Medical Devices Today

Devices Pique Private Equity's Interest

Reprinted from IN VIVO, April 2008

The spate of recent carve-outs from Boston Scientific has private equity and venture capital investors hungry for similar deals from across the industry. But device companies don't seem to be serving up much.

Summary

• Boston Scientific's strategy to divest non-core assets is feeding private equity investors hungry to do deals in the medical device industry.

• Private equity investors face a challenge in convincing other large medical device companies to make big deals, but smaller ones are getting done.

• Avista Capital Partners sees big opportunity in the spinouts of its two BSX divisions.

• TriVascular2, working in endovascular AAA repair, illustrates the promise—and challenges—of development-stage buyouts.

Boston Scientific Corp. has spent the last year carving itself up like a Thanksgiving turkey. The company—still working through a bloated feeling brought on by its $27 billion acquisition of Guidant Corp.—is slicing off the less desirable pieces of dark meat to a combination of private equity investors and strategic buyers, leaving itself with what it hopes will be the choice favorable stent and CRM businesses, the white meat so to speak. Click here to purchase this article or review the current issue.

Product Liability Insurers Raise The Bar On Risk Management

This article is reprinted from "The Gray Sheet" – May 5, 2008

Device firms large and small must do even more to satisfy commercial insurers than what the government requires. In fact, FDA may be of limited concern to companies faced with plaintiffs' suits and escalating premiums, device industry insurance experts say.

Commercial plans provide key protections for companies, such as product liability policies that defend firms and pay on their behalf when negligence claims are made. They can also head off future lawsuits by showing firms where their vulnerabilities lie. Yet companies are often so focused on FDA compliance that they ignore liability issues, according to device and diagnostics insurance firm Medmarc (see chart: "¹Product Liability Insurance 101").

"Companies get lulled into believing that if they get that FDA stamp of approval, everything's going to be fine," said Sara Dyson, loss control manager at Medmarc. "Regulatory compliance needs to be your floor, not your ceiling. You absolutely need to comply, but you can't stop there."

"There's always a product liability problem lurking around the corner that the FDA's quality regulations aren't going to address," Dyson told "The Gray Sheet."

Datascope Investors Cheer Divestiture, Send Stock Up 13% In Q1 – Index

This article is reprinted from "The Gray Sheet" – April 14, 2008

Datascope's divestiture of its patient monitoring business in March and its plans to pass on the proceeds to shareholders drove a 13.8% stock price gain for the company in the first quarter of 2008.

The sale of the monitoring business to China's Mindray Medical for $202 million, announced March 11, will result in an estimated $185 million after-tax gain for Datascope (¹"The Gray Sheet" March 17, 2008, p. 3).

The firm plans to use the proceeds to either provide a special dividend to shareholders, or repurchase company stock, or do a combination of both.

"If we distribute all the cash as a special dividend, stockholders will get between $11 and $12 per share," CEO Lawrence Saper said when announcing the deal. If the firm uses all the cash to buy back stock, it would increase earnings per share "substantially," the exec added.

Investor enthusiasm for the deal pushed Datascope's stock price up 14% that day, or $4.75, to close at $38.28. For the quarter, the issue closed at $41.43, representing an increase of $5.03 for the three-month period. Datascope's stock had been roughly flat in 2007.

CryoCor Sees Opportunity With A-Fib Ablation Label; Do Physicians Agree?

CryoCor hopes its lead in the race to gain an atrial fibrillation indication for an ablation catheter will translate into a market advantage, but first it will need to change what it says are misperceptions among some physicians about the limitations of cryoenergy.

In August, San Diego-based CryoCor became the first company to complete enrollment in a randomized pivotal trial for an ablation catheter to treat atrial fibrillation. After one-year follow-up is complete, the firm plans to submit a PMA in the latter part of 2008.

The CryoCor cryoablation system disrupts cardiac arrhythmias using extreme cold to create lesions in cardiac tissue. It was approved in August to treat atrial flutter (¹"The Gray Sheet" Aug. 6, 2007, p. 16).

Device Firms Go Direct To Consumers Amid Physician Skepticism

This article is reprinted from "The Gray Sheet" – December 17, 2007

Device firms are increasing investments in television advertising for their implantable products, but some physicians are skeptical that safety information about complex devices can be adequately conveyed in direct-to-consumer ads.

A television ad campaign for Johnson & Johnson/Cordis' Cypher sirolimus-eluting stent was launched on Thanksgiving Day, the first effort to market a stent directly to patients in that medium.

"Drug-eluting stents are complex devices that offer tremendous patient benefits, but also carry certain risks," commented Gregg W. Stone, an interventional cardiologist with Columbia University Medical Center and vice chairman of the Cardiovascular Research Foundation. "This complex message has been difficult to accurately communicate through traditional media, especially given our constantly evolving understanding as new studies emerge."

Foreign Corrupt Practices Act: Device Industry Under Scrutiny

From the October 22, 2007, issue of "The Gray Sheet"

Federal prosecutors have begun targeting medical device companies in Foreign Corrupt Practices Act investigations.

Early this month, five firms - Stryker, Zimmer, Biomet, Smith & Nephew and Medtronic - announced that they were under investigation by the Securities and Exchange Commission for possible violations to FCPA, which prohibits bribery of foreign public officials by U.S. companies ("¹The Gray Sheet" Oct. 15, 2007, In Brief).

And in February, Michael Dormer, worldwide chairman of Johnson & Johnson's medical devices business, abruptly stepped down when J&J disclosed that foreign subsidiaries may have made improper payments in the course of marketing activities ("²The Gray Sheet" Feb. 19, 2007, p. 16).

Patent Rule Limits Applications, Impacting Device Makers' Filing Strategies

From the August 27, 2007, issue of "The Gray Sheet"

A highly anticipated final rule from the U.S. Patent and Trademark Office puts new limits on the number of applications a company can file for any single invention, potentially requiring changes in device manufacturers' patent strategies.

Published Aug. 21 in the Federal Register, the rule focuses on reducing the number of "continuing applications" that may be filed with PTO.

Continuing applications currently are unlimited and allow applicants over time to add new claims to an original "parent application," thus modifying and broadening the scope of protection for a technology as it develops.

Physicians Predict COURAGE Will Reduce U.S. Stent Procedures About 5%

From the April 9, 2007, issue of "The Gray Sheet"

The highly publicized COURAGE trial will cause a roughly 5% reduction in the number of stent procedures in the United States, according to Dartmouth Medical School's Aaron Kaplan, M.D., and Carl Szot, M.D.

Kaplan, director of Dartmouth's cardiac catheterization lab, and Szot, chief of cardiology at the Cheshire Medical Center, Keene, N.H., spoke about the COURAGE results in an April 5 conference call sponsored by Bernstein Research.

It's The Economy, Stupid: "Value" Campaign To Stress System-Wide Savings

From the March 19, 2007, issue of "The Gray Sheet"

AdvaMed will invest $2 million in 2007 to accelerate its public campaign to underscore the "value" of medical technology to patients, practitioners and policymakers, placing added emphasis on the long-term cost savings devices provide to the U.S. economy.

The association plans to renew and expand a Washington, D.C.-based advertising campaign initiated last year and develop a series of white papers reporting socioeconomic analyses.