Johnson & Johnson Ordered to Pay $8 Million in First Hip Implant Verdict; More to Come

DePuy Orthopaedics Inc., a Johnson & Johnson (JNJ) company, was ordered to pay Loren Kransky $8.3 million in a lawsuit that accused the company of knowingly marketing a faulty hip replacement, the ASR XL. The award was $338,000 for medical costs and $8 million for pain and suffering. The trial began in January, and the company faces thousands more suits similar to Kransky’s in the coming months.

The Los Angeles, Calif., jury agreed that the metal-on-metal implant was defectively designed, depositing metal fragments in the body tissue causing metal poisoning and other health problems. However, jurors decided not to levy any punitive damages, despite pretrial evidence that DePuy had internal statistics that predicted a 37 percent failure of the implant within 4.6 years. New Brunswick, N.J.-based JNJ stopped producing the device in 2009 and recalled 93,000 units the next year.

Johnson & Johnson has reserved $1 billion in preparation for the nearly 11,000 similar cases that are being brought against the company.

The plaintiff’s attorney, Doug Saeltzer, was optimistic about the other cases, and said, “The message is that these cases are valid, that the injuries are real and severe, and Johnson & Johnson and DePuy have to pay significant money for their mistakes.”

“We believe ASR XL was properly designed, and that DePuy’s actions concerning the product were appropriate and responsible,” DePuy spokeswoman Lorie Gawreluk said. “We plan to appeal the jury’s decision on design defect pending the outcome of post-trial motions. We believe we have a number of valid grounds for appeal, notably that the court didn’t let the company tell the jury about the [U.S.] Food and Drug Administration’s review and clearance of the device.”

Defense attorneys denied Kransky’s claim, arguing he had a host of pre-existing health ailments and the hip implant didn’t make it worse. The Legal Examiner said that this strategy of diminishing the value of the case by pointing to Kransky’s health “will not be available to JNJ in all future cases,” as many otherwise healthy people—including young people who required a hip replacement following trauma or sports injury—have had their ASR implants removed.

The next trial already has started in state court in Chicago, Ill.

“DePuy will defend itself and the distributor Premier Orthopaedic Sales Inc. at trial,” Gawreluk told Orthopedic Design & Technology. “The company believes the evidence will show ASR XL was properly designed; the product was thoroughly and appropriately reviewed and cleared by the FDA; the plaintiff’s physician was properly informed of the product’s known risks; and DePuy’s actions concerning the product were appropriate and responsible.”

Israeli Spine Company Opens Shop in the Bay State
The Massachusetts Life Science Center (MLSC) has helped Israeli minimally invasive spine company NLT Spine open its first U.S. subsidiary in Dedham, Mass. NLT is headquartered in Kfar Saba, Israel. NLT Spine is the third Israeli medical device company to announce plans to locate an office or subsidiary in Massachusetts since Gov. Deval Patrick’s trade mission to Israel in 2011.

“Establishing the U.S. base of operations in Massachusetts was an easy decision for us,” said Tom Keegan, vice president of business development and U.S. marketing for NLT. “It is an area that is rich with expertise in the life sciences. Logistically, it works well for travel in and out of the U.S. for NLT Spine employees from Israel, and it is an excellent hub for convenient access to the rest of the country.”

NLT plans to hire up to three employees in Massachusetts by the end of 2013. In 2014, the plan is to hire 10 additional employees in Massachusetts, and 10 to 15 independent sales representatives across the United States.

“Our vision is ultimately to revolutionize the spine market and create a shift towards MISS [minimally invasive spine surgery], similar to the way the catheter has revolutionized cardiovascular procedures,” said Didier Toubia, CEO of NLT. “We are very pleased with the positive results from recent clinical experience and we look forward to bringing additional benefits to surgeons and hospitals in the United States.”

NLT Spine makes MISS products for treating degenerative spinal conditions. The company’s Prow Fusion (CE marked and U.S. Food and Drug Administration-cleared) intervertebral body fusion device and the eSpin discectomy tool (CE marked) performed well in clinical use outside the United States, so the company will use the Massachusetts office to commercialize its technology platform stateside.

Through the MLSC, Massachusetts is investing $1 billion over 10 years in the growth of the state’s life-sciences cluster. These investments are being made under the Massachusetts Life Sciences Initiative, proposed by Patrick in 2007, and passed by the state legislature and signed into law by the governor in 2008.

“Like many other overseas medtech companies, NLT Spine has found that Massachusetts is the perfect location for establishing a presence in the U.S.,” said Tom Sommer, president of the Massachusetts Medical Device Industry Council. “Our state offers unparalleled access to world-class medical research, a talented workforce and a vibrant supply base able to meet the needs of growing medical technology companies.”

