Intuitive Surgical Shares Fall After FDA Warning Letter

Intuitive Surgical Inc.’s flagship product, the da Vinci surgical system, has been under the microscope over the last several months as accusations of inadequacy and redundancy have been flying in from all corners.

The company currently is facing more than two dozen lawsuits that contend the company did not provide adequate training to surgeons using the system (the company won the first two suits). Several adverse events have been reported to the U.S. Food and Drug Administration (FDA) that describe the system failing mid-surgery. On July 18, Intuitive disclosed that an FDA warning letter had been received and cut its 2013 revenue forecast by more than half, saying sales growth may range from unchanged to 7 percent.

As Intuitive executives apparently expected, made evident by the change in forecast, the FDA warning letter caused company shares to plummet. Intuitive Surgical shares dropped to $371 in late trading, putting the stock on pace for an annual low. Shares rose to $421.47 on July 19 but ended the day at $392.67.

Company officials said the warning relates to two problems the FDA observed during an inspection performed during the second quarter, and that the agency has asked it to take additional steps to resolve those concerns. According to officials, Intuitive already has begun the process of addressing the FDA’s concerns.

The company also said it expects continued pressure on U.S. sales of its da Vinci surgical system for the rest of 2013. It disclosed that sales of the system fell during the quarter because of a decline in the U.S. market.

In a conference call last week, Gary S. Guthart, Ph.D., president and CEO of Intuitive, addressed the content of the warning letter. He said the FDA wanted more insight into the procedure by which recalls are classified at the company; and additional information on user input and design of a “particular product” that Guthart declined to name. He also said that the agency intends to return to Intuitive to follow up on recall classification processes.

Intuitive Surgical makes robotic-assisted minimally invasive surgical technology for cardiac, thoracic, urology, gynecologic, colorectal and pediatric applications.

Baxano Settles Federal Fraud Case for $6 Million
Baxano Surgical Inc. has resolved false claims and healthcare fraud allegations with the federal government for $6 million, the company recently announced. The Raleigh, N.C.-based firm admits no wrongdoing as part of the deal.

The settlement is related to a subpoena issued by the U.S. Department of Justice in October 2011 to TranS1 Inc., which acquired Baxano in May for $20.1 million. The subpoena was issued under the authority of the federal healthcare fraud and false claims statutes and sought documents for the period of Jan. 1, 2008, through Oct. 6, 2011. Baxano did not disclose the reason for the subpoena.

Under the terms of its deal with the U.S. Justice Department, Baxano has entered into a Corporate Integrity Agreement that requires the firm to maintain its current compliance program and undertake a series of compliance-related obligations such as training, monitoring and maintaining a disciplinary process for compliance for a total of five years.

Baxano will pay its $6 million debt (plus 2 percent accrued interest) to the federal government in nine quarterly installments beginning in July.

“Baxano Surgical has cooperated fully with this investigation and the settlement is consistent with our diligent efforts to instill a culture of compliance throughout the company,” President and CEO Ken Reali said in prepared remarks. “We believe the full resolution of this matter and the elimination of related financial uncertainty is in the best interests of the company and its shareholders.”

Baxano makes minimally invasive products that treat degenerative lower back conditions.

ArthroCare Acquires ENTrigue Surgical Inc.
ArthroCare Corp., an Austin,Texas-based developer of minimally invasive surgical products, has acquired ENTrigue Surgical, Inc., a privately held maker of sinus implants and surgical tools, for $45 million in cash.

ArthroCare already sells some products for the ear, nose and throat (ENT) market. But the company said its acquisition of San Antonio, Texas-based ENTrigue will add some complementary items to the mix. ENTrigue makes and sells implants, disposables and surgical instruments targeted to endoscopic sinus surgery.

ArthroCare notes that 500,000 sinusitis patients face surgery in the United States each year. And more than 30 million Americans face sinusitis problems. Industry analysts believe ArthroCare clearly is planning for the future in beefing up its own sinus-related device and surgical tool offerings with ENTrigue’s surgical devices, which now will operate within ArthroCare’s ENT product area as a complement to its Coblation and Rapid Rhino product lines.

Beyond the obvious advantages, ArthroCare’s acquisition could help lift flat revenue and prevent a further decline in net income. During fiscal 2013’s first quarter (ended March 31), ear, nose and throat surgical product sales grew 8.8 percent internationally but dropped 9.3 percent in the Americas. The company booked $11.2 million in net income during the quarter, versus nearly $13 million over the 2012 first quarter. Revenue, at $92.3 million, essentially was flat year over year.

While the sale price is $45 million, ArthroCare may end up paying more down the line. The deal gives previous ENTrigue shareholders the right “to receive contingent consideration” on the anniversary of the sale closing over five years, based on net sales increases of ENTrigue products.

Pfizer Sells BMP Portfolio to Bioventus
Bioventus LLC has inked a deal for the exclusive worldwide license to Pfizer Inc.’s bone morphogenetic protein (BMP) portfolio of development programs and associated intellectual property.

