Baxter Acquires Hillrom in the Largest Medical Device Acquisition of the Year

Baxter International Inc. (“Baxter”) has agreed to acquire Hillrom for $10.5 billion ($156 per share) in a deal expected to close in 2022.  After assumption of debt, the total enterprise value of the deal is approximately $12.4 billion.  The deal had been rumored for about a month before it was announced.

According to Baxter’s investor presentation, the acquisition is expected to lead to  “accelerated product and digital innovation across the care continuum and care settings.” 

Patients increasingly want to receive their care at home or nearby, while hospitals and other care providers are increasingly using digital health technologies to expand access, improve quality and lower costs. Baxter and Hillrom are uniting to meet the challenges of a rapidly evolving global healthcare landscape, while also creating significant value for all the stakeholders we serve.

José (Joe) E. Almeida, Baxter’s chairman, president and chief executive officer.

The deal is the latest in a series of moves by Baxter, including extending a multi-year strategic agreement with Amazon Web Services, and acquiring certain assets related to PerClot Polysaccharide Hemostatic System from CryoLife.

The Hillrom acquisition is the largest in an already busy year for medical device mergers and acquisitions.  Other notable acquisitions this year include Steris’ acquisition of Cantel Medical for $4.6 billion; Roche’s acquisition of GenMark Diagnostics for $1.8 billion; and Boston Scientific’s acquisitions of Lumenis’ surgical business and Preventice SolutionsAs of late July, mergers and acquisitions in the medical device field were on pace to exceed last year’s performance.

IP Litigation Remains Active in the Orthopedic and Spine Industries

The orthopedic industry traditionally sees significant levels of intellectual property litigation activity, and this year has been no different. One source of this activity comes from Conformis who has continued to assert patents directed towards surgical planning and patient specific instruments and implants. In 2021, Conformis filed three new complaints, settled one case, and continued another litigation. These cases have involved various companies, including DePuy Synthes, Exactech, Bodycad, Wright Medical, and Medacta.

Decisions and settlements have also been reached in several additional lawsuits relating to diverse technologies, such as bone plates, knee implants, and pedicle screws. TriMed, Arthrex, Medacta, and Zimmer are some of the companies that have been parties to these lawsuits. Alternative forums, including the use of Inter Partes Review, have also continued to play significant roles for both patent holders and challengers.

Several attorneys from Knobbe Martens – including Andrew Douglas, Jessica Achtsam, Michael Christensen, Kregg Koch, Christy Lea and Sabing Lee – presented a webinar on August 26, 2021, to discuss notable decisions from recent orthopedic and spine intellectual property litigations. The webinar was prepared in anticipation of the 2021 Annual Meeting of the American Academy of Orthopaedic Surgeons and the 36th Annual Meeting of the National Association of Spine Specialists and included topics such as:

  • an analysis of claim types asserted by Conformis against patient specific implant and instrument technologies and how these claims have been enforced against and challenged by many prominent orthopedic companies;
  • how statements made by a patent holder can limit the scope of their claims in litigation;
  • how small companies can leverage their patents to derive licensing revenue;
  • trade secret issues that can arise at industry meetings;
  • how prolific doctor inventors have built and enforced large patent portfolios;
  • remedies for IP disputes outside the United States; and
  • strategies for using patents defensively as part of a countersuit strategy.

The full webinar is available for viewing at this web link.

Medical Device Trade Secret Not Publicly Disclosed via Patenting, Displaying, and Selling Covered Product, 7th Cir. Affirms

Can certain specific medical device details remain company know-how or protected trade secrets even if patents are pursued on the medical device?  Consider the Seventh Circuit’s commentary in its August 9, 2021 decision upholding a preliminary injunction in the Life Spine, Inc. v. Aegis Spine, Inc. case.  The preliminary injunction prohibits Aegis from selling or marketing its competing AccelFix product (shown below, right) until the case is resolved on the merits.

In 2019, Life Spine sued Aegis, a former distributor of Life Spine’s ProLift® expandable spacers (shown below, left) used in spinal surgeries, for, among other things, misusing its trade secrets.

