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CryoLife Inc. Message Board

  • dlhild@ymail.com dlhild Aug 7, 2012 4:39 PM Flag

    PerClot:

    CRY paid $8 million to SMI for a ‘PerClot’ distribution license. CRY paid $1 million more to SMI to obtain a ‘PerClot’ manufacturing license. Total costs to date: $10-$12 million (includes FDA costs etc.). Assuming PerClot ever does gets FDA approval, the total imbedded cost would be roughly $14-$16 million.

    If PerClot receives FDA approval, CRY intends to sell it in the USA. What then? Obviously, Medafor would immediately sue CRY for patent infringement resulting in litigation expense coupled with an unknown outcome. Also, if CRY were to sell PerClot in the USA market, it would negatively affect the value of CRY’s 2.4 million Medafor shares (cost basis ~ $4.8 million). Medafor would need CRY to immediately stop selling PerClot. Alternatively, Medafor would immediately sue CRY for an injunction and start the path toward trial and potential damages. Remember, Medafor owns a patent on a product which is similar, or likely a near imitation, to the PerClot product. To my knowledge SMI owns no similar USA patent. This would seem to be a relatively simple patent infringement case, but then again with lawyers involved who knows. If Medafor were to prevail, Medafor’s damages should be easy to calculate and could be enormous in amount. Obviously, there is no guarantee that Medafor would prevail. I think it is unlikely this could be resolved using arbitration or mediation (because there is just no way Medafor could agree to permit CRY to continue selling PerClot). In order for the CRY Board/Management to have met their fiduciary duty, they must have gotten some sort of outside patent opinion before investing $8+ million in a PerClot distribution license. Then again with SA at the controls, who knows what happened. If they didn’t, they clearly violated their fiduciary responsibility to shareholders. I don’t have any details about this, except for a little insight gained from Medafor’s August 6, 2012 shareholder letter.

    It is my understanding that one company can’t stop another company from going through the FDA process. However, once the product is sold, then the patent holder can sue the non-patent holder.

    ‘TheBuckeye777’: No question that PerClot is an effective product. The problem is that neither SMI nor CRY own the patent for the subject technology. Medafor owns the patent. David Lange appears to me to have more or less absconded with Medafor IP. Therefore, because of this legal difficulty, it is my opinion that it is unlikely that CRY will ever be able to monetize PerClot in any serous sort of way. Thanks to Gary Shoppe, CRY’s 2.4 million Medafor shares may do well in the future though.

    Conclusion: So far PerClot sales have been slow growing. Future PerClot litigation appears likely. The instant Medafor can verify $1 of PerClot sales in the USA, Medafor will sue CRY. Why, simple. Medafor owns the patent. Also, Medafor would have no other choice. Also, Medafor now has sufficient cