Patient Sues Wright Medical Technology

The Medical Technology Blog

Patient sues Wright over defective ProFemur total hip system

Dale Purcell, a plaintiff from Phoenix, AZ has filed a lawsuit in the US District Court against Wright Medical Technology after needing emergency surgery following a sudden catastrophic fracture of the titanium modular neck of his Wright ProFemur total hip system in July 2011. Purcell had the device implanted in June 2005.

According to the complaint, the titanium modular neck used in the plaintiff fractured and broke very near the femoral stem, leaving a broken portion of the titanium neck wedged inside the stem. The fracture of the modular neck adapter caused failure of the system, requiring corrective surgery, and made it extremely difficult to extract the fragment. The complaint points out that “Studies have shown that modular neck adapters made from titanium alloy, such as the ProFemur modular neck adapter…are more likely to suffer fretting corrosion and fatigue fracture than those made from cobalt-chromium”.

A 2009 report by the Australian Orthopaedic Association claims to show that the Wright ProFemur Z femoral stem had a high failure rate, requiring approximately 11.2 per cent of all patients receiving the implant to need revision surgery. Wright is alleged to have changed the material in the ProFemur hip system modular necks in 2009 from titanium to cobalt chrome alloy, but took “no corrective action in the form of a recall or even an announcement of warning to the medical community or to the public at large concerning its decision to switch from titanium modular neck adapters to cobalt chrome adapters”.

Article source: Orthopaedic Business News kindly provided by Sophie Bracken, Espicom’s medical newsletters editor.

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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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