MassMEDIC February 26, 2010 Licensing and Compliance Presenter David L. Cavanaugh 60 State Street Boston, MA Pennsylvania Avenue, NW Washington, DC 20006

WilmerHale 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  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  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  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  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

WilmerHale 10 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.

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

WilmerHale 12 The Intellectual Property Continuum Patentable InventionTrade SecretKnow-HowFee-for-Service High ValueMedium ValueLower Value IP is InnovativeIP is ContributoryConsultative 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

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 v1