for some of its rivals it represents a chance to secure market leadership or solidify their position as a worldwide player. For all its perceived faults, the company continues to record strong revenues from orthopaedics, woundcare and endoscopy, and enjoys strong growth margins in both the US and Europe. It’s also shown itself to be highly resilient. Europe’s largest medical device group has survived the blow of losing out to successive battles with Zimmer and private equity groups for Centerpulse and Biomet, respectively, as well as the retirement of its talisman, Sir Christopher O’Donnell in 2007. It even sorted out the debacle of its Plus Orthopaedics acquisition intact.

In the cold light of the day, however, is this the right time to pounce on S&N anyway? Indeed, there are clear antitrust issues with most of the companies that have looked at S&N. It’s doubtful that either Zimmer or DePuy would be allowed to swallow S&N whole, whilst other companies like Stryker overlap S&N in areas such as Endoscopy and would face scrutiny too. With all the major orthopaedic companies (including S&N) treading a fine line with authorities over selling practices in the industry is it worth tackling with authorities in both the US and Europe at this moment?

And the regulatory climate isn’t going to be as easy to negotiate as it used to be, particularly as UK observers have suddenly woken up to the comparative ease at which UK companies have been picked off by foreign predators. The UK government is under increasing pressure to make it a little bit harder for US companies to take over the remaining crown jewels of UK business. Already much of the gain in S&N’s share price over the five days since the media attention reached fever pitch has been lost as reality sets in that it may not be a good time for a US company to swallow up another top UK company.

So whilst J&J may indeed have eyes on S&N it remains to be seen whether the two companies are on course for an inevitable tie-up. It’s probably more likely that if J&J does go for S&N it would be in a defensive manner – similar to the way it sought to defend its share of the cardiovascular market when it got involved with the battle with Boston Scientific for control of Guidant. In that case, J&J used its hefty cash resources to force Boston Scientific into paying well over the odds for the Guidant business and saddling its rivals with a hefty debt burden it’s still trying to shake off to this day. A far-fetched scenario? Well anything can happen in the orthopaedic industry, but it would certainly prefer to have S&N to itself rather than see a combined Biomiet/S&N or ambitious private equity group emerge as another major rival.

All this is itself speculation and shows that, as far as S&N is concerned, anything could happen and the story finale is still to be written. One can’t help feel that the well thought out plots of the speculators, whatever they may be, will turn out to be half as exciting as the actual ending. It certainly shows that being an S&N shareholder is not an uninteresting past-time and that such speculation will keep on occurring, whatever the denials that are issued.

A thank you to Lawrence Miller for that article, Lawrence is Espicom’s medical newletters team-leader, and editor of Medical Industry Week and Orthopaedic Business News.



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Roche To Lose Almost 5000 Jobs in Economy Drive

The Medical Technology Blog

“Operational Excellence” programme affects 6,000 jobs at Roche

Welcome back to the Medical Technology Blog, posts have been thin on the ground as i’ve been on holiday. Today’s post concerns the sad news that some major changes are happening at Roche, which will directly affect the workforce, please read on…

In response to mounting cost pressures in healthcare – particularly in the US and Europe – and to bigger hurdles for the approval and pricing of new medicines, Roche has started the “Operational Excellence” programme to change the way it spends its cash. A company focused on research-based healthcare in pharmaceuticals and diagnostics, Roche is hoping to generate savings of around SFr 1.8 billion in 2011, with forecast savings of SFr 2.4 billion in 2012 and beyond.

The Operational Excellence programme plans unfortunately include the reduction of Roche’s workforce, by about 4,800 employees worldwide – 6 per cent of the group’s employees – over the next two years. Another 800 jobs will be transferred to other Roche sites and 700 positions will be outsourced to other parties, making for a total combination of 6,300 affected employees. Roche has put aside SFr 2.7 billion to cover the cost of this restructuring for 2010 to 2012.

The most affected division for job losses will be Pharmaceuticals – mainly in the division’s worldwide sales and marketing organisation and manufacturing. Total Roche redundancies worldwide are expected to total 2,600 in these positions. Roche puts these job cuts mainly down to the setback of the company’s diabetes drug, taspoglutide, and structural adjustments the primary care sales organisations – mainly in the US and Europe. Also affected will be some Technical Operations activities, which will be reorganised in California, US; Mannheim, Germany; and other sites in the network, meaning the loss of 750 positions across this area. Roche is also looking for buyers for its Florence, SC and Boulder, CO sites, which would mean the loss of a further 600 jobs.

In line with the Operational Excellence ethic, Roche has also decided to pull the plug on some development activities – most from the US. Some, however, will be transferred to other Roche sites or third parties. Roughly 800 positions will be affected by this plan. Roche is further cutting certain activities in research and early development, including RNA interference research in Kulmbach, Germany; and in Nutley, NJ and Madison, WI. Plans include reorganising some internal functions, in order to free up resources for pipeline Phase II studies of new molecular entities; around 600 positions will be affected.

Roche’s Diagnostics division aims to consolidate three of its sites – a move that the company believes will “optimise seamless collaboration and cost structures in development and manufacturing”. This plan calls for the closure of the Graz, Austria site and transfer of developmental and manufacturing of blood gas diagnostics to Rotkreuz, Switzerland – home of Roche’s Professional Diagnostics division’s HQ.

In the Diabetes Care division, most activities will be based in Mannheim, Germany. The plan is to out-source manufacturing and close its Bugdorf, Switzerland site. Diagnostic chemical manufacturing and analytical services will be discontinued in Mannheim and transferred to Penzburg, Germany.

Redundancies are always an unfortunate side-effect of any company undertaking a restructuring plan, but Roche hopes to carry out its reduction in a “socially responsible” way, including informing the affected employees as soon as possible, and offering them assistance and support. Despite the changing healthcare market, Roche believes it is approaching this project from a position of strength. The company’s exposure to patent expiries over the next few years is comparatively low, and the group has 14 product groups that each generate over SFr 1 billion per year. The company’s late-stage development portfolio includes six drug candidates that are effective in specific patient populations, which could help advance personalised healthcare. Roche also has other important drug candidates in late-stage development for cancer, central nervous system diseases and metabolic disorders.

Thanks to Sophie Bracken for this article, Sophie is the editor of Espicom’s excellent business news service Drug Delivery Insight which tracks the important commercial and technology developments that are shaping the drug delivery industry.



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