A Medical Device Daily

Laddcap Value Partners (New York) has issued an open letter to Delcath Systems (Stamford, Connecticut) stockholders asking for their written consent to remove and replace Delcath's current board of directors with a slate of nominees it said would "work diligently to advance Delcath's technology and expand stockholder value in the near and long-term."

Delcath is a developer of perfusion technology for delivery of therapeutic agents.

The letter was written by Robert Ladd, in his capacity as managing member of Laddcap Value Associates , the general partner of Laddcap Value Partners.

He noted that Laddcap Value Partners is the largest stockholder of Delcath Systems, owning 2,230,083 or more than 11% of the company's outstanding shares. "We own more Delcath shares than all of Delcath's officers and directors combined," Ladd said.

"We believe that Delcath has significant inherent value that has been inadequately exploited by the current board of directors and management. We are eager to advance the company's technology with a higher degree of urgency by ensuring that the board of directors and management has access to all available skills and resources."

Ladd said Laddcap's proposed changes "are intended to increase the likelihood of maximum value realization for the benefit of all Delcath stockholders in the near- and long-term.

Earlier this month, Delcath reported filing a lawsuit against Laddcap Value Partners and certain related parties in U.S. District Court for the District of Columbia (Medical Device Daily, Aug. 8, 2006).

The lawsuit alleges that the Ladd defendants have made a series of material omissions and misstatements in violation of securities rules, most recently in a proxy statement for a proposed consent solicitation. It said that the statement omits a variety of negative facts concerning some of the nominees being offered by Ladd.

Delcath contends that the Ladd defendants' preliminary consent solicitation also misleads shareholders about the true motive of the Ladd defendants' proposed consent solicitation – which is "to force the immediate sale of the company so that they can extract a quick profit and boost the short-term performance of the under-performing Laddcap hedge fund."

Delcath said that "after nearly a year of repeated attempts to force a sale of the company, the Ladd defendants would have shareholders believe that they suddenly have a newfound interest in developing Delcath's long-term business."

Delcath also alleges that the Ladd defendants have mischaracterized discussions with the company in an effort to discredit its directors and that "they have failed to disclose the identity of and nature of their relationship with persons and entities with whom they are acting together as a group for the purpose of acquiring, holding, voting or disposing of Delcath stock."

In last week's letter, Ladd said, "Laddcap urges you to take advantage of this opportunity to change the composition of the board. Laddcap believes this change will benefit all stockholders."

He said, "We are asking for your written consent to remove all directors from Delcath's board and, upon such removal, to replace them with our nominees."

Ladd reminded shareholders that Laddcap recently challenged the re-election of Mark Corigliano and Victor Nevins to the board, "because we did not believe that they had the necessary experience to guide Delcath in the future and because we questioned the current board's independence and oversight of management."

He said, "Based on the voting information disclosed by Delcath from the annual meeting, it appears that over 56% of the shares actually voted by Delcath stockholders were voted to withhold support for Messrs. Corigliano and Nevins. This significant showing by fellow stockholders does not include any shares voted by brokers on behalf of their clients who did not respond."

In addition, Ladd said, "nearly 60% of the votes cast were in favor of Laddcap's proposal that Delcath retain an investment banker, despite opposition from Delcath."

He said Laddcap "strongly believe[s] that the vote at the annual meeting reflected stockholders' desire for change and for a cessation of business as usual. As succinctly stated at the meeting by an institutional stockholder, 'when is this company going to grow up?'"

Ladd's letter added, "Based on many conversations with stockholders around the time of the annual meeting, it appears to us that many stockholders feel that the great promise of the company's device is potentially being compromised by a lack of urgency on the part of a board that we view as inexperienced, and by shortcomings in corporate governance and management oversight."

He noted that shortly after the annual meeting, "we approached Delcath with a simple proposition: Mark Corigliano, Victor Nevins and Daniel Isdaner should resign as directors and be replaced with three mutually agreeable, new independent directors with professional experience from which Delcath can draw as it looks toward FDA approval of its delivery system. Unfortunately, our simple proposal was rejected."

In its place, said Ladd, Delcath announced plans to expand the board to include two additional unnamed directors." He said Laddcap did not agree with this proposed change, "as we believe that adding two additional directors to the board will not change the oversight of management and will not provide the substantive change that we believe is necessary."