NLT Spine specializes in spine surgery instrumentation and implants for treating degenerative spinal conditions through small surgical incisions.

The MLSC is a quasi-public agency of the Commonwealth of Massachusetts tasked with implementing the Massachusetts Life Sciences Act. The agency’s mission is to create jobs in the life sciences and support vital scientific research that will improve the human condition. This work includes making financial investments in public and private institutions that are advancing life-sciences research, development and commercialization as well as building ties among sectors of the Massachusetts life-sciences community.

New Website to Monitor Possible Device Tax Buck Passing
The Healthcare Supply Chain Association (HSCA), a trade association based in Washington, D.C., has launched a website to draw attention to what the association claims are efforts by some medical device manufacturers to pass on the costs of the medical device excise tax to hospitals, healthcare providers, patients and taxpayers. The website is called Medical Device Tax Watch. HSCA represents healthcare group purchasing organizations. At the beginning of the year, a 2.3 percent excise tax was imposed on sales of “taxable medical devices” by manufacturers and importers. In a March 2011 letter to the U.S. Internal Revenue Service (IRS), HSCA joined the American Hospital Association, the Federation of American Hospitals, and the Catholic Health Association in urging the IRS not to allow medical device manufacturers to pass on the cost of the device tax to hospitals.

“HSCA has been alarmed to discover mounting evidence that some medical device manufacturers have chosen to tack the costs associated with the medical device excise tax directly onto their invoices, shifting the cost burden of the tax onto American hospitals, healthcare providers, patients, and ultimately taxpayers,” said HSCA President Curtis Rooney. “National healthcare reform is a shared financial responsibility, and hospitals have already paid their fair share. HSCA is pleased to launch Medical Device Tax Watch as part of our ongoing effort to raise awareness of manufacturer cost-shifting efforts, and we urge all manufacturers to immediately stop passing on the costs of the medical device tax onto hospitals.”

Hospitals committed $155 billion over the next ten years to help fund the Affordable Care Act (ACA). Hospitals now are reporting that some device manufacturers are billing hospitals directly to cover the costs associated with the ACA’s medical device excise tax.

In January, The Wall Street Journal (WSJ) acquired letters sent from nine different device companies to hospitals. “As a result of this law, we will be forced to charge the 2.3 percent federal medical device excise tax to you,” read a letter from cardiac surgical tool maker Cardica Inc., the newspaper reported. Other companies confirmed by WSJ that quietly have added new surcharges or warned hospitals of price hikes include feeding-tube supplier Applied Medical Technology Inc. and respiratory valve maker Hans Rudolph Inc.

At the time this information began to trickle out, Rooney pointed out that hospitals already were bearing their fair share of the tax burden, and that it was “disheartening to find that some medical device companies have chosen to tack the tax right onto their invoices.”

“As hospitals, long-term care facilities and other healthcare providers face increased budgetary pressure, HSCA and its group purchasing organization members will continue to be critical cost-savings engines, delivering the best products at the best value to the supply chain,” added Rooney. “HSCA will also continue to serve as a resource and advocate for American hospitals and healthcare providers as we monitor the medical device marketplace for evidence of unfair cost-shifting.”

There currently are 42 companies listed on HSCA’s new website identified as cost shifters, including the ones identified by the Journal. The list is compiled from information directly from HSCA members. Members have reported letters of intent or invoices from medical device companies that show the shift of the tax burden. Johnson & Johnson has reserved $1 billion in preparation for the nearly 11,000 similar cases that are being brought against the company.

Alphatec Financials Show a Mixed Bag for Fiscal 2012
In a mix of a year that was good and bad for spine companies, the bottom line for Alphatec Holdings Inc. (parent company of Alphatec Spine Inc.) also was a mix of positives and negatives. The company recently released its financial results for the fourth quarter and full year ending Dec. 31, 2012, and the numbers show an increase in revenue over the corresponding quarter the previous year.

Consolidated net revenues for Q4 2012 were $52.7 million, an increase of 6.5 percent compared with $49.5 million reported for Q4 2011, or 7.9 percent on a constant currency basis. Net revenues in the United States for the quarter were $34 million, up 4 percent, compared with $32.8 million reported for the same period in 2012. U.S. net revenues were driven by strong sales of the Alphatec’s biologics products and from revenues related to the company’s acquisition of Phygen, which contributed $1.2 million in revenue following the closing in November of 2012. Alphatec’s acquisition of the spinal implant manufacturer based in Irvine, Calif., was announced in September 2012, and cost $15.2 million in stock and cash.

International net revenues for the fourth quarter were $18.7 million, an increase of 11.6 percent compared with $16.8 million reported for the fourth quarter of 2011, or 15.7 percent on a constant currency basis. International sales growth continues to be driven by strong sales in Japan and Latin America, the company reported.