Aegis argued in appealing the preliminary injunction that the district court erred in concluding that information about the ProLift device could remain a protected trade secret after Life Spine patented, displayed, and sold the device to hospitals and surgeons.  However, the Seventh Circuit held that “Aegis does not come close to showing that [the district court’s] finding was clear error.”  The Seventh Circuit stated that Aegis had not proven that Life Spine’s patent materials disclose the “exact dimensions and measurements of every ProLift component.” In addition, the Seventh Circuit stated that “those who attend ProLift displays do not have unfettered access to the device” and that “the only purchasers of the ProLift are hospitals and surgeons, who purchase the device for use in scheduled surgeries.”

Regarding the patent materials, a figure of which is shown below, the Seventh Circuit noted that “Life Spine’s patent did not disclose the precise specifications of the ProLift” devices.  The Seventh Circuit recognized that such dimensions could only be learned by someone who has access to the device and sophisticated measurement technology.  As for public displays, the Seventh Circuit noted that Life Spine representatives supervise those who attend ProLift displays as they handle the devices.

Regarding sales of the ProLift device, the Seventh Circuit noted that Life Spine or its distributors ship the ProLift in sealed boxes and that the surgeries are overseen by Life Spine representatives or distributors.  The Seventh Circuit further noted that “it seems doubtful that the hospitals or surgeons purchasing the device . . . would secretly unpackage the device [and] measure all its components with specialized measurement technology” and that it “seems even more unlikely that a device would be removed from a patient’s body and then reverse engineered.”

Following this decision, the case will return to the United States District Court for the Northern District of Illinois to continue on the merits.

Researchers Develop Face Mask for Detection of SARS-CoV-2

According to an article published in Nature Biotechnology, Harvard and MIT researchers invented a face mask for detecting SARS-CoV-2, the virus that causes COVID-19, via a user’s breath.  Instead of relying on a lab, the personal device uses sensors that use wearable freeze-dried cell-free (wFDCF) technology.  This technology contains the same molecules that cells use to recognize and manipulate nucleic acids and proteins.  According to MedGadget, unlike previous iterations of this technology which store living cells in “tiny aquariums”, wFDCF technology prevents any issues with leakage due to breakage.

Image from: https://news.mit.edu/2021/face-mask-covid-19-detection-0628

To use the mask, a user presses a button on the mask to release water onto reactive wFDCF sensors.  MedGadget reports that results are given within 90 minutes and can be displayed on the inside of the mask for privacy purposes.  According to the scientific article, the wFDCF technology first cleaves viral particle samples in order to release the viral RNA.  Next, target genes located in the viral RNA are amplified via reverse transcription–recombinase polymerase amplification, in order to amplify the sequence that encodes for the spike protein.  A lateral flow assay strip is then used to display visual results similar to a pregnancy test.

“We have essentially shrunk an entire diagnostic laboratory down into a small, synthetic biology-based sensor that works with any face mask, and combines the high accuracy of PCR tests with the speed and low cost of antigen tests,” said researcher Peter Nguyen.  “In addition to face masks, our programmable biosensors can be integrated into other garments [e.g., lab coats] to provide on-the-go detection of dangerous substances including viruses, bacteria, toxins, and chemical agents.”

MIT News reports that the device can also swap in sensors for other pathogens, including influenza, Ebola, and Zika, or sensors they have developed to detect organophosphate nerve agents.

Genetic Engineering and Biotechnology News reports that the research team is “actively searching for manufacturing partners who are interested in helping to enable the mass production of the face mask diagnostic for use during the COVID-19 pandemic, as well as for detecting other biological and environmental hazards.”  The article reports that the authors have already submitted provisional patent applications for the technology.

The original article was published in Nature Biotechnology on June 28, 2021, and is available here.

FDA Taking Steps to Prevent Future Medical Device Shortages

According to the FDA, the medical device industry experienced significant supply chain disruptions during the COVID-19 pandemic.  Such disruptions caused shortages of PPE, ventilators, diagnostic testing, and other medical devices.  As Janet Woodcock, M.D., the Acting Commissioner of Food and Drugs, acknowledges in her July 21, 2021 statement:

“the pandemic has exposed great weaknesses in the medical device supply chain and its dependence on foreign medical devices.”

