Thursday, August 23, 2007

Ready, set....

Globus Medical Inc. is ready to run.

Earlier this week, the company settled its lawsuit with Synthes USA, reaching an agreement that absolved Globus of allegedly stealing trade secrets and key personnel from Synthes. As part of the deal, Globus agreed to pay Synthes $13.5 million in cash and to not hire any additional Synthes employees for one year.

Freed by the drag of that lawsuit, Globus today announced it raised a $110 million Series E investment in a round assembled by Clarus Ventures, which led a syndicate of private equity investors with a commitment north of $50 million. AIG SunAmerica is the only other identified investor although several private equity firms supposedly took part.

Not that the company had exactly been standing still. Started in 2003 by CEO David Paul and other executives who left Synthes, Globus Medical last year reported more than $80 million in revenue. The size of the settlement surprised some. (Healthpoint Capital's blog has some nice before and after takes here and here. But the Philadelphia Inquirer suggested at least one juror saw some holes in Globus' case.)

Hard to say for sure why the settlement happened, but it's easy to envision Globus executives opting to settle quickly with $110 million piled atop their board room table.

The massive deal signals two developments. The first involves Globus which currently resides on the second-tier of the spinal device market. Medtronic Sofamar Danek, Depuy Spine, Synthes USA, Stryker Corp and Zimmer Spine Inc./Zimmer Holdings Inc. still lead the way. But Globus is now positioned to make a move past other mid-tier players like Blackstone Medical Inc., NuVasive Inc., Alphatec Spine Inc and others. The capital infusion enables the company to plow through with sales of its fusion products while advancing its internally developed line of non-fusion implants and spinal spacers. For more on these areas go to MedTech Insight reports here and here.

The second interesting aspect of this financing of course involves Clarus Ventures, the firm founded by five former partners of MPM Capital who left in a very public split two years ago. This financing will likely be reported as a significant “venture capital” deal, probably the biggest since CardioNet secured its $110 million (which also wasn’t really a venture capital round.) But make no mistake, this is a private equity-style investment with private equity firms involved.

Private equity firms continue to survey the medical device industry, and orthopedics particularly, for opportunities. While the Globus deal clearly resides in a different neighborhood than the $10.9 billion acquisition of Biomet Inc. by Blackstone, KKR and others, it demonstrates how well-heeled venture firms--such as Clarus--can position themselves as private equity players, at least when when medical devices are involved. The $50 million-plus investment in Globus represents roughly 10% of the $500 million debut fund that Clarus closed on at the start of 2006, so it’s a big bet. It also may be the last device deal in this debut fund.

Clarus is clearly comfortable with big wagers as it demonstrated with its participation in the $80 million financing for Sientra, which is pushing for FDA approval of a silicon-based breast implant.

Check out our next issue of START-UP to hear more about the deal and Clarus.

1 comment:

Anonymous said...

Crime and Punishment: Enough for Corporate Wrongdoing?

Corporate crime should not be a new concept to most people- especially with scandals revealed with large corporations at the beginning of this decade.

However, it may have evolved into more troubling ways- not only in regards to its severity, but the methods of deterrence now being implemented against corporations- involved in the health care industry in particular. So it may be becoming progressively worse for U.S. citizens as a result.

Rather than speak of all corporations, what will be discussed is government health care fraud. Fraud basically is deception with the potential to harm others. In the case of pharma companies, this may include improper promotion and marketing, meaning that such tactics are or may be deceptive misconduct that may be illegal. In addition, there are the crimes of kickbacks and lesser crimes of misbranding products. Probably more methods of wrongdoing as well do in fact exist and happen. Yet the point is that drug companies should not engage in such wrongdoing to enrich their faceless existence with profiting off those who are ill in illegal ways.

Biggest fines so far of all time was for these companies- all involved in the health care system:

Hospitals were NME in 1994 and HCA healthcare for billing the government for work never done, among other things (This HCA hospital system is owned by Senator Bill Frist’s family, and somehow I’m not shocked in any way). HCA was fined twice in 2000 and 2003.
Tap in 2001, Serono in 2005, Pfizer in 2004, Abbott in 2003, and GSK in 1997, Schering in 2004 and 2007, AstraZeneca in 2003, as well as Bayer this year- all for fraud against our government. There are many more settlements aside from these with other aspects of healthcare unrelated to pharmaceuticals, such as hospitals and home health care companies, but these top the list from the aspect of monetary penalty.

Kidney dialysis clinic Fresenius paid a settlement in 2000 for faking medical claims was a big one in recent times. The irony is that dialysis never wanted a patent for the inventor, as he wanted the treatment to be utilized by all who were in need of this treatment.

Check out: for more information and companies busted for this type of behavior. And check out to find out the criminals who are essentially set free afterwards.

Criminals assigned to restore the health of others. This is troubling to say the least.
How is such conduct discovered? Typically by whistleblowers who worked for the described pharma or medical company, and such people are rare for a number of reasons. The whistleblower then seeks legal agents and files what is called a qui tam false claims act with a district attorney’s office (Boston or Philadelphia, if you want prosecutors to take you seriously). After the case is filed, the whistleblower verbally acknowledges the charges and evidence to the chosen prosecutors and others.

Such cases usually take years for unclear reasons to reach closure, yet in the past two years, the settlements from such cases has approached 2 billion dollars after investigations ended that took years, which is tax dollars returned to the American public with these settlements.

So, what has been happening once a pharma company gets busted. Criminal indictment by the government prosecutors? This is hardly the case, yet appropriate. Usually, the prosecutor’s objective is to dismiss the case, but give the impression that such activities will not be tolerated by our government. So Corporate Integrity Agreements are mandated to the pharma company, but not really taken seriously, as some have more than one of these agreements active still. It’s an invisible ankle bracelet. A pharma company can and have committed equal or worse crimes while under such an agreement. This Agreement is issued after the deferred or non prosecution agreement is sentenced to the law-breaking corporation, which basically is a pre-trial diversion. Essentially, it’s just parole, which is supported by the DOJ and the administration. The criminals admit wrongdoing, but not guilt. And they pay a settlement in the neighborhood of hundreds of millions of dollars. Not that shocking, if you consider the income of big pharma companies. These agreements are relatively new and partially a result of suggestions somehow devised by the lawmakers of our country.

We are the top country in the world with the most prisoners behind bars, yet those that do similar if not greater harm to others get out of jail free. Double standard, I would say. Is this behavior by our legal system towards corporations an effective deterrent? Most think not. It rather seems like tacit approval of their conduct. And health care fraud may be more damaging than other types in other industries, yet lack of regulation allows such crimes to continue.

Citizens should make the laws in our country. Justice would then finally exist.

“Corporations cannot commit treason, nor be outlawed, nor excommunicated, for they have no souls.”
---- Edward Coke

Dan Abshear

Author’s note: What has been written above is based upon information and belief