A Medical Device Daily

Medtronic (Minneapolis) yesterday reported that a California arbitrator found in favor of Medtronic on various antitrust, fraud and tort claims alleged by biomaterials firm ETEX (Cambridge, Massachusetts) in connection with the parties' disagreement over a March 2002 purchase and option agreement.

However, the arbitrator awarded to ETEX breach of contract damages of about $50.2 million, plus interest.

Medtronic said that its equity interest in ETEX is unaffected by this decision.

In the 2002 agreement, Medtronic's Spinal business agreed to purchase ETEX contingent upon ETEX developing a bone graft product meeting certain technical specifications and other conditions. Medtronic said it believed that the ETEX product failed to meet the agreed specifications.

However, in the arbitrator's opinion – which Medtronic noted is binding and non-appealable – Medtronic breached the agreement by failing to accept ETEX's proposed product. The arbitrator's award reflects the contract damages sustained by ETEX as a result of the breach, and Medtronic noted that the existing agreements between it and ETEX are terminated.

Medtronic said that the decision will not keep it from selling any of its existing products, "impair any future product development or compromise the company's leadership position within the promising bone-graft market."

It also said there will be no long-term financial implications for it, though it will record an expense in its fourth quarter related to the award. The amount of that expense was not disclosed.

ETEX develops products promoting bone repair and other technologies that enable controlled delivery of drugs, growth factors and other medical compounds.

In other legalities: Clarient (San Juan Capistrano, California), formerly Chronamed Medical Systems, and Applied Imaging (San Jose, California) reported reaching a settlement ending their litigation involving charges of patent infringement, unfair competition and misappropriation of trade secrets.

The companies have granted each other non-exclusive, worldwide licenses allowing use of their respective brightfield and fluorescent microscopy patent portfolios for pathology applications. Additionally, Clarient will assume non-exclusive distribution rights to Applied Imaging's Ariol pathology workstation for select applications in drug discovery and development.

Ron Andrews, CEO of Clarient, said the agreement enables his company "to now focus our energies on expansion of the Image Analysis market using both Brightfield and Fluorescence technologies. Both companies believe that the advent of multiplex staining for IHC and fluorescent techniques will predicate a growing need for image analysis for both the research and the clinical market. Our access to these technology portfolios will strengthen our position as this market develops."

Robin Stracey, president and CEO of Applied Imaging, called conclusion of the dispute and the agreement good for both companies, enabling them to "refocus their energies on the important business of bringing advanced imaging and image analysis solutions to cancer researchers and clinicians. Since Clarient and Applied Imaging are both leaders in this field, reciprocal access to intellectual property and a more collaborative working relationship can only accelerate the development and adoption of more powerful new tools for understanding and diagnosing diseases."

Applied Imaging is a supplier of automated imaging and image analysis systems for the detection and characterization of chromosomes and molecular markers in genetics and cancer applications. Its systems for fluorescence and brightfield microscopy include its Ariol, SPOT and CytoVision product families.

Clarient provides technologies, services and support for the characterization, assessment and treatment of cancer. A majority-owned subsidiary of Safeguard Scientifics, Clarient was formed in 1997 to develop and market the Automated Cellular Imaging System (ACISd), a digital imaging system enabling pathologists to obtain reproducible quantitative results for a range of slide-based diagnostics.

Safeguard Scientifics supports companies in the "time-to-volume" stage, which it describes as those "facing new challenges as they scale their businesses to meet market opportunities."

Clarient earlier this year changed it name from ChromaVision Medical Systems, it said, to better reflect its services to the diagnostics, biopharmaceutical and imaging equipment sectors (Medical Device Daily, Feb. 18, 2005).

Two high-profile cases involving ex-CEOs of firms deploying medical technology continued to roll along this week:

• In the trial of Richard Scrushy, founder and former head of HealthSouth (Birmingham, Alabama), Scrushy's defense attorney has been attacking the testimony of Weston Smith, one of a string of former company finance executives involved in the case and alleged accounting misstatements.

Smith and the others have testified that Scrushy was fully aware of the accounting irregularities at HealthSouth, but the defense has challenged details of Smith's statements while also suggesting that he is attempting to shield his wife, who was a senior vice president of finance at HealthSouth.

Evidence in the case has pointed to Mrs. Smith's meetings with those involved in the conspiracy – and that she supplied them with some financing data – but no charges have been filed against her.

Smith is one of 15 former executives who have pled guilty to fraud charges arising from the case.

• In the federal case against Dennis Kozlowski, former CEO of Tyco International (Pembroke, Bermuda), the government is currently seeking to demonstrate in court that Kozlowski and a former Tyco board member authorized for themselves and others up to $150 million in compensation that was not authorized by the company's board.

W. Peter Slusser, a member of the company's compensation committee for more than five years (from 1997-2003), said that the bonuses to the executives were awarded in a process that circumvented careful guidelines set by the board.

Kozlowski is also accused of unauthorized expenditures made as a result of company loans to buy artwork and jewelry, rather than for stipulated tax payments.