DePuy Synthes Acquires Medical Enterprises Distribution LLC’s Orthopedic Assets
DePuy Synthes, a part of the Johnson & Johnson Medical Devices Companies, announced recently that it has signed a definitive agreement to acquire the assets of Medical Enterprises Distribution, LLC, which includes the automated ME1000™ Surgical Impactor tool used in hip replacement surgery. The two companies had previously formed an exclusive agreement to co-market the hip application of the ME1000™. The financial terms of the acquisition are not being disclosed. The transaction is expected to close in the second quarter of 2018.
According to Medical Enterprises, the ME1000™ delivers constant, stable energy that is designed to automate bone preparation, implant assembly and positioning in total hip arthroplasty (THA). DePuy Synthes said that the company plans to develop and broaden the surgical impactor technology for a range of orthopaedic surgery procedures.
“The acquisition of assets of Medical Enterprises Distribution is a key example of going beyond the implant to provide complete solutions to achieve better outcomes.” – Ciro Roemer, Company Group Chairman of DePuy Synthes
The hip replacement global market was $6.5 billion in 2015 and is predicted to reach $9.1 billion by 2025. The global market for all joint replacements is expected to reach $30 billion by 2025. Other companies in the joint replacement markets include Zimmer Biomet, Smith & Nephew, and Stryker.
In the recent press release, DePuy Synthes also announced an exclusive marketing agreement with JointPoint Inc. to co-market a hip navigation system for analysis of implant selection during THA. Earlier this year, DePuy Synthes announced the acquisition of Orthotaxy, a privately-held developer of software-enabled surgery for total and partial knee replacement. In discussing the Orthotaxy acquisition, Ciro Roemer, Company Group Chairman of DePuy Synthes, said “Our goal is to bring to market a robotic-assisted surgery technology that is an integral part of a comprehensive orthopedics platform, delivering value to patients, physicians and healthcare providers across the episode of care.” Other companies in the joint replacement market are likely seeking to create comprehensive orthopedic platforms as well.
Smith & Nephew Sells Its Gynecology Business for $350 Million
Smith & Nephew recently announced that it will sell its gynecology business to Medtronic for $350 million. As part of the sale, Medtronic will obtain Smith & Nephew’s key gynecological surgical solution, called the TRUCLEAR System. The System is a medical technology platform used to remove abnormal uterine tissue such as polyps and fibroids for diagnostic biopsy. According to Smith & Nephew’s press release, the TRUCLEAR System generated about $56 million in revenue in 2015, which represented approximately 1% of Smith & Nephew’s total revenues.
Regarding the decision to sell its gynecology business, Olivier Bohuon, CEO of Smith & Nephew, stated:
Smith & Nephew’s management team has a strong track record of creating value through organic growth and by acquisition. The sale of our Gynaecology business demonstrates our disciplined strategic approach to capital deployment and to crystallising value through divestiture at the right time.
The quality of the Gynaecology business was reflected by the strong interest from potential buyers, allowing us to obtain an attractive valuation. Our shareholders will benefit directly from the return of the proceeds through a share buy-back programme, in-line with our capital allocation framework. Gynaecology and its employees will benefit from a new owner with a synergistic platform looking to take the business to the next level.
Smith & Nephew completed five acquisitions in 2015, primarily focusing on robotic surgery and sports medicine. For example, in October of 2015, Smith & Nephew announced that it would acquire Blue Belt Holdings, Inc. for $275 million to secure its position in the orthopedic robotics-assisted surgery.
Smith & Nephew and ArthroCare $1.7 Billion Merger Moving Forward
On March 14, 2014, according to a press release, Smith & Nephew plc announced the early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, for the proposed merger of ArthroCare Corp. with Smith & Nephew plc. According to the press release and as reported in the Austin Business Journal, the early termination of the waiting period satisfies one of the conditions for closing of the proposed acquisition of ArthroCare by Smith & Nephew.
The Austin Business Journal states that Austin, Texas-based ArthroCare, is “Austin’s largest medical device business and reported $377.9 million in revenue for 2013. The company employs 270 workers in Austin and a total workforce of 1,800, according to the 2014 Austin Business Journal Book of Lists.”
