Licensing and Compliance in HCP Relationships: A Guide for Medical Device Companies

1. MassMEDICFebruary 26, 2010Licensing and Compliance Presenter David L. Cavanaugh 60 State StreetBoston, MA 02109 1875 Pennsylvania Avenue, NW Washington, DC 20006

2. 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 WilmerHale

3. 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 WilmerHale

4. HCP- Spectrum of Contributions • Fair Compensation for Contributions to • Developing • New Medical Devices Financial Inducements to use Company Products How to Determine? WilmerHale

5. 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 WilmerHale

6. 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 WilmerHale

7. 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 WilmerHale

8. HCP- Consulting and Licensing • Umbrella Concept- Fair market value (FMV) for contributions • We know the margins • No work consulting arrangement problem • HCP innovation (patented?) contribution not a problem • Challenge- How to navigate the middle WilmerHale

9. HCP- Contributions Summary of Potential Contributions • Patented Idea • Patent Pending Idea • Idea with no patent application • Early concept not yet ready for patenting • Unpatentable idea • Trade Secret • Manufacturing Suggestion • Usage evaluation • Prototype evaluation • Market needs assessment • Non specific consulting WilmerHale

10. Overview Compensation Framework WilmerHale • 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.

11. Overview Compensation Framework WilmerHale • Framework • Should address most of the situations that will be encountered • The fair market compensation rates should be a reasonable range

12. The Intellectual Property Continuum IP is Innovative IP is Contributory Consultative Information 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 Patentable Invention Trade Secret Know-How Fee-for-Service High Value Medium Value Lower Value Fair Market Compensation Range WilmerHale

13. Implementation of Royalty Policy • Process for implementation • Define purpose • Determine participation • Identify scope of activity • Develop charter/policy document • Adhere to determined Charter WilmerHale

14. Implementation of Royalty Policy • Define Purpose • Work with Compliance Officer • Be explicit • Bring others onto project • Help others to see objective WilmerHale

15. Implementation of Royalty Policy • Determine Participation: • Legal represented • R&D participation • CFO/Controller • Clinical and Regulatory Affairs WilmerHale

16. 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 WilmerHale

17. Implementation of Royalty Policy • Develop charter/policy document • Purpose • Responsibilities • Composition • Protocol • Evaluation • Role functions WilmerHale

18. Licensing and Compliance • Summary • HCP- Enforcement • Compensation Framework • Implementation of Royalty Policy WilmerHale

19. Wilmer Hale • Thank you • Questions? • Dave Cavanaugh • 617-526-6000 • 202-663-6025 7459399v1 WilmerHale