BB&T Staff Writer and BB&T Staff Reports
Johnson & Johnson (J&J; New Brunswick, New Jersey) reported its intent to acquire Synthes (Solothurn, Switzerland) for $21.3 billion, making it one of the largest med-tech deals in history. After heavy speculation and a statement by Synthes the previous week that it and J&J had been in talks regarding a possible merger, the med-tech giant broke its silence in late April and said it was initiating acquisition plans.
Upon completion of this transaction, Synthes and the DePuy companies of J&J together will comprise the largest business within the medical devices and diagnostics segment of J&J. The transaction has an estimated net acquisition cost of $19.3 billion as of the close of business on April 26, based on Synthes' nearly 119.5 million fully diluted shares outstanding and nearly $2 billion in cash on hand as of signing. Hansjoerg Wyss, Synthes' founder and chairman, and related parties have agreed to vote shares representing not less than 33% of Synthes common stock in support of the transaction.
“DePuy and Synthes together will create the most innovative and comprehensive orthopedics business in the world and enable us to better serve clinicians and patients worldwide,“ said Bill Weldon, chairman/CEO of J&J. “Orthopedics is a large and growing $37 billion global market and represents an important growth driver for J&J. Synthes is widely respected for its innovative high-quality products, world-class R&D capabilities, its commitment to education, the highest standards of service, and extensive global footprint.“
William Plovanic, a research analyst with Canaccord Genuity (Toronto), spoke with BB&T regarding the deal. Plovanic, who was attending the International Spine Intervention Society (San Rafael, California) meeting in Las Vegas when the news broke, said he had spoken with several other spine companies at the conference about the acquisition, and the consensus was this provides an opportunity for some of the smaller players in the space to grab up share.
“We all concur it's going to create a lot of opportunities for these small and midsize players,“ Plovanic said. “If you look back at the last five acquisitions in spine, I don't think they've been successful by anyone's measures. In fact if you look at the most recent acquisition of Zimmer [Warsaw, Indiana] by Abbott Spine [Austin, Texas], a significant portion of the revenues went away. So one plus one did not equal two, it probably equaled 1.6.“ Abbott Spine acquired Zimmer for $360 million in 2008.
Plovanic added “I would expect that as J&J and Synthes put together their spine operations, you could see some [market]share shift around. Not massively, but it does create opportunity for the smaller players to pick up share. Large companies regaining share has not been the trend,“ he said. But according to Wells Fargo (New York) analyst Larry Biegelsen, the acquisition could spur larger med-tech companies to look toward acquiring mid-size med-tech firms.
“We continue to believe that this deal will trigger more consolidation in orthopedics,“ Biegelsen writes. “J&J's scale in the orthopedics market will likely force larger players such Stryker (Kalamazoo, Michigan) and Zimmer to acquire mid-size players.“
Biegelsen said the deal “is not as accretive as anticipated for J&J because J&J is using 65% stock and 35% cash for the transaction. We had estimated that an all-cash deal would have been 4-5% accretive to cash EPS in 2012. J&J has almost $28 billion in cash and marketable securities on its balance sheet so it could have used more cash for the deal.“ News of transaction comes at a time when J&J is grappling with quality lapses that have prompted more than a dozen recalls of popular over-the-counter medicines, contact lenses and hip-repair implants. According to an article from the Wall Street Journal, the recalls cost the company $900 million in sales last year, resulting in a sales decline and adding to pressure to find new sources of revenue and earnings growth.
CMS will cover pacemakers in MRI
Sometimes you see it coming, sometimes you don't. Long-time observers of reimbursement issues might it was obvious from the beginning that the Centers for Medicare & Medicaid Services should cover MRI procedures for patients with pacemakers that are FDA-approved for use in magnetic resonance fields.
CMS indicated in a final coverage decision dated April 25 that it found coverage “reasonable and necessary,“ and that the agency would excise the exception from section 220.2.C.1 of the national coverage manual. The coverage does not limit MRIs to any specific intended diagnosis, but simply states that a prescribed MRI can proceed in patients with the Revo SureScan unit.
CMS reopened the coverage issue in early March at the behest of Medtronic (Minneapolis), maker of the SureScan unit after offering trial coverage for pacemakers with MRI fields the previous month. All the activity at CMS has moved in rapid-fire fashion after FDA gave its approval for removing the MRI contraindication from the product in early February. For its part, FDA needed nearly a year to decide on the question after an advisory committee recommended to the agency last year that the data behind the application looked solid enough to recommend the agency go along with the idea.
Baucus takes aim at Medtronic over Novation contract
Medtronic's (Minneapolis) cancellation of its group purchasing contract with Novation (Irving, Texas) drew a lot of ink when the GPO entity announced the news in February, but the development has sparked interest on Capitol Hill as demonstrated by a letter from Senate Finance Committee chairman Max Baucus (D-Montana), who informed the firm in a letter that his staff intends to investigate the move.