According to ArthroCare’s website:
ArthroCare is a highly innovative, multi-business medical device company that develops, manufactures and markets products based on our internationally patented Coblation technology. This platform technology precisely dissolves target tissue and minimizes damage to surrounding, healthy tissue…. Our devices have been used in millions of cases worldwide across several medical specialties including arthroscopy; spine and neurology; ear, nose and throat; cosmetic; urology; gynecology; and laparoscopy/general surgery.
According to the Austin Business Journal, this “termination paves the way for Austin-based ArthroCare to complete the deal that was announced on Feb. 3 after ArthroCare reached an agreement to be acquired by Smith & Nephew for $1.7 billion, at a price of $48.25 per share.” The press release states that “[t]he transaction remains subject to certain other closing conditions, including approval by ArthroCare stockholders and UK and German regulatory approvals.” In response to the agreement, as reported by the Austin Business Journal on February 11, 2014, an ArthroCare investor has filed a lawsuit in effort to halt the proposed acquisition by Smith & Nephew alleging that “the price agreed upon by ArthroCare’s board of directors was too low and undervalues the company.”
Federal Circuit Reverses BPAI Reexamination Decision; Finds Synthes Patent Invalid
On July 9, 2013, the Federal Circuit reversed the Board of Patent Appeals and Interferences’ decision that certain claims of U.S. Patent No. 7,128,744 were not invalid due to obviousness. The ‘744 Patent, owned by Synthes, Inc., is entitled “Bone Plating System” and issued on October 31, 2006. Figure 7 of the ‘744 Patent is shown below:
Smith & Nephew PLC filed a request for inter partes reexamination of the ‘744 Patent in 2009. Smith & Nephew’s request for reexamination alleged that all 55 claims of the ‘744 Patent were obvious. The patent examiner agreed and rejected all 55 claims as obvious.
Synthes appealed the examiner’s decision to the BPAI. The BPAI upheld the rejection of claims 24-31 and 33-55, but reversed the rejections of claims 1-23 and 32. Smith & Nephew then appealed the BPAI’s decision that claims 1-23 and 32 were not invalid due to obviousness.
The Federal Circuit reversed, finding that claims 1-23 and 32 were obvious. The Federal Circuit explained:
While the ‘substantial evidence’ standard of review for the board’s factual findings makes Smith & Nephew’s burden on appeal a heavy one, we are satisfied, after careful review, that Smith & Nephew has met that burden and has shown that the claims at issue would have been obvious.
Knobbe Martens attorneys Joe Re, Christy Lea, and Jared Gardner represented Smith & Nephew in the successful appeal.
Synthes and Smith & Nephew have been in litigation over Synthes’ bone plate technology since 2003, when Synthes filed a complaint against Smith & Nephew in the U.S. District Court for the Eastern District of Pennsylvania for infringement of U.S. Patent No. 5,053,036.
Smith & Nephew filed a request for reexamination of the ‘036 Patent in 2003, and that request was granted. During reexamination, Synthes amended four of the ‘036 Patent claims and added new claims. In 2007, the PTO issued a reexamination certificate, indicating that two of the original ‘036 Patent claims, the four amended claims, and the newly-added claims were patentable.
Synthes filed an amended complaint against Smith & Nephew in 2006, alleging infringement of the ‘744 Patent, the ‘036 Patent, and U.S. Patent No. 6,623,486.
In addition to Smith & Nephew’s request for reexamination of the ‘744 patent, Smith & Nephew also filed requests for inter partes and ex parte reexamination of the ‘486 Patent in 2009. Both of Smith & Nephew’s requests for reexamination of the ‘486 Patent were granted, and the two ‘486 Patent reexamination proceedings were consolidated on July 10, 2009.
The U.S. District Court for the Eastern District of Pennsylvania case was stayed on July 13, 2009, pending reexaminations of the ‘744 Patent and the ‘486 Patent. The ‘486 Patent reexamination is still pending.
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