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.

1. 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. 2© 2018 Knobbe Martens
The Heart

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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

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Transcatheter Mitral Valve Implant (TMVI)
Metal
frame
Tissue
valve
leaflets

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TMVI Deployment

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Neovasc’s Solicitation

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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

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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

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Lessons Learned
• Non-compete clause
• Notice of development
• Segregate employees
• Assignment
• Further consulting agreement
• No guaranteed injunction

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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

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Neovasc’s Patent vs. CardiAQ’s Device
Neovasc’s Application CardiAQ Device

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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

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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

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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

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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.”

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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

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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

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Tiara vs. CardiAQ
Tiara CardiAQ

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CardiAQ’s Public Presentations

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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.”

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The Lab Notebook

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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?

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CardiAQ vs. Tiara (Neovasc’s version)

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CardiAQ v. Tiara (CardiAQ’s version)

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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

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Damages
• Jury verdict: $70 million
• Judge enhances damages: $20 million
• Pre and post-judgment interest: $22 million
• Total award: $112 million COLLECTED

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$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

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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. 29© 2018 Knobbe Martens
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