A federal court laid the groundwork last month for a trial concerning claims by Medinol (Tel Aviv, Israel) that its former partner, Boston Scientific (Natick, Massachusetts), secretly established a factory in Ireland to manufacture Medinol stents in violation of previous agreements between the firms. Judge Alvin Hallerstein of the U.S. District Court for the Southern District of New York, in an opinion on the ongoing dispute between the two companies, said that Boston Scientific had shown "bad faith" and "stealth" in establishing the alternate manufacturing operation. And he set Jan. 13 as the time for a meeting between the companies to negotiate a settlement. Without a settlement, the next likely step is a trial on key issues.

Establishment of the allegedly "secret" operation has been Medinol's contention for more than three years. Its charges stem in part from a failed attempt by Boston Sci to purchase the Israeli firm. Medinol was originally a valued supplier of stents to Boston Scientific, but the U.S. firm then sought to purchase Medinol, in an attempt, it said, to better control its supplies. But Medinol rejected the proposed buyout, saying Boston Scientific never made an offer matching its true value. Boston Scientific then circumvented the supply agreement, Medinol said, by establishing the Irish operation.

In his ruling, Hallerstein essentially dismissed a variety of claims and counterclaims the firms had made against each other, narrowing them to some key issues, primarily Medinol's contentions that Boston Scientific's sale of Express and Taxus coronary stents represents a breach of contract and that Medinol is entitled to royalties on those sales. He also expressed frustration with the companies' delays, saying they were increasing expenses and serving to put off judgments by "other litigants."

Medinol originally entered into its relationship with Boston Scientific in 1995, agreeing to manufacture and provide its stents to the U.S. firm, and Boston Sci agreeing to market and distribute those products. It has claimed that James Tobin, CEO of Boston Scientific, revealed to it in April 2000 that his firm had established a project called BBD for "Bring a Better Deal" and "Project Independence," under which it alleged that Boston Sci "appropriated Medinol's designs for stent-making machinery and had built a copy of the [manufacturing] machinery in Ireland." Tobin, Medinol said, made the revelation because the U.S. Justice Department had discovered the copy.

For its part, Boston Scientific asserted that it was permitted to engage in Project Independence because it believed that Medinol might delay or cut off delivery of stents. Hellerstein, Medinol said, "found [that] Boston Scientific's actions in Project Independence were taken in bad faith."

In responding to Hallerstein's ruling, Boston Scientific said in a statement that the court "granted in part and denied in part both Medinol's and Boston Scientific's motions for summary judgment" and that it "dismissed Medinol's claims against the two Boston Scientific officials named in the case." It did not comment, however, on the judge's finding that the trial would move forward.

Paul Donovan, spokesman for Boston Scientific, said in the statement: "As the ruling states, this is essentially a breach-of-contract case, which alleges 'grandiose estimates of damage' that are unlikely to succeed. Perhaps most significantly, there is nothing in this ruling that interferes with our ability to continue to sell our Taxus Express2 paclitaxel-eluting coronary stent system." Judith Richter, CEO of Medinol, said of the judge's decision, "I am gratified that Medinol now will have an opportunity to seek justice at trial."

MedicalCV exits mechanical valve sector

MedicalCV (Inver Grove Heights, Minnesota) has exited the mechanical heart valve and pyrolytic carbon businesses, confirming a pathway that it had hinted at earlier in 2004. Best known for its Omnicarbon 3000 and 4000 heart valves, the company reported in September that as a result of its expanded efforts in the atrial fibrillation (AF) sector, it was "re-evaluating the long-term strategic implications and alternatives for its mechanical heart valve and pyrolytic carbon platforms," a statement that suggested that it was pursuing the possible spin-off of the technology. At the same time, MedicalCV said that Adel Mikhail, PhD, founder of the company and a director, had resigned from the MedicalCV board, citing "disagreements over the company's strategic direction."

In a resignation letter filed with the Securities and Exchange Commission in September, Mikhail expressed disapproval with the "new direction" of the company, saying that it "indicates loss of interest in our Omnicarbon heart valve business," adding that this "loss of interest will ultimately diminish the value of the business."

Early last year, MedicalCV rolled out a restructuring of operations to reduce its costs in the heart valve division and, obviously, to lay groundwork for its new AF focus. The restructuring also resulted in the departure of Blair Mowery, who had been president and CEO of the company since 2001 and at the time of his departure held the title of president of the Heart Valve Division, and also of Allan Seck, vice president of business development.

"After an exhaustive evaluation of MedicalCV's mechanical heart valve business, we have decided in the best interest of the shareholders to discontinue all valve-related operations and exit the business," said Marc Flores, president and CEO. "It is our intent to support our customers in the near-term. We will take action to divest all heart valve assets as opportunities arise." Flores concluded that the company has appropriately "right sized," adding that it would continue to take action "to ensure that all . . . resources are focused on providing better products for better outcomes in the high-growth atrial fibrillation market."

In lieu of valves, the company is developing a new soft-tissue ablation system called Atrilaze. The treatment uses a laser device to ablate soft tissue, including cardiac tissue, thus intended to treat AF and reduce the incidence and severity of congestive heart failure. MedicalCV acquired the technology when it bought LightWave Ablation Systems (Mooresville, North Carolina) last year. The company recently filed a 510(k) submission with the FDA for a general tissue ablation indication and is awaiting word on the status of that application from the FDA.

Vitex suspends Phase III Inactine study

V.I. Technologies (Vitex; Watertown, Massachusetts) in late November reported "temporarily" suspending enrollment in its Phase III surgical study of the Inactine pathogen inactivation system for red blood cells. The decision, the company said in a statement, "was made following identification of an immune response to Inactine-treated red cells in one patient in the study during ongoing immunologic testing of all subjects enrolled in the trial." It went on to say that, based on its review of data, no "clinical consequences" of the immune response had been seen but that it was pursuing a full evaluation of that data before enrolling additional patients in the study.

This is the second time the company has halted its Phase III trial. In November 2003, Vitex stopped enrollment in the trial based on the recommendation from an independent Data Safety Monitoring Committee, which cited concerns about antibody responses in patients receiving Inactine-treated red blood cells and associated clinical assessments in the trial participants.

While the company said in a conference call that the action would not affect its pending merger with Panacos Pharmaceuticals (Gaithersburg, Maryland), the companies reported that "certain modifications" would be made to the financial terms of the agreement the implication being that the valuation on Vitex stock in the merger could be negatively impacted by the Inactine trial news.

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