Woodcock also explains the steps being taken by the FDA to avoid such shortages in the future.  One step includes a request for $21.6 million to fund a new Resilient Supply Chain and Shortages Prevention Program (RSCSPP).  This funding request is part of the FDA’s request for $97 million to support its core safety programs.  Woodcock explains “the funding will provide, for the first time, resources to establish a permanent program for U.S. supply chain resilience for medical devices.”  RSCSPP’s goal is to prevent and mitigate the supply chain issues like those experienced during the pandemic while reducing dependence on foreign medical devices.

Additionally, the FDA is looking to expand its authority to prevent future shortages.  The FDA seeks broader authority “to obtain supply disruption notifications for critical devices.”  Broader authority has also been requested to require manufacturers to develop and share risk management plans.  The FDA plans to work with Congress to ensure the FDA has the resources and authority needed to advance these initiatives.

Supreme Court Upholds, but Limits, Patent Infringement Defense of “Assignor Estoppel”

The U.S. Supreme Court recently decided a case resolving a patent dispute between two medical device companies, Hologic, Inc. and Minerva Surgical.  The opinion was closely watched because it raised the question of whether an inventor who has assigned a patent is legally prevented from later attacking the validity of that same patent — a doctrine historically referred to as “assignor estoppel.”

The Supreme Court’s opinion on June 29, 2021, upheld but limited this doctrine, defining its boundaries and emphasizing it is based on legal principles of equity and fair dealing.

In the case, Csaba Truckai was a listed inventor on a patent application, the rights to which were subsequently acquired by Hologic, Inc. Mr. Truckai then founded Minerva Surgical, Inc. and developed an endometrial ablation system.  Hologic sued Minerva for patent infringement of one of the assigned patents related to endometrial ablation.

In response to the claims of patent infringement, Minerva attacked the patent as allegedly invalid. In response, Hologic argued that, under assignor estoppel, Minerva should be prevented from attacking the patent’s validity because Minerva’s founder, Mr. Truckai, was an inventor on the same patent.

In deciding the case, the Court recognized the fairness principle of assignor estoppel — that an inventor shouldn’t be able to initially tout an invention to the patent office, only to later disclaim its worth after assigning it. However, the Court decided that the lower court had applied assignor estoppel too expansively to muzzle inventors.  Thus, the Court held that the doctrine applies only when an inventor makes statements (explicitly or implicitly) in assigning a patent, and later contradicts those statements in litigating against the owner of the patent. The Court reasoned that an assignment does carry an implied assurance of a patent’s validity, but where the assignor has not made explicit or implicit representations that contradict an invalidity defense, there is no ground for assignor estoppel.

To illustrate the boundaries of assignor estoppel, the Court provided three non-exhaustive examples of when assignor estoppel does not apply:

  • First, when assignment occurs before an inventor can make a warranty of validity (e.g., “when an employee assigns to his employer patent rights in any future inventions he may develop during his employment”);
  • Second, when a later legal development renders the warranty of validity irrelevant (such as a change in the law); and
  • Third, when a change in patent claims occurs for an assigned application (e.g., “the new claims are materially broadened” during patent prosecution after the assignment takes place).

Nevertheless, each assignor’s and each company’s situation is unique, and the application of assignor estoppel depends on the particular situation. Medical device companies and others concerned about patents should seek the guidance of professional legal counsel when making any determination regarding whether assignor estoppel applies.

Nephros Acquires GenArraytion for $1.2 million

Nephros, Inc. acquired GenArraytion, Inc., a manufacturer of infectious disease monitoring and measurement products. The acquisition is Nephros’s first medical products sector transaction.