The portfolio includes a next-generation BMP in development designed to offer additional options to currently marketed BMP products and the rights to recombinant bone morphogenetic protein-2 (rhBMP-2, a controversial synthetic bone growth factor often used as a bone graft substitute) in indications and fields previously reserved to Pfizer, according to a recent announcement from Bioventus, which also acquired an exclusive option to a BMP program for soft tissue indications.

Pfizer has agreed to transfer to Bioventus all existing development work for the BMP assets and to undertake certain early development activities relating to the next-generation BMP. Pfizer also will manufacture rhBMP-2 and supply it to Bioventus. Though financial details were not disclosed, under terms of the license agreement, Pfizer received an up-front payment and will be eligible to receive milestone payments and royalties on any sales.

To lead the BMP programs, Bioventus has hired BMP scientists Dr. John Wozney and Dr. Howard Seeherman. Durham, N.C.-based Bioventus is opening a research laboratory in Boston, Mass., to pursue development and commercialization of its BMP assets.

Martin Sutter, founding partner and managing director of Essex Woodlands the lead investor in Bioventus, said: “This licensing agreement demonstrates the viability of the investment thesis underlying our participation in Bioventus. Developing the next-generation BMP will enable Bioventus to become a recognized leader in orthobiologics.”

“As Pfizer continues to prioritize and actively manage our pipeline we have looked for strong partners who are best suited to advance programs outside our core focus areas,” said Jose Carlos Gutierrez-Ramos, Ph.D., group senior vice president and head of Biotherapeutics R&D at Pfizer. “Given Bioventus’ expertise and commitment to orthopedic healing we believe it is well positioned to advance important new options to orthopedic patients.”

“This transaction strengthens our vision of Bioventus being a recognized global leader in active orthopedic healing. BMPs are a class of demonstrably potent biologics that will benefit from Bioventus’ commitment to developing clinically efficacious technologies in partnership with world-class physicians and the appropriate regulatory agencies. The BMP programs will expand and complement Bioventus’ ongoing development in bone stimulation and injectable hyaluronic acid therapies,” said Mark Augusti, CEO of Bioventus.

Bioventus was formed in May 2012—formerly the Biologics and Clinical Therapies division of Smith & Nephew. The company had roughly $240 million in revenue last year and employs approximately 500 people. Investment firm Essex Woodlands owns 51 percent of Bioventus, while Smith & Nephew owns 49 percent.

Wright Medical Says Goodbye to its OrthoRecon Business
Arlington, Tenn.-based Wright Medical Group Inc. is getting rid of its OrthoRecon business. MicroPort Medical BV has agreed to acquire the business for $290 million payable in cash at closing, which is expected to occur by the end of the third quarter or early in the fourth quarter of 2013.

Wright’s OrthoRecon business consists of hip and knee implant products. The unit generated global revenue of approximately $269 million in 2012. Some of its established brands are Dynasty and Conserve hips, Profemur modular stems, Superpath minimally invasive hip surgical instrumentation, and Advance and Evolution medial-pivot knee implants. According to industry research, the worldwide hip and knee reconstruction market was approximately $14 billion in 2012. In addition, the China hip and knee implant market is estimated to be approximately $1.3 billion by 2018 and is growing at approximately 17 percent per year.

“Over the last 18 months, we have made significant progress in transforming our business to dramatically accelerate growth in our foot and ankle business, build a growing, global OrthoRecon business, and significantly improve cash flow,” said Robert Palmisano, president and CEO of Wright Medical. “This next step in our transformation should enable both businesses to flourish as separate, global companies focused in their unique market space with strong management teams that will position them for continued success. In addition, as a smaller, high-growth extremities company with breakthrough biologic opportunities, we will now be able to devote our full resources and attention on accelerating growth opportunities in this area, including improving sales productivity, extending the global reach and penetration of our products in key international markets, and seeking to gain U.S. regulatory approval for Augment bone graft. We believe this will enhance our ability to create significant shareholder value.”

During a conference call held on June 20, executives were asked why they decided to sell the OrthoRecon business now, after having spent a considerable amount of effort in recent months to build it up.

“Things were getting better in the OrthoRecon business, and I think that is one of the things that made this an attractive asset at this time,” said Palmisano. “If you go back 12 months, this was not an attractive asset … we still were in this spiral of losing customers due to all the compliance issues, and we didn’t have a clear strategy to turn that around. As we got into this year, I think that things started to get a lot better, and that is one of the reasons I think that this transaction materialized. And I think it materialized at a very fair value.”

After closing, the OrthoRecon business will continue to be headquartered in Arlington, Tenn., and Ted Davis, who currently is president of Wright’s OrthoRecon business, will lead the MicroPort Orthopedic business.

The transaction is subject to customary closing conditions, including MicroPort shareholder approval and receipt of regulatory clearances.

Wright’s extremities segment, which includes foot and ankle, biologics and upper extremity, generated global revenues of approximately $214 million in 2012. Following the divestiture, Wright Medical officials predict accelerated growth of the company’s foot and ankle business.

MicroPort is based in Shanghai, China. The company makes medical devices for the cardiovascular, diabetes, electrophysiology and spine segments, among others.