A Medical Device Daily

HealthSouth (Birmingham, Alabama) said it has reached a preliminary agreement in principle with the lead plaintiffs in U.S. securities class actions and derivative actions, as well as its insurance carriers, to settle litigation filed against the company, certain of its former directors and officers and certain other parties.

The actions have been filed in U.S. District Court for the Northern District of Alabama and the Circuit Court of Jefferson County, Alabama, relating to financial reporting and related activity that occurred at the company during periods ended in March 2003.

Under the proposed settlement, federal securities and fraud claims brought in the class action against HealthSouth and certain of its former directors and officers will be settled for consideration consisting of HealthSouth common stock and warrants valued at $215 million and cash payments by HealthSouth's insurance carriers of $230 million or aggregate consideration of $445 million.

Securities issued by the company in the proposed settlement will consist of 25,118,856 shares of its common stock and 11-year warrants to purchase 40,756,326 additional shares of HealthSouth common stock at an exercise price of $8.28 per share.

The federal securities class-action plaintiffs also will receive 25% of any net recoveries from future judgments obtained by or on behalf of HealthSouth with respect to claims against former CEO Richard Scrushy; Ernst & Young, the company's former auditors; and UBS, the company's former primary investment bank, each of which remains a defendant in the derivative actions as well as the federal securities class actions.

The proposed settlement is subject to the satisfaction of a number of conditions, including the successful negotiation of definitive documentation and final court approval.

HealthSouth said the company, the lead plaintiffs and the insurance carriers are continuing discussions toward a definitive settlement agreement.

“This proposed settlement represents a major milestone in HealthSouth's recovery and [is] a powerful symbol of the progress we have made as a company,“ said President and CEO Jay Grinney. “HealthSouth is on the verge of putting another issue from the past behind us.“

“Over the past two years, HealthSouth has successfully negotiated a number of significant legal obstacles resulting from the massive fraud perpetrated against us,“ said Gregory Doody, the company's general counsel and secretary.

“The proposed settlement with our stockholders and bondholders, when completed – together with our agreement with the Securities and Exchange Commission in 2005, our bondholder consent agreement in June 2004 and our previous settlement with the U.S. Department of Justice-Civil Division and the Centers for Medicare & Medicaid Services in December 2004 – will put the bulk of the legal issues relating to pre-March 2003 periods behind us and allow us to move forward.“

The proposed settlement will not contain any admission of wrongdoing by HealthSouth or any other settling defendant.

The company said the settlement plan does not include Ernst & Young, UBS, Scrushy or any former HealthSouth officer who entered a guilty plea or was convicted of a crime in connection with the company's former financial reporting activities.

HealthSouth is one of the nation's largest providers of outpatient surgery, diagnostic imaging and rehabilitative healthcare services, operating facilities nationwide.

Medinol (Tel Aviv, Israel) won't just go away and leave Boston Scientific (Natick, Massachusetts) alone.

The Wall Street Journal has reported that Medinol has launched a new claim against its former partner, charging that the U.S. firm is infringing its stent patents.

The new claim continues a longstanding legal battle in the wake of Boston Scientific's failed attempt to purchase the Israeli firm, which had been supplying it with stents. Spurned in that effort, Boston Scientific established a shadow manufacturing operation in Ireland.

As fallout, Medinol sued Boston Scientific and last year won a $750 million settlement – though far beneath the multibillion-dollar settlement it had sought (Medical Device Daily, Sept. 23, 2005).

With that settlement, the companies agreed that any future patent issues would be resolved via arbitration.

In the new claim, Medinol charges that three of its patents are being infringed by Boston Scientific's Liberté and Taxus Liberté stents.

An attorney for Medinol told the Journal that the allegations relate to design of the stent mesh. He said also that Medinol's recovery of royalties for past and future sales could add up to “hundreds of millions of dollars.“

He said that a decision in the arbitration could take six to 12 months.

Medinol also is suing Guidant (Indianapolis), the company that Boston Scientific will acquire, thereby beating out original suitor Johnson & Johnson (New Brunswick, New Jersey) in a drawn-out auction. It is seeking royalties from Guidant, claiming that it too has infringed stent patents held by Medinol.

In other legalities:

• Third Wave Technologies (Madison, Wisconsin) said it has reached an agreement with Chiron (Emeryville, California), Bayer (Pittsburgh) and Bayer HealthCare (Tarrytown, New York) under which the companies jointly will seek the dismissal without prejudice of Third Wave's lawsuit against Chiron and Bayer over patents related to hepatitis C virus (HCV).

No licenses were granted or taken under the agreement and no payment was made to any of the companies. Terms of the agreement are not being disclosed.

Third Wave said it now has resolved all of its patent-related lawsuits, with the exception of the company's on-going dispute with Stratagene (La Jolla, California), which recently posted a $21 million bond in Third Wave's name that secures the damages and attorneys' fees awarded to Third Wave last year in its successful suit against that company.

Third Wave resolved its lawsuit with Innogenetics (Ghent, Belgium) earlier this month by taking a non-exclusive license to that company's HCV patent after evaluating the cost of the license vs. the cost of continuing to litigate the suit.

The company also reached what it termed an “amicable agreement“ with Digene (Gaithersburg, Maryland) in January under which the companies agreed not to bring suit over human papilloma virus, or HPV, patents against one another for one year.

“Third Wave's top priority is delivering high-value, clinical molecular diagnostic products to our growing customer base,“ said Kevin Conroy, president and CEO. “We now can focus on that objective without the distraction and cost of litigation.“

Third Wave develops molecular diagnostic reagents for a variety of DNA and RNA analysis applications. It offers a number of products based on its Invader chemistry for clinical testing.

• Biovail (Toronto) said it has filed a lawsuit seeking $4.6 billion in damages from 22 defendants who it alleges participated in a stock-manipulation scheme.

The complaint, filed in Superior Court for Essex County, New Jersey, alleges violations of various state laws, including the New Jersey Racketeer Influenced and Corrupt Organizations Act (RICO), under which treble damages may be available.

Defendants include S.A.C. Capital Management, S.A.C. Capital Advisors, S.A.C. Capital Associates, S.A.C. Healthco Funds, Sigma Capital Management, Steven Cohen, Arthur Cohen, Joseph Healey, Timothy McCarthy, David Maris, Gradient Analytics, Camelback Research Alliance, James Carr Bettis, Donn Vickrey, Pinnacle Investment Advisors, Helios Equity Fund, Hallmark Funds, Gerson Lehrman Group, Gerson Lehrman Group Brokerage Services, Thomas Lehrman, Patrick Duff and James Lyle.

Biovail is a specialty pharmaceutical company focused on the development of pharmaceutical products using advanced drug-delivery technologies.

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