Nephros is a water technology company, providing filtration and pathogen detection solutions to the medical and commercial markets. Nephros acquired substantially all of GenArraytion’s assets, namely, GenArraytion’s proprietary assays, multiplexing technology, and selection methods for detecting waterborne pathogens and other microorganisms using Polymerase Chain Reaction (PCR) technology.  GenArraytion has developed infectious disease diagnostics for hospital-acquired infections and other water safety targets

GenArraytion currently produces MultiFLEX® Bioassays.  These bioassays are customizable for detection of “clinical pathogens, tick- and mosquito-borne pathogens, food- and water-borne pathogens and biothreat agents” according to GenArraytion’s website.

The acquisition enhances Nephros’ capabilities for measuring and monitoring waterborne pathogens utilizing PCR testing, and propels Nephros’ abilities to detect and mitigate the spread of infectious disease in premise plumbing.

Waterborne pathogens are a major worldwide public health concern. In addition to developing organisms and new strains from already known pathogens, high prevention and treatment costs present concrete challenges to the public health sectors. The acquisition will allow Nephros to provide on-site testing and data for premise water management.

Nephros issued 123,981 shares of its common stock to GenArraytion, for an aggregate purchase price of $1.2 million. Half of the shares are subject to a risk of forfeiture, which will lapse upon the satisfactory completion of certain intellectual property transition services. Nephros will also make royalty payments to GenArraytion based on net sales of GenArraytion products over the next five years.

Is your funded medical device startup actually a “large entity” according to the USPTO?

The U.S. Patent and Trademark Office (USPTO) allows a patent applicant to pay reduced fees if it qualifies as a “small entity.”  Many types of filing fees are reduced by 50%.  These savings can be important for companies on a tight budget, and can add up where applicants have multiple filings.  For example, the savings on filing fees per non-provisional patent application are currently more than 900 USD, and the current savings on the 11.5 year maintenance fee for an issued patent are a whopping 3,850 USD!

Many startups can qualify as a small entity and reap the savings.  However, in some situations, even a tiny startup may need to pay the large, undiscounted entity fees.  It is important to make sure you truly qualify as a small entity, because in some situations, incorrectly filing as a “small entity” can be seen as a “fraud” on the USPTO, which can result in your patent being declared “unenforceable.”

A “small entity” for purposes of paying reduced USPTO fees is defined in 37 CFR 1.27(a)  as a person, a small business concern, or a nonprofit organization.  The USPTO Director has the authority to establish regulations defining independent inventors and nonprofit organizations. The U.S. Small Business Administration (SBA), a United States government agency, was given authority to establish the definition of a small business concern.

For small business concerns, most U.S. patent practitioners are familiar with the basic “small entity” requirements: i) have no more than 500 employees, and ii) not be obligated to assign the patent application to an entity that is not a small entity.  However, startups and other small companies should be aware that the first requirement actually states the following: “A concern eligible for reduced patent fees is one: (a) Whose number of employees, including affiliates, does not exceed 500 persons.” (emphasis added).

So, what is an “affiliate”?  Is an investor an affiliate?  What if that investor is a large strategic medical device company?  The answer is important, but may not be straightforward.

The SBA regulations state that two entities may be “affiliates” where one has the “power to control” the other.  The regulation states, in part, “[i]t does not matter whether control is exercised, so long as the power to control exists.”  The control may be “affirmative or negative,” or “indirect.”  Further, the SBA will “consider the totality of the circumstances,” including various factors “such as ownership, management, previous relationships with or ties to another concern, and contractual relationships.”

This is just an overview – various other issues are considered as well, and various other scenarios may also land you in large entity territory.  For example, the SBA may find “affiliation” based on stock ownership, where a “person owns or controls, or has the power to control, 50% or more of the concern’s voting stock.”  Further,  such a situation “is a non-rebuttable basis for finding affiliation.” (emphasis added).  There are other scenarios as well.

Determination of “entity size” is an individualized issue, dependent on various factors.  If your medical device startup has a large investor, which for example, has over 500 employees, and that investor has the power to control your startup, you may actually need to pay large entity fees.  Or, if one of the many scenarios provided by the SBA applies to your startup, you may need to pay large entity fees.

Each company’s situation is unique, and the application of large or small entity status depends on the facts of your particular business.  You should seek the guidance of professional legal counsel when making any determination regarding entity size when applying for patents before the USPTO.

