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CardiAQ - An IP Success Story

CardiAQ sued Neovasc for breach of contract, trade secret misappropriation, and correction of inventorship regarding Neovasc's development of a competing transcatheter mitral valve implant (TMVI) device called Tiara. A jury found that Neovasc misappropriated CardiAQ's trade secrets and awarded $70 million in damages, which was later enhanced to $112 million with interest. This case demonstrated the importance of non-disclosure agreements and protecting confidential information when collaborating with or acquiring other companies developing similar medical technologies.

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CardiAQ: An IP Success Story Ryan Lindsey – Edwards Lifesciences John Sganga, Christy Lea, Brian Horne, Sabing Lee – Knobbe Martens September 11, 2018 ACC-SoCal DoubleHeader
2© 2018 Knobbe Martens The Heart
3© 2018 Knobbe Martens Unmet Clinical Needs in MR • 4 million people with Mitral Regurgitation • 30,000 open heart mitral valve procedures annually • Open heart procedure takes 5 hours • TMVI market projected to be $10 billion/year
4© 2018 Knobbe Martens Transcatheter Mitral Valve Implant (TMVI) Metal frame Tissue valve leaflets
5© 2018 Knobbe Martens TMVI Deployment
6© 2018 Knobbe Martens Neovasc’s Solicitation
7© 2018 Knobbe Martens Timeline Sign NDA with Neovasc Jun. 2009 Neovasc assembles TMVI prototypes prototypes for CardiAQ Apr. 2010 Relationship ends May 2010 Neovasc files patent application Neovasc begins Tiara project Oct. 2009 Jun. 2014 CardiAQ sues Neovasc Aug. 2015 Edwards acquires CardiAQ ($400 million) May 2016 Jury verdict ($70 million) Nov. 2017 Edwards collects $112 million Dec. 2011 Neovasc’s patent application publishes Neovasc develops its TMVI device CardiAQ files key TMVI patent Jun. 2010
8© 2018 Knobbe Martens NDA Terms • Use limited to “evaluating the proposed business relationship” • Recipient cannot “use the Confidential Information for its own benefit or for the benefit of any third party” • A party “shall be entitled” to equitable relief, including an injunction, in the event of any breach
9© 2018 Knobbe Martens Lessons Learned • Non-compete clause • Notice of development • Segregate employees • Assignment • Further consulting agreement • No guaranteed injunction
10© 2018 Knobbe Martens Pre-Suit Events 2011 2012 2013 2014 Jun. 2014 CardiAQ sues Neovasc Jun. 2011 Neovasc press release re: Tiara Dec. 2011 Neovasc’s Tiara patent application publishes Jun. 2012 CardiAQ first-in- human(ever) CardiAQ $32.5 million Series B Nov. 2012 May. 2014 Neovasc FIH Feb. 2012 - Feb. 2014 Four rounds of demand letters exchanged
11© 2018 Knobbe Martens Neovasc’s Patent vs. CardiAQ’s Device Neovasc’s Application CardiAQ Device
12© 2018 Knobbe Martens Neovasc’s Patent vs. CardiAQ’s Device “tabs … captur[e] the native anterior leaflet and chordae between the tabs” Neovasc’s Patent Specification CardiAQ’s Device
13© 2018 Knobbe Martens Pre-Suit Events 2011 2012 2013 2014 Jun. 2014 CardiAQ sues Neovasc Jun. 2011 Neovasc press release re: Tiara Dec. 2011 Neovasc’s Tiara patent application publishes Jun. 2012 CardiAQ first-in- human(ever) CardiAQ $32.5 million Series B Nov. 2012 May. 2014 Neovasc FIH Feb. 2012 - Feb. 2014 Four rounds of demand letters exchanged
14© 2018 Knobbe Martens Decision to Sue • Forums: District of Massachusetts – Also considered USPTO, Canada, California – German lawsuit also filed against Neovasc’s European patent application • Causes of action – Breach of contract – Trade secret misappropriation – Correction of inventorship on patents – NOT patent infringement • Statute of limitations: 3 years for trade secret misappropriation
15© 2018 Knobbe Martens Neovasc’s Tiara Program • Jun – Oct 2009 – CardiAQ shares TMVI designs • Oct 2009 – Randy Lane draws first sketch of Neovasc’s own TMVI device • Oct 2009 – CEO instructs Mr. Lane to start in-house mitral program, but don’t tell CardiAQ: “when appropriate we may need to disclose to [CardiAQ] that we are working on something, but let’s cross that bridge when we come to it.”
