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Senate OKs Sebelius as New Chief of HHS

President Barack Obama filled his final cabinet post with the appointment of Kathleen Sebelius as secretary of the U.S. Department of Health and Human Services (HHS). HHS has authority over the U.S. Food and Drug Administration (FDA) as well as the Centers for Medicare & Medicaid Services (CMS) and the Centers for Disease Control & Prevention, among others.

Sebelius, former Democratic governor of Kansas for six years, received approval from the Senate, 65-

Sebelius

31, with then-Republican Sen. Arlen Specter of Pennsylvania, who announced the same day he is switching to the Democratic Party, voting yes. The GOP’s Sam Brownback and Pat Roberts of Kansas, and Susan Collins and Olympia J. Snowe, both of Maine, also voted for Sebelius.

Brownback took some flack from pro-life supporters for his support of the former governor from his home state.

“The president won the election and has nominated a Kansan to the cabinet,” Brownback said in a statement prior to Sebelius’ confirmation. “Despite our profound policy differences, I will support my fellow Kansan.”

Sebelius takes the reins of one of the largest civilian departments in the federal government. HHS employs more than 67,000 people. Sebelius, who is a former president of the National Association of Insurance Commissioners, will lead the administration’s goal of passing universal healthcare legislation and is tasked with working with Congress to receive more money for pandemic flu preparation, vaccine development and aid to state and local health departments.

Her nomination process had been a protracted affair. Lawmakers looked into what Sebelius called “unintentional errors” in three years of tax returns, resulting in her paying more than $7,000 in back taxes. Republicans had delayed the vote because of concerns about Sebelius’ support of abortion. Some Republicans also asserted that she and the administration intended to ration healthcare using the results of research comparing the cost and effectiveness of different treatments. Mem-bers of the medical device community have indicated they’re supportive of comparative effectiveness programs, provided they’re properly structured. (See Top of the News in the March 2009 issue of MPO.)

“It is an honor to lead the Department of Health and Human Services, and I am grateful for the opportunity to serve at such a pivotal moment in our history,” Sebelius said, following her swearing-in ceremony in the Oval Office at the White House.

“I have every confidence that given her experience as a governor who’s managed crises before, who’s worked on public health issues since she’s been in public life, she is the right person at the right time for the job,” Obama said.

The president added that he was “thrilled” to have Sebelius on board and, given the mounting healthcare challenges and threats currently facing the United States, it was time to have “all hands on deck.”

A few of those “hands,” however, remain missing at the moment. Some of the key healthcare positions in government remain vacant, notably the top spots for FDA and CMS. The president nominated Dr. Margaret Hamburg as the next FDA administrator, but, as of press time, there has been no confirmation.

The medical device industry, which has been in the legislative crosshairs lately following the recent introductions of industry-specific bills in both houses of Congress, seems ready to work with HHS’ new chief, according to the industry’s largest advocacy group, the Advanced Medical Technology Association (AdvaMed) in Washington, D.C.

“AdvaMed looks forward to working with Secretary Sebelius as the administration and Congress begin developing specific plans to reform the healthcare system. The medical technology industry is committed to ensuring that all Americans have access to affordable, quality insurance and the most effective medical innovations to meet their individual needs,” said Stephen J. Ubl, president and CEO of AdvaMed.

Baxter Acquires Minority Stake in Infusion Pump Maker

Baxter International Inc. paid $100 million for a 40 percent stake in and a distribution agreement with privately held infusion pump maker Sigma International General Medical Apparatus LLC, based in Medina, N.Y.

Baxter has experienced longstanding problems with its line of medical infusion pumps. Most recently in early March, the U.S. Food and Drug Administration issued a Class I recall—the agency’s most serious recall level—for the company’s Colleague infusion pump. The Deerfield, Ill.-based firm hasn’t sold Colleague infusion pumps in the United States in more than four years. The device has been plagued with battery failures, problems with false alarms, alarm failures and inadequate infusion. Some pumps, however, remain in service with hospitals and clinics. Baxter continues to monitor the existing inventory.

As part of the deal, Baxter also may make payments of up to $130 million for “milestone” achievements Sigma reaches in R&D or regulatory matters, as well as acquiring the outstanding 60 percent stake in Sigma.

The agreement will allow Baxter to provide Sigma’s Spectrum brand of large-volume infusion pumps. Baxter also will have a stake in Sigma’s product development pipeline. According to Baxter officials, the deal will complement the company’s current infusion systems portfolio and next-generation technologies.

“Baxter is pleased to team with Sigma to expand our portfolio of infusion pumps, including the U.S.-cleared Spectrum, which is equipped with advanced safety and clinician-friendly features,” said Kevin McCulloch, general manager of Global Infusion Systems, part of Baxter’s Medication Delivery business. “This agreement enables us to immediately support our U.S. customers and will reinforce our position as a leading global provider of infusion systems products.”