 

Conformis Continues Litigations Against Patient-Specific Medical Technologies

On June 3, 2021, Conformis continued its patent enforcement efforts involving patient-specific technologies by filing suit against Bodyhub and Exactech in the Middle District of Florida.

In a first complaint, filed against Exactech, Conformis accused Exactech’s Vantage® Total Ankle System of infringing U.S. Patent Nos. 8,460,304, 9,295,482, 8,623,026, 9,326,780, and 9,186,161.  According to the complaint, the infringing products include 3D-printed tibia and talar cutting guides and the associated ankle implants.

In a second complaint, filed against both Bodycad and Exactech, Conformis accused the two companies of infringing U.S. Patent Nos. 8,974,539, 9,387,079, 7,799,077, 8,077,950, 8,638,998, and 9,180,015.  The accused products include Bodycad’s Reflex UniTM unicondylar knee replacement and software, for replacing a single compartment of an arthritic knee, and Bodycad’s Fine OsteotomyTM patient-specific surgical guide and plate, for a knee osteotomy procedure where either the tibia or femur is cut and then reshaped to relieve pressure on the knee joint.  According to an exclusive distribution agreement announced November 24,  2020, Exactech will be the U.S. distributor for Bodycad’s Reflex Uni system under the name Truliant Reflex Uni, with limited market availability in early 2021 and a full release by the end of 2021.

These two lawsuits continue Conformis’s history of enforcing patents from its portfolio of over 200 issued patents.  U.S. Patent Nos. 8,460,304, 9,295,482, 8,623,026, 9,326,780, and 9,186,161, from the first complaint against Exactech, have been asserted by Conformis in prior litigations, but U.S. Patent Nos. 8,974,539, 9,387,079, 7,799,077, 8,077,950, 8,638,998, and 9,180,015, from the second complaint against Bodycad and Exactech, are being asserted for the first time.  These newly asserted patents include claims directed to patient-specific implants, which differ from patents asserted in prior suits which included claims directed to systems comprising patient-specific instruments and off-the-shelf implants.

The prior litigations include cases filed against large orthopedic companies such as Depuy Synthes, Wright Medical Technology, Medacta, Smith + Nephew and Zimmer Biomet.  The litigations against Depuy Synthes, Wright Medical Technology and Medacta are active, while the litigations against Smith + Nephew and Zimmer Biomet were settled according to press releases issued on September 17, 2018 and May 28, 2020.  Several of the Conformis patents have also been challenged in inter partes review proceedings before the USPTO Patent Trial and Appeal Board.

For more information, please contact the authors Christy Lea and Sabing Lee.

 

 

UCLA Biodesign Launches Study to Help Advance MedTech and Digital Health Innovation Forward Into a New Decade

What does it require to bring a transformational innovation to patients?  To address this question, the UCLA Biodesign Hub for MedTech and Digital Health has launched an industry-wide study to uncover the cost and time to achieve regulatory and reimbursement approval in the United States and to understand the impact of regulation and reimbursement on the advancement of medical technology and digital health innovation. The last time such a study was conducted was over ten years ago.

The study is led by a research team out of the UCLA Biodesign Hub, in partnership with the life science innovation ecosystem and with support from the U.S. Economic Development Administration. This independent study interviews medtech and digital health regulatory executives to examine trends, establish benchmarks for time and cost to bring transformative technologies to patients, and to inform future decision-making on regulatory and reimbursement.

The questions being explored include:

  • How long does it really take innovations to get to market?
  • Is breakthrough designation breaking down regulatory barriers to access?
  • Is the U.S. keeping pace with Europe, Japan and China?
  • Do digital health and AI/ML have a clear path to market?
  • Is reimbursement the new barrier to innovation?
  • What is next on the regulatory and reimbursement horizon?

Learn more and schedule an interview to participate as a thought leader and build a consensus for innovation policy at www.medtechstudy.com, or contact a member of the research team at info@medtechstudy.com.  Participation will help to establish benchmarks and inform future decision-making for similar companies, and an industry report will be presented at leading conferences in 2021.

 

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