16© 2018 Knobbe Martens Neovasc’s Work on Both Projects • Lane headed both Neovasc’s internal TMVI project and CardiAQ’s prototype valve assembly • Lane used the same lab notebook for both projects, at times including notes on adjacent pages • Neovasc did not restrict its engineers from working on both Tiara and CardiAQ • Neovasc protected Tiara with additional safeguards • Neovasc never told CardiAQ about Tiara • Lane frequently sought info about CardiAQ’s progress
17© 2018 Knobbe Martens Edwards Acquisition • Pre-acquisition due diligence – How did the litigation affect Edwards’ decision to acquire? – Did the litigation add or subtract value from CardiAQ? • Post-acquisition lawsuit analysis • Decision to continue the lawsuit – Valuation – Potential risk • Managing the litigation post-acquisition
18© 2018 Knobbe Martens Tiara vs. CardiAQ Tiara CardiAQ
19© 2018 Knobbe Martens CardiAQ’s Public Presentations
20© 2018 Knobbe Martens Neovasc’s Public Filings “The Tiara program has benefited enormously from this pool of experience and talent that has evolved as we have worked with our partners. We have been able to move the product development forward rapidly with minimal cost from the flexibility we have to draw on our staff and then return them to revenue generating activities when they are not working on the Tiara project.”
21© 2018 Knobbe Martens The Lab Notebook
22© 2018 Knobbe Martens Neovasc’s Choices Barbs Endovalve Valve in Valve MitrAssist Ventricular Anchors Capture Leaflets Neovasc develops device with ventricular anchors that capture leaflets How to fix valve in patient? Original Neomitral Concept “Grasping Leaflets” Mitralclip “Septal Tether” Thambar Ventricular Tethers Tendyne/ Lutter New innovations or ideas?
23© 2018 Knobbe Martens CardiAQ vs. Tiara (Neovasc’s version)
24© 2018 Knobbe Martens CardiAQ v. Tiara (CardiAQ’s version)
25© 2018 Knobbe Martens Royalty • “Lump sum” starting point = $125 million – Value Tiara at $250 million – 50% of Tiara value attributed to trade secrets • Adjust down to $90 million with “Georgia-Pacific” factors – 18-month head start was worth $133 million to $288 million – Neovasc contributed its own R&D and features
26© 2018 Knobbe Martens Damages • Jury verdict: $70 million • Judge enhances damages: $20 million • Pre and post-judgment interest: $22 million • Total award: $112 million COLLECTED
27© 2018 Knobbe Martens $6.42 $5.39 $9.90 $6.59 $3.20 $1.84 $0.46 $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 $10.00 6/6/2014 CardiAQ Sues 10/3/2014 Court denies Neovasc's motion to transfer 2/22/2015 NVCN hits all- time high 7/10/2015 Edwards acquires CardiAQ 5/2/2016 First day of trial 5/19/2016 Jury verdict - trading halted 5/20/2016 Trading re- opens NVCN Share Price
28© 2018 Knobbe Martens Acquisitions 2013 2014 2015 2016 2017 Edwards acquires CardiAQ ($400 million) Aug. 2015 Aug. 2015 Medtronic acquires Twelve ($408 million) Sep. 2015 Abbott acquires Tendyne ($250 million) Jun. 2014 CardiAQ sues Neovasc
29© 2018 Knobbe Martens Astrid
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