The Spectrum pump was launched in the United States in August 2005 and is developed and manufactured by Sigma. According to the company, there are more than 35,000 Spectrum pumps currently in use domestically. As the distribution agreement covers international markets, Baxter may seek approval for the Spectrum pump in additional geographies.

Roger Hungerford, founder and CEO of Sigma, said the deal with Baxter would allow the company to “focus further on our research and development work, the very core of Sigma.”

Smiths Medical Leaving Diabetes Market

Competition and increased development costs have forced Smiths Medical to stop selling its Deltec Cozmo insulin pump and leave the diabetes market.

Officials for the company, which is based in the United Kingdom and has U.S. headquarters in St. Paul, Minn., said they considered “many possible options to create a long-term, sustainable diabetes business.” After reviewing the options, however, it was decided that the best course of action was to exit the diabetes market.

Because the diabetes unit was a direct-to-consumer business, it had little synergy with the rest of Smiths Medical’s businesses, according to the company. The division required its own sales, marketing, reimbursement, insurance and clinical support infrastructure in the United States, which became a drain on resources as sales and profits for the business decreased. Without a strong, profitable diabetes business in the United States, the world’s largest medical market, management decided it would be difficult to sustain the business internationally. Minneapolis, Minn.-based Medtronic Inc. and Johnson & Johnson in New Brunswick, N.J, currently dominate the diabetes market.

“Throughout our involvement in the diabetes market, we have chosen always to put care for our customer first, providing excellent clinical support, maintaining the integrity of our warranty and being proactive about fixing issues as they arose,” said Srini Seshadri, president of Smiths Medical. “For our efforts, we have been rewarded with a core group of very loyal customers. We thank them and reiterate our commitment to making this transition as easy as possible for them.”

A considerable amount of intellectual property has been established in the diabetes segment, which makes the development of next-generation products very costly and risky in terms of the potential for future patent disputes.

A total of 51 people will be laid off, primarily in field sales, marketing and, to a lesser extent, clinical services, customer support and manufacturing. The company said it would retain enough staff to ensure that it meets its commitment to customers for the remaining warranty period on pumps already sold.

Smiths Medical will focus its efforts on its three core areas: safety devices, vital care and medication delivery.

Riverside Partners Invests in IZI Medical Products

Investment company Riverside Partners, based in Boston, Mass., will purchase IZI Medical Products. Riverside will partner with IZI management to complete the deal.

IZI Medical Products, headquartered in Baltimore, Md., and a provider of medical markers used in image-guided surgery, radiology and radiation therapy procedures, sells products that range from fiducial markers, used with MRI, CT, and PET technologies, to passive reflective markers used during complex implantable gastric stimulation procedures. The firm’s medical markers are cross-functional and can be used across a broad range of medical specialties including radiation therapy, radiology, orthopedics, and ear, nose, and throat procedures, according to the company.

“Riverside is thrilled to partner with the founders of IZI,” said Philip Borden, general partner at Riverside Partners. “IZI’s focus on innovative medical markers fits perfectly with Riverside’s healthcare and technology experience. We are highly enthusiastic about continuing to support IZI’s strong existing management team and its multiple avenues for future growth.”

Helen Zinreich Shafer, CEO of IZI Medical Products, said: “As a family owned business, IZI cared deeply about finding the right partner to help the company accelerate its growth. Riverside Partners understood the nuances of our business and is already acting as a trusted partner.”

Sizeable Deals Made in Diagnostics Sector

A pair of recent purchases in the diagnostics sector total $1 billion.

In March, Inverness Medical Innovations Inc. agreed to acquire ACON Laboratories Inc.’s rapid diagnostics businesses in China, India, Africa, Russia and some other parts of the world for about $200 million. In addition, Beckman Coulter will acquire the diagnostic systems portion of Olympus’ Life Sciences business for 77.45 billion yen, or approximately $800 million.

In 2006, Waltham, Mass.-based Inverness acquired ACON’s diagnostics businesses for the United States, Canada, Europe and Japan and also agreed to buy ACON’s diagnostics business for the rest of the world if certain financial performance and operating conditions were met. Inverness will fund the deal from cash on hand and its ongoing cash flows, adding that it has the ability to pay a portion, up to about 34 percent, of the purchase price in shares. The purchase price will be paid in a series of payments, the first to occur at closing of the deal and the last to occur in October 2011. ACON is based in San Diego, Calif.

During a recent conference call with shareholders, Ron Zwanziger, chairman and CEO, said the acquisition “provides us with the strong direct presence in China as well as providing a flow of highly profitable product to other key emerging market. With historical revenue growth rates of greater than 25 percent, we expect this business to contribute to our overall revenue growth rates for many years to come.”