In a statement accompanying the letter, Baucus said “reports that this move was fueled by an attempt to discourage transparency and increase costs are troubling,“ adding that the cancellation “could considerably undermine our efforts to reduce health care costs and increase transparency for consumers and taxpayers.“ Baucus' letter inquires as to why Medtronic canceled its relationship with Novation and whether the cancellation was prompted by Novation's refusal to allow confidentiality clauses in its contracts with device makers. Medtronic has 'til June 6 to respond.
Baucus also requested information in connection with another GPO contract the firm canceled, this one with Premier (Charlotte, North Carolina), including compensation paid to Premier as part of the contract. In an unattributed statement e-mailed to BB&T, Medtronic said it “confirms receipt of Senator Baucus' letter“ and that the firm “will respond in a timely manner.“
Medtronic's cancellation of the Novation contract ruffled feathers at the Health Industry Group Purchasing Association (HIGPA; Washington) as well, which issued a March 7 statement in which HIGPA's president, Curtis Rooney“ characterized the decision as putting “greed ahead of patients“ and as “nothing short of an attack on America's hospitals.“ He asserted that one result of the move is that hospitals “will be unable to share non-proprietary data and validate that they are receiving a fair price,“ thus enabling Medtronic's “army of salesmen to drive unnecessary utilization and further enforce contractual gag clauses.“
Another group that reacted to the news was the ownership group for Novation, VHA (Irving, Texas) and the University HealthSystem Consortium (UHC; Oak Brook, Illinois), which inked a Feb. 16 letter to Medtronic, stating that the hospitals operating under the VHA and UHC banners expressed “extreme disappointment,“ with the cancellation. The letter states that the rebates the hospitals earn “are important to our ability to fund essential healthcare services and programs“ to nearby communities and that “neither the healthcare community nor the country as a whole can afford the type of disruption and increased cost“ the announcement would impose. The signers of the letter added that they jointly spend “more than $300 million annually on Medtronic's spinal implants, neurosurgery power tools, bone grafting products and cardiac rhythm management products.“
Medtronic's CEO, Bill Hawkins, is quoted as having said that he would be “shocked“ if other firms didn't follow suit and that the agreement with Novation led to less market penetration than the national average for the products Medtronic sold via Novation.
Revascularization rates down; reversal possible
A recent article appearing in the Journal of the American Medical Association regarding revascularization rates focused largely on a comparison of bypass grafting (CABG) and percutaneous interventions (PCI), but the data also suggest a downward trend in the overall rates of coronary artery revascularization. Whether this overall trend suggests something about lifestyle changes or an increased use of prophylactic pharmacotherapy is not addressed other than speculatively in the article, but a quick glance at U.S. population data suggests this trend of decreasing revascularization rates will soon be overtaken by sheer numbers.
In the JAMA article, which appears in the May 4 online edition, the authors, a group including Andrew Epstein, PhD, of the Veteran's Affairs Hospital in Philadelphia, note that they saw a 15% drop in the rates of revascularization between the survey's paired years of 2001-02 and 2007-08, a fall-off almost entirely explained by decreasing use of CABG, which the authors state is accompanied by a statistically insignificant decrease in the rate of the use of PCI. The authors detail a fluctuation in the relative rates of use of bare-metal stents (BMS) and drug-eluting stents (DES) over the same stretch, with the expected tailing off of DES at the 2007-08 year pairing, presumably an artifact of the DES controversy of 2006.
Makers of devices intended to treat coronary artery occlusion need not worry about a decreasing market for their wares, however, thanks to the fact that the leading edge of the Baby Boom is now entering the age range found in the sample used by the authors of the JAMA article.
The authors note that they drew the bulk of their data from the Nationwide Inpatient Sample generated in a Healthcare Cost and Utilization Project study (conducted by the Agency for Healthcare Research and Quality), which they used to render a data set of patients aged 65-69. According to data posted at the website of the U.S. Census Bureau, the U.S. population aged 55-64 in 2005 had risen 25% over five years earlier to a total of 30.4 million. In 2011, the eldest among this group will turn 70 and the youngest 61. Conversely, the group that reached the age span of 65 to 74 in 2005 represent a statistical trough, growing only 1.4%. This is a much smaller increase than was seen in the pair of 10-year cohorts immediately preceding that group. Thus it seems a certainty that admissions for coronary artery disease will spike in next couple of years.
The authors of the JAMA article present much of the data in terms of revascularization per million adults, stating that the drop in bypass procedures was reflected in a rate of 1,742 procedures per million in 2001-02 compared to 1,081 in 2007-08. The effects of this decline were fairly evenly distributed in the interim years of 2003-04 and 2005-06, depicted graphically as a steadily falling slope.
