Market updates and business developments frequently come together in medical technology, and the courts often operate as an important decider of who wins, who loses and how a sector develops. That point was never better illustrated than in a court decision, issued last month, that may put a large barrier in the path of Guidant (Indianapolis, Indiana) as it strives to carve out a significant position in the prospective — and potentially quite prosperous — market for drug-coated stents.

In mid-June a federal court issued a ruling that could knock down a distribution agreement between Guidant and Cook (Bloomington, Indiana), with a third player in that agreement being Angiotech Pharmaceuticals (Vancouver, British Columbia). Cook had formed an agreement with Guidant for Guidant to distribute a Cook-developed stent coated with paclitaxel licensed from Angiotech. But Boston Scientific immediately challenged that agreement, since it and Cook had signed previous agreements with Angiotech which, Boston Scientific contends, prevents Cook from selling paclitaxel-coated medical products to whomever it wishes.

Guidant, of course, is usually placed among the Big Three in the cardiovascular sector, together with Medtronic (Minneapolis, Minnesota) and St. Jude Medical (St. Paul, Minnesota). Since coated stents are being projected to lead the way as the next big thing in cardiovascular therapy, those first to market with the best coated-stent products are likely to climb several rungs on the cardiovascular ladder. Sector observers have predicted that the first major wave of products in this race will be FDA-cleared next year, and that has been the projection of Guidant, which has had several technology "eggs" in this particular sector basket.

In this case, Cook had asked the court for a summary judgment to dismiss Boston Scientific's complaint. However, Judge Charles Kocoras of the U.S. District Court for the Northern District of Illinois denied the motion, ruling that the language in the original licensing agreement with Angiotech did not allow Cook to establish an agreement with a third-party such as Guidant to distribute a paclitaxel-coated stent. Cook and Guidant immediately responded to the decision, with Cook saying it is likely to appeal the ruling, and Guidant saying it will continue to back the arrangement between the companies as legitimate.

Guidant is clearly hurt the most if the decision is upheld, especially since it has suffered other recent setbacks. In March, it closed down its ACTION trial in Europe, for the evaluation of a drug-eluting stent with actinomycin-D, as a result of high restenosis rate. And the court's ruling throws a cloud over its investigational device exemption application with the FDA to begin the DELIVER trial using Cook's paclitaxel-coated stent. Perhaps seeing problems down the road Guidant, as backup, earlier this year established a licensing agreement with Novartis (Basel, Switzerland) for the use of that company's experimental drug everolimus as a stent coating.

The court's decision in the licensing dispute is a clear negative for Guidant, said Larry Haimovitch, president of Haimovitch Medical Technology Consultants (Mill Valley, California). Guidant's future entry to this market could be "way, way off," he told Cardiovascular Device Update. Just as significantly, he projected a longer competition-free period in the sector for J&J — expected to win clearances next year — and less competition for those that come next.

Following the recent decision, Boston Scientific issued a statement saying that the court had found that Cook's agreements with Guidant were "a sham" and that it would seek a permanent injunction "prohibiting any activities under the Cook-Guidant agreements and any future attempts to circumvent the Angiotech agreement."

Guidant, for its part, continued to stand its ground, saying it believed the ruling was in error because "the Angiotech license explicitly contemplates a range of strategic relationships to allow sales of the licensed product. We will define an organizational construct consistent with the court's ruling and the Angiotech license agreement that allows for the commercialization of paclitaxel eluting stents." It further praised Cook's work in this sector "based on Guidant components."

Specialty Labs, VantageMed retool

Specialty Laboratories (Santa Monica, California) and VantageMed (Rancho Cordova, California) marked the start of summer with restructuring announcements, those initiatives including large layoffs of personnel.

Specialty Laboratories, a clinical reference laboratory, will make a 10% reduction in its workforce, with the reductions, it said, "involving all areas and levels of the company," and related one-time charges to be taken in the second quarter. The cutbacks come following a ruling by the Centers for Medicare & Medicaid Services (CMS; Baltimore, Maryland) to halt payment to Specialty for certain laboratory services and the subsequent cancellation by national purchasing group Novation (Irving, Texas) of a research contract with the laboratory firm. Specialty said the cancellation by Novation had come "without cause" and did not prevent Novation's members from using its services. The cancellation of payments from CMS came after Specialty responded to a variety of questions from the agency and submission of an action plan. CMS, however, said the responses failed to achieve compliance. With that announcement, the company also reported an unexpected earnings shortfall. Subsequent fallout included a class action shareholder suit filed against the company and the resignation of James Peter, MD, PhD, as chief executive. Douglas Harrington, MD, was then appointed interim chief executive.

Harrington, in rolling out the restructuring activities, said they will improve "the alignment of Specialty's cost structure with client demand, and we are confident that the steps we have taken are consistent with our continued focus on superior levels of service." He said that the realignment of staff "applies to all levels and areas within the organization, [and that] reduction in the number of management layers and strengthening of key laboratory management positions is emphasized."

VantageMed (Rancho Cordova, California), a developer of HIPAA-compliant information systems and services, also has encountered rough waters recently. It said it would release "approximately" 85 people, representing 30% of its workforce. The company said restructuring should be completed by Sept. 30, with these and "other anticipated expense reductions" to decrease cash burn by 4Q01.

The company's recent troubles have included a payment of $2.5 million late last year to settle a class-action suit and, more recently, the resignation of Arthur Andersen as its accounting firm after Andersen raised issues related to its sale of a dental business and a lack of adequate "internal control." With Andersen's resignation, the company reversed a reported gain of $30,000 from sale of the business and a $391,0000 amount recorded as "credit to selling, general and administrative expenses." With announcement of the restructuring, the company said that the Nasdaq Listing Qualifications Panel has determined that its common stock would be transferred from the Nasdaq National Market to its SmallCap Market, trading under the symbol VMDC.

In a large step beyond restructuring, Response Oncology (Memphis, Tennessee) in mid-June said that a federal judge has approved its plan to liquidate all assets and cease operations by Sept. 30. Response, which traded on the OTC bulletin board, had $25 million in secured debt and about $17.5 million in scheduled pre-petition unsecured debt when it entered Chapter 11 protection.

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