Overall, the quarter yielded $32 million in gross profit, compared with $25 million in the same quarter the previous year, giving a strong finish to 2012.

Though the quarter was strong, 2012’s overall performance was not that different from 2011. Total revenue for 2012 was $196.3 million, down slightly from $197.7 million in 2011. Though 2012 ended at a net loss of $15 million, the company was able to curb annual losses (the firm reported a net loss of $22 million in 2011).

Alphatec Spine gained a new CEO last year, Les Cross. “Since I became CEO last year, we have made significant changes to the organization through investments in leadership talent, operational process improvements, product licenses and an acquisition, which collectively contributed to our positive fourth quarter result and should provide a strong foundation going forward,” Cross said. “It was a challenging year for the entire organization to undertake Alphatec’s transformation, but with much of the heavy lifting now behind us our focus is on performance execution in 2013. The company’s employees have fully embraced a culture of continuous improvement to strengthen our competitive position.”

Alphatec intends to change the U.S. Food and Drug Administration (FDA) classification of its stem cell product Puregen from a biologics to a tissue-based product. “We have … been engaged in discussions with the FDA to understand the structure of a clinical trial that would be required to obtain regulatory approval for PureGen should it not be classified as a tissue-based product,” Cross explained.

The FDA recently conducted site inspections at both vendors that procure, process, store and ship Puregen. Cross said that the agency issued several Form 483 observations, which are issued when conditions at a site may violate any part of the Food, Drug and Cosmetic Act. “While the product has been implanted in over 3,500 patients with no adverse event related to the product, we have voluntarily taken the prudent approach to not ship any additional product until the observations have been addressed to the FDA’s satisfaction, which we hope will take less than one month,” Cross assured shareholders in a statement.

Alphatec Spine develops products for the treatment of spinal disorders associated with trauma, congenital deformities, disease and degeneration. The company is based in Carlsbad, Calif.

Zimmer’s Q4 Results Confirm Spine Business Needs Help
“Goodwill impairment”—an ambiguous term for an ambiguous problem. A company’s “goodwill” asset is an intangible—rather than buildings or products, it can refer to things such as a trusted brand name or healthy customer relationships. A goodwill impairment, therefore, is damage to some company intangible, which can, in fact, cost a company very real dollars.

In its 2012 fourth quarter revenue report, Zimmer Holdings Inc. recorded a “non-cash charge for goodwill impairment” of $96 million. The final quarter typically is the time Zimmer conducts impairment tests, and in 2012, it concluded that the “implied value” of its spine unit had declined. In fact, at $54 million in sales, the spine unit slid 5 percent from the corresponding quarter in 2011, and has, according to the company, been in decline for the past two years.

Hips didn’t do so well either. The quarter saw a 2 percent rise in sales in the Americas, but a significant drop in global sales. This could partly be due to concern over metal-on-metal hips (not just specific to Zimmer), which allegedly are responsible for depositing metal filings into patients’ bloodstreams.

In January, Zimmer announced the closure of its Austin, Texas, spine facility. Zimmer bought Austin-based Abbott Spine in 2008 for $360 million, and about 100 people were employed at the facility. Zimmer Spine is headquartered in Edina, Minn. (the Twin Cities area), and some of the Austin workers were given the chance to move there. The consolidation is aimed at “streamlining” spine operations, according to company officials. The fat-trimming obviously is intended to give Zimmer a much-needed boost in its spine market share. Earlier this year, the company released the V2F anterior fixation system for the treatment of thoracolumbar burst fractures, tumors, disc degeneration and other pathologies of the anterior spine, in an attempt to brighten up the portfolio.

Despite the slump in spine, Zimmer’s Q4 had some successes, with some smaller units posting big gains on the quarter. Surgical devices grew 18 percent, reaching $109.8 million, and extremities reconstruction sales jumped 7 percent, bringing in $46.8 million.

Overall, the Warsaw, Ind.-based orthopedics giant netted $152.8 million in the final quarter of 2012.

“Throughout 2012, Zimmer executed our value creation agenda, including innovation and growth initiatives, global transformation programs and capital allocation strategies,” said David Dvorak, Zimmer president and CEO. “For the fourth quarter and full year, Zimmer delivered on our financial commitments, generating double-digit growth in adjusted earnings per share and significant operating margin improvements. We also achieved key regulatory and commercialization milestones for a number of innovative products and technologies, both in our core franchises and in new, adjacent musculoskeletal markets. These clinically-differentiated offerings will drive accelerated top-line growth in 2013 and beyond.”

Zimmer predicts its 2013 revenue to grow between 2.5 and 4 percent over last year, in part because of its restructuring efforts that it hopes will save about $80 million. The Austin shuttering and a plan to cut about 450 more jobs in relation to the medical device tax will help, officials said.