Medical Device Daily Contributing Writer

Genzyme’s (Cambridge, Massachusetts) longstanding legal dispute with some shareholders over the buyback of Genzyme Biosurgery stock in 2003 will end not with a figurative bang but with a $64 million whimper, if a judge approves an agreement made between the parties.

Four class-action lawsuits were filed in all, but they have been combined or dismissed. Word of the settlement showed up in Genzyme’s second-quarter earnings report, where the company predicts the proposed $64 million payout “will, as a practical matter, resolve the consolidated case that remains pending” in Massachusetts Superior Court, and lay the whole matter to rest.”

“I don’t think the Street will blink if [the settlement amount is] below $200 million,” Jennifer Chao, analyst with Deutsche Bank, told Medical Device Daily ’s sister publication BioWorld Today. The $64 million, she noted, is “negligible, compared with the war Genzyme tracking stock shareholders were originally waging against [president and CEO] Henri Termeer, suggesting the legal case against Genzyme was relatively weak, and the settlement a vehicle to put this behind the company.”

The trouble began in May 2003, when Genzyme decided to consolidate its three tracking stocks — General, Biosurgery, and Molecular Oncology — as allowed by the firm’s charter. Shareholders of the Biosurgery piece argued that the move would wrongly let the parent company buy back that division for about $72 million, when the price should have been much higher, possibly as much as $2 billion (Medical Device Daily , May 13, 2003.)

Genzyme set up the Biosurgery tracking stock after buying Biomatrix (Ridgefield, New Jersey), and getting Synvisc, an injected material for the treatment of knee osteoarthritis, to pair with Genzyme’s own Carticel, for damaged knee cartilage. (MDD, March 9, 2000.)

Though shareholders insisted the Biosurgery division had gained value over the years, Genzyme’s buyback was not costly because the division’s shares were trading low. Lawyers for Genzyme argued the move was legal and in line with the charter, but the plaintiffs hung on, claiming the parent company unfairly waited until Biosurgery’s stock fell.

Genzyme has other fish to fry. Though the firm suffered a setback in early July when tolevamer, the Clostridium difficile-toxin binder to fight diarrhea related to the bug, failed in its first Phase III trial — and this blowup followed closely the fizzle of hylastan, a joint lubricator for osteoarthritis knee pain, in a pivotal study — the firm has generated excitement over Mozobil.

An antagonist of the SDF-1/CXCR4 complex, Mozobil (plerixafor) proved strong in recent Phase III trials with multiple myeloma and non-Hodgkin’s lymphoma, and the company plans to file for approval in both indications, here and overseas, during the first half of next year.

In other legalities:

Iasis Healthcare (Franklin, Tennessee) is facing a whistleblower lawsuit that alleges it illegally compensated doctors to refer patients to Iasis hospitals and performed unnecessary medical services, including interventional cardiology procedures, to boost its profits.

Iasis could be liable to pay the government millions of dollars as a result of the lawsuit, which was brought under the False Claims Act and had been under seal in federal district court in Phoenix, until recently. The law allows individuals to file qui tam (whistleblower) lawsuits against companies that are defrauding the federal government and recover funds on the government’s behalf.

The lawsuit says Iasis Healthcare paid doctors for referrals in various hidden ways, including: entering into contracts with doctors for sham medical directorships for which they did little if any work to earn their pay; giving doctors below-market rent for office and lab space; making lease payments at above fair-market rates for catheter labs or other diagnostic equipment owned or controlled by physicians and other improper incentives and payments to doctors.

All Medicare and Medicaid claims that arise from instances where there is an improper financial relationship between a doctor and a hospital are considered false or fraudulent claims under the False Claims Act. Companies found liable under the False Claims Act can be required to pay as much as three times the government’s losses plus $5,500 to $11,000 for each false claim. Thousands of Medicare and Medicaid reimbursement claims by Iasis hospitals are covered by this case.

Jerre Frazier, a former VP for ethics and compliance for Iasis, filed the lawsuit on behalf of the government. Frazier also served as Iasis chief compliance officer and as chairman of its corporate compliance committee.

A federal judge unsealed the lawsuit against Iasis after the government filed a notice that it was unable to meet a court-imposed deadline for a decision on whether it would intervene in the case. The government said it is investigating the allegations and would decide whether to intervene once its investigation was completed.

In addition to making allegations about improper financial relationships with physicians, the complaint also alleges that many medically unnecessary procedures, including interventional cardiology, radiology and other procedures, have been performed at Mesa General Hospital (Mesa, Arizona), St. Luke’s Hospital (Phoenix), Park Place Hospital (Port Arthur, Texas), Odessa Regional Hospital (Odessa, Texas), and Memorial Hospital (Tampa, Florida), and other Iasis Healthcare hospitals.

Iasis owns or leases 16 acute-care hospitals and one behavioral health hospital in six states and has a total annual net revenue of about $1.8 billion.

Frazier is represented by the law firm of Phillips & Cohen.