Fullerton, Calif.-based Beckman Coulter’s purchase of the diagnostic business of Tokyo, Japan-based imaging giant Olympus Corp. is expected to broaden Beckman Coulter’s chemistry offering, establishing a leadership position with strength in larger hospital laboratories. Company officials also expect the transaction to extend Beckman Coulter’s chemistry customer base and offer a new customer set for its immunoassay products.

In 2010, the Olympus Diagnostics business is anticipated to increase Beckman Coulter’s revenue by approximately $500 million on a full year basis and generate approximately $40 million to $50 million in operating income, according to the company.

As part of the agreement, Beckman Coulter has the right to deliver up to 37.5 percent of the purchase price in the form of stock. The company expects to finance the acquisition with a combination of newly issued common stock (approximately $300 million) and newly issued debt (approximately $500 million).

“This compelling transaction combines the chemistry product lines of our two companies into a complete chemistry systems offering,” said Scott Garrett, Beckman Coulter’s chairman, president and CEO. “It enhances Beckman Coulter as a leading provider of chemistry products with additional opportunities to expand our immunoassay reach into their chemistry installed base. Customers will benefit from the expanded range of products, particularly those large hospital and university laboratories where higher throughput systems are preferred. In addition, Beckman Coulter’s strength in total lab automation will be complemented by Olympus’ strong pre-analytical automation position in Europe and Asia.”

The deal is expected to close in the third quarter of 2009. U.S. operations for Olympus, including its life sciences and medical device units, are located in Center Valley, Pa.

In other diagnostics news, Quest Diagnostics will pay $302 million to settle allegations that one of its subsidiaries sold misbranded test kits. As part of the criminal resolution, according to the U.S. Department of Justice, the subsidiary, called Nichols Institute Diagnostics (NID), pleaded guilty before a federal judge in New York to a felony misbranding charge for a medical diagnostic test used by laboratories across the country until 2006. As part of the agreement, the company will pay a criminal fine of $40 million. Quest also entered into a non-prosecution agreement with the United States. As part of the civil settlement, Quest and NID will pay the United States $262 million plus interest to resolve False Claims Act allegations that test kits manufactured by NID allegedly provided inaccurate and unreliable results, according to the Department of Justice. Quest also agreed to pay state Medicaid programs approximately $6.2 million to resolve similar civil claims.

Study Finds Off-Label Use of Devices Being Used on Children

According to data from a new study conducted at the Cincinnati Children’s Hospital Medical Center in Ohio, nearly two-thirds of children who undergo routine interventional cardiology proc-edures—involving a catheter to treat structural disorders of the heart—may be treated with a device that’s being used off-label.

Many devices approved for use in adults have not been cleared for procedures involving children, though physicians often use the devices because there is a lack of adequate technology available for younger patients.

Traditionally, medical device firms have been reluctant to take on pediatric-specific devices because of the expense of clinical trials and regulatory requirements relative to size of the market. According to Robert Beekman, M.D., a pediatric cardiologist at the Heart Institute at the Cincinnati Children’s Hospital Medical Center, the study’s findings underscore the need for the appropriate federal agencies to include pediatric applications when reviewing and approving cardiac device processes in the United States. Beekman and his colleagues reviewed the medical records of 473 children who underwent 595 transcatheter procedures at Cincinnati Children’s between 2005 and 2008. Interventional cardiologists used an approved device for an off-label application in 63 percent of the patients. The most frequent off-label procedures were stent implantations, which were 99 percent off label, and balloon dilations, which were 78 percent off label.

“There is a lack of regulatory oversight to assure device safety and efficacy, and industry is economically unable to refine devices for off-label pediatric applications,” Beekman said. “Children deserve to benefit from new and refined cardiac devices designed explicitly for their conditions.”

Beekman urged the medical community, medical device manufacturers and the U.S. Food and Drug Administration to work together to make appropriate devices available for children and to ensure the safety for “the most vulnerable patients.”

Complete study results recently were presented at the annual meeting of the American College of Cardiology in Orlando, Fla.

Smith & Nephew Gets Subpoena over Exogen

Medical device maker Smith & Nephew has received a subpoena from the U.S. Department of Justice regarding its ultrasound stimulation product Exogen, according to the Memphis, Tenn.-based company.

Government officials have asked for documents relating to Exogen from 1995 onward, according to a statement from Smith & Nephew, adding that similar inquiries likely were sent to its competitors.

Company officials said the firm is facing questions about sales and marketing of bone growth stimulation products.

This is not the first time the company has been under investigation in the United States.

In September 2007, Zimmer, Johnson & Johnson’s DePuy Orthopaedics unit and Biomet, all based in Warsaw, Ind., and Smith & Nephew agreed to pay civil settlements and avoid criminal prosecution by agreeing to making changes over consulting fees.