A Medical Device Daily

After a lengthy and expensive court case, Medtronic (Minneapolis) reported that it has entered into an agreement to acquire substantially all of the spine-related intellectual property of Karlin Technology and Gary Michelson, MD, as well as related contracts, rights and tangible materials.

The transaction, valued at nearly $1.35 billion, will finally resolve all outstanding litigation and disputes between the parties.

After a three-month trial that ended in October 2004, a jury in Memphis issued a ruling awarding nearly $510 million in punitive and compensatory damages to Michelson, a spinal surgeon and inventor, and Karlin Technology, a company he founded, in their lawsuit against the Medtronic Sofamor Danek (MSD; Memphis, Tennessee) unit of Medtronic (Medical Device Daily, Oct 19, 2004).

The jury ruled that MSD had breached purchase and license agreements between the parties, engaged in wrongful conduct, infringed six patents owned by Michelson and intentionally underpaid royalties.

The jury found, specifically, that Medtronic Sofamor Danek had infringed Michelson’s and Karlin Technology’s patents covering the company’s Interfix Threaded Fusion Device System, LT Cage implant, Affinity Cervical Threaded Cage System and Infuse bone graft and other products.

The total compensation falls short of the $1.7 billion in damages Michelson originally sought when he claimed that Medtronic breached a patents agreement he made with spinal implant maker Sofamor Danek a decade ago, before it was acquired by Medtronic in 1999.

The acquisition will transfer ownership of more than 100 issued U.S. patents, roughly 110 pending U.S. applications and about 500 foreign counterparts to Medtronic.

The patents pertain to spinal technology and techniques that have both current application and the potential for future patentable commercial products. The agreement also will transfer to Medtronic ownership of all inventions related to the diagnosis and treatment of the spine conceived or acquired by either Michelson or Karlin Technology in the 15 years following the closing and ends all of Medtronic’s ongoing royalty payments to Karlin Technology and Michelson under existing license agreements.

Based on initial estimates, Medtronic would acquire technology based intangible assets valued at about $800 million related to the purchase of the intellectual property and license agreements. A portion of the $800 million, currently estimated to be in the range of $75 million to $175 million, is expected to be classified as in-process research and development that will be expensed when the transaction closes, anticipated to be within Medtronic’s first quarter of fiscal 2006, which ends July 30, after the parties receive requisite regulatory approvals.

The remaining assets will be amortized over a period of up to 20 years.

In addition, Medtronic will pay about $550 million as an expense in the fourth quarter of fiscal 2005, related to the settlement of claims by Karlin Technology and Michelson.

“The acquisition of these assets will also end our ongoing legal dispute with these parties and allow Medtronic to place its full focus on improving the lives of patients,” said Michael DeMane, president of Medtronic Sofamor Danek.

The company said the acquisition would not add to earnings, but could potentially boost earnings over the long term.

NovaMed (Chicago) reported it has entered into a definitive agreement to acquire a 51% interest in the Colorado Outpatient Eye Surgery Center (Denver), an ambulatory surgery center.

NovaMed said it expects to complete this acquisition in May upon receiving the required licensure approvals from the state of Colorado and upon other closing conditions being satisfied. This will be NovaMed’s second surgery center in Colorado.

“This acquisition provides us with the opportunity to enter the Denver market in partnership with six highly respected local ophthalmologists,” said NovaMed Executive Vice President and CFO Scott Macomber. “In the last 12 months, approximately 2,000 ophthalmic surgical procedures were performed at this surgery center and we expect this acquisition to be immediately accretive to our earnings upon closing.”

NovaMed operates ambulatory surgery centers in partnership with physicians. Upon the closing of this transaction, NovaMed will have ownership interests in 27 surgery centers located in 14 states.