For PCI, the rate of a bit more than 3,800 per million adults in 2001-02 ticked up only slightly in the following two years, but then rose to more than 4,100 in 2005-06. This number then dropped to a per-million rate of just less than 3,700 in 2007-08. Within that overall PCI number, the rates for DES started at a bit more than 2,000 in 2003-04, nearly doubling the following two years to more than 3,500 per million adults, then tailing off to less than 2,400 in 2007-08. The data show that BMS benefited from the DES crisis, rising from 468 per million in 2005-06 to nearly 1,200 in the DES crash years.
One of the potential confounders of the study is that the data were compiled largely from in-patient records, which do not capture those receiving PCI with a discharge of less than 24 hours. The authors note that prior studies suggest that patients who undergo outpatient revascularization procedures are in essentially the same age range as those undergoing in-patient procedures. Hence, the authors derived an estimate of the total outpatient revascularization work done for each quarter in the years surveyed, and added that number to the total PCI rate with the appropriate statistical adjustments.
The authors comment that the drop in CABG of roughly a third between 2001 and 2008 was “a linear trend,“ the character and persistence of which suggest it was not influenced by “any single event . . . such as the introduction of competing technologies.“ The article points out, however, that the decline is countered by an increase in the number of hospitals offering such services.
The authors then seem to reverse themselves on their remark about the causes of the decline in CABG with the comment that the data “suggest the possibility that several thousand patients who underwent PCI in 2008 would have undergone CABG“ but for changes in patterns of care occurring after 2001. They hypothesize that two other factors may have influenced the fall-off in CABG, including that the procedure may have been overutilized in 2001 and that cardiologists were afterward more attentive to patient selection. However, the authors also remark that candidates for CABG may have been inappropriately treated by PCI in the intervening years. The authors note that the data from the SYNTAX (Synergy between Percutaneous Coronary Intervention with Taxus and Cardiac Surgery) trial implicitly second the recommended indications for CABG provided by the American College of Cardiology (Washington) and the American Heart Association (Dallas) in 1999, namely that bypass is indicated for patients with previously untreated three-vessel or left main coronary artery disease.
Implied malice cited in children's ibuprofen lawsuit
A number of developments affecting legal liability have arisen in U.S. courts over the past few years, but a district court judge has thrown another ingredient into the liability law stew, one that could have serious ramifications for life science firms if it is affirmed in a higher court.
In the lawsuit of Wolfe v. McNeil, which is under consideration in the U.S. District Court for the Eastern District of Pennsylvania, Judge Jan DuBois wrote that McNeil's motion for summary judgment was sound on several points, but that the motion failed on two scores, namely on failure-to-warn claims and on punitive damages.
DuBois notes that under the law in the State of Maine, where the plaintiff resided, punitive damages can be awarded “only upon showing that the defendant acted with express or implied“ malice, which DuBois defines as “deliberate conduct by the defendant, although motivated by something other than ill will toward any particular party, [that] is so outrageous that malice toward a person injured as a result of that conduct can be implied.“
This case hinges on the diagnosis of Stevens-Johnson syndrome (SJS) diagnosed in Kiley Wolfe, who was nine years of age in 1996 when her mother administered Children's Motrin (ibuprofen) for a headache. Kiley's mother, Janet Leland, continued administering the product May 27 through May 30 at least in part on the advice of a physician or nurse, but Leland discontinued the use of the drug on June 1 that year when she noticed blisters on the girl's ears.
The case certainly draws on a jury's sympathies because Wolfe ended up with vanishing bile duct syndrome (VBDS) as well, which necessitated a liver transplant, and the suit alleges that the ibuprofen product induced both SJS and VBDS.
In his discussion of liability under the failure-to-warn claim, DuBois states that pre-emption does not apply in the context of Wyeth v. Levine because the defendant failed to show clear evidence that FDA would not have allowed the label to mention SJS. The decision states that the agency had decided in 2006 to deny a citizen's petition to require manufacturers to include the SJS description in the label, although FDA is said to have agreed that labels should list skin reactions that characterize SJS without mentioning the diagnosis.
DuBois states that McNeil failed to mention two instances of SJS in a clinical study report filed for the trial used to support the OTC designation for the drug, although McNeil is said to have asserted that FDA knew of the two cases. However, DuBois asserts, “a reasonable jury viewing the evidence . . . could conclude otherwise“ because of the omission from the clinical trial report, and that a jury could conclude that McNeil “deliberately concealed information“ from FDA to win approval for the OTC designation and to avoid the need to list SJS in the label. Hence, a jury could interpret these as indications that the defendant had engaged in “the sort of outrageous conduct that would justify the imposition of punitive damages.“
DuBois notes that McNeil raised pre-emption under Buckman v. Plaintiff's Legal Committee, but said that this lawsuit is not “an attempt to police fraud against the FDA“ (quote marks DuBois'), but rather is “to demonstrate that the offending failure-to-warn conduct was not merely sufficient to establish strict liability or negligence, but was truly outrageous.“ The fact that only two cases of SJS showed up in the pivotal trial for the OTC indication suggests that a finding of statistical significance was not reached for this disease.