Delcath's technology is designed to allow aggressive chemotherapy while preventing the serious side effects that have precluded the use of high-dosage treatments.

DexCom (San Diego) said that the U.S. District Court for the District of Delaware has granted DexCom's motion to stay the patent infringement case brought against it by Abbott Diabetes Care (Fremont, California), a subsidiary of Abbott Laboratories (Abbott Park, Illinois), and also said that the court has dismissed one significant claim in Abbott's lawsuit.

In granting DexCom's motion to stay the litigation pending reexamination of the patents by the U.S. Patent and Trademark Office (USPTO), the court noted that granting the stay will "simplify the issues and focus the litigation," particularly if some or all of the claims of the four patents currently undergoing reexamination by the USPTO are found to be invalid, which would render many issues in the litigation moot.

The court further noted that the stay will conserve the resources of both parties and the court and it will reduce the risk of inconsistent rulings by the court.

"We are pleased by the court's ruling, as it has always been our view that Abbott's legal tactics are merely an attempt by a much larger and established company to intimidate and distract DexCom, a small company, from commercializing our STS Continuous Glucose Monitoring System, which is a new and important technology for people with diabetes," said Andy Rasdal, DexCom's president and CEO.

The USPTO had previously granted DexCom's request for reexamination of all four Abbott patents cited in the litigation. Although it is impossible to predict the outcome or timing of the reexamination process, according to the USPTO 74% of the patents it reexamined between 1981 and 2004 resulted in a cancellation or narrowing of all or some of the patent's original claims.

The average duration of the reexamination process was 21 months.

DexCom said it expects that the court's rulings will suspend further activity in the litigation until late 2007, or until the reexamination process is completed.

In approving the stay, the district court also granted DexCom's motion to strike, or disallow, Abbott's amended complaint in which that company had sought to add three additional patents to the litigation.

Subsequent to the court's ruling, Abbott filed a separate action in the court alleging patent infringement of those same three additional patents. DexCom said it believes this complaint, like the first, also is without merit and noted that it intends to "vigorously contest" the action.

DexCom said it continues to believe that its technology, which was developed independently, is clearly differentiated from that described in the three additional patents cited by Abbott.

In other legalities:

• Illumina (San Diego) said that Judge Joseph Farnan of the U.S. District Court for Delaware has issued a Markman order in the litigation brought by Affymetrix (Santa Clara, California) against Illumina.

Affymetrix originally accused Illumina of infringing six patents, but withdrew its allegations pertaining to one of the patents earlier this year. The patents remaining in this case are U.S. patent nos. 6,646,243; 6,355,432; 5,545,531; 6,399,365; and 5,795,716 (the '716 patent).

The court's order last week interprets the disputed terms in the remaining patents asserted by Affymetrix. Illumina said the court adopted its position as to the proper interpretation of certain of the key terms in dispute.

Illumina said it believes the interpretations in the Markman order support the position it has taken throughout this case that it does not infringe Affymetrix's patents and that these patents are, in any event, invalid and unenforceable.

"We have strongly believed since this suit was filed that Affymetrix' allegations are without merit, and that this suit is a result of Affymetrix' unfortunate decision to compete in the courtroom rather than in the marketplace," said Jay Flatley, Illumina's CEO. "We believe this ruling supports our non-infringement and invalidity positions and counterclaims in this case and we look forward to obtaining favorable results to that effect."

Trial in the suit, which was filed by Affymetrix on July 26, 2004, is presently scheduled to begin on Oct. 16.

In its own press release on the judge's Markman order, Affymetrix said the court agreed with Affymetrix' proposed constructions for most of the 15 terms involved in the case and adopted only two of Illumina's proposed constructions. The company said the court's decision "affirms the breadth of Affymetrix' patent portfolio in covering the DNA microarray field and related technology.

Affymetrix also said that in a separate decision, the court denied Illumina's motion to dismiss the '716 patent for lack of standing. The court affirmed Affymetrix' ownership of and right to sue on the '716 patent.

"We are pleased with the court's Markman decision and look forward to proceeding to trial," said Barbara Caulfield, Affymetrix executive vice president and general counsel.