MassMEDIC

February 26, 2010

Licensing and

Compliance

Presenter

David L. Cavanaugh 60 State StreetBoston, MA 02109

1875 Pennsylvania Avenue, NWWashington, DC 20006

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Health Care Provider (HCP) Relationship

Increasing attention to HCP Relationship with Companies

Contact Points:

Marketing

Product Development

Product Evaluation

Training

Focus on Licensing/Consulting Aspect Today

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Objectives Background of increased focus on HCP

relationship

Apply focus to licensing

Describe recent enforcement activity regarding licensing

Review model of determining Fair Market Value for contributions

Outline implementation of Royalty Review Committee

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HCP- Spectrum of Contributions

Fair Compensation for

Contributions to

Developing

New Medical Devices

FinancialInducements to use Company Products

How to Determine?

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HCP- Enforcement

Enforcement of existing laws-

2006 - Large medical device company agreed

to pay $40M to settle allegations that it offered “kickbacks” to HCP’s

Included in “kickbacks” was consulting and royalty agreements for which little or no work was done

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HCP- Enforcement Enforcement of existing laws- 2007-

Spinal cord stimulation company paid $3M to settle allegations of improper payment

Company paid $5k for each 5 new patients tested

– Limited clinical benefit– The data collection fee was not set through

“fair market value” assessment– The company didn’t use the data

There were also “resort” trips where much of the time was spend on recreational activities

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HCP- Enforcement Enforcement of Existing laws-

2007- Enforcement in hip and knee replacement market Companies pursued comprise 95% of market Settlement total of $311M Initiate compliance programs Ongoing review of program activities

Enforcement is real, costly, and targeted toward abuses of the HCP/Company relationship

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HCP- Consulting and Licensing

Umbrella Concept- Fair market value (FMV) for contributions

We know the marginsNo work consulting arrangement problemHCP innovation (patented?) contribution not a

problem

Challenge- How to navigate the middle

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HCP- Contributions

Patented Idea Patent Pending

Idea Idea with no patent

application Early concept not

yet ready for patenting

Unpatentable idea

Summary of Potential Contributions Trade Secret Manufacturing

Suggestion Usage evaluation

Prototype evaluation Market needs

assessment Non specific consulting

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Overview Compensation Framework Framework

Assists with assessing intellectual property

and assigning the appropriate fair market

value for the contribution Outlines the various types of intellectual

property that may be addressed by RRC. Defines a range of fair market compensation

that is capped on both an individual basis

and design team basis.

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Overview Compensation Framework

Framework Should address most of the situations that will be

encountered The fair market compensation rates should be a

reasonable range

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The Intellectual Property Continuum

Patentable Invention Trade Secret Know-How Fee-for-Service

High Value Medium Value Lower Value

IP is Innovative IP is Contributory Consultative Information

Fair Market Compensation Range

Intellectual Property (“IP”) can be valued on a broad continuum for

Medical Device Companies. Patentable Invention - where a patent application has already been filed or can

be filed. Typically the most valuable form of IP.

Trade Secret or “Know how” where specific information is being purchased by

the Company to either develop or enhance a product or technique.

Consultation - generally compensated on a fee-for-service basis for the time

provided by the consultant

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Implementation of Royalty Policy

Process for implementation

• Define purpose

• Determine participation

• Identify scope of activity

• Develop charter/policy document

• Adhere to determined Charter

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Implementation of Royalty Policy

Define Purpose

• Work with Compliance Officer

• Be explicit

• Bring others onto project

• Help others to see objective

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Implementation of Royalty Policy

Determine Participation:

• Legal represented

• R&D participation

• CFO/Controller

• Clinical and Regulatory Affairs

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Implementation of Royalty Policy

Identify Scope of Activity

• Review the HCP Consultant qualifications of design team

• Establish Fair Market Value royalty percentage

• Evaluate whether HCP Consultant met established criteria

• Evaluate Contributions for innovation and significant

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Implementation of Royalty Policy

Develop charter/policy document

• Purpose

• Responsibilities

•Composition

• Protocol

• Evaluation

• Role functions

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Licensing and Compliance

Summary

• HCP- Enforcement

• Compensation Framework

• Implementation of Royalty Policy

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Wilmer Hale

Thank you

Questions?

Dave Cavanaugh 617-526-6000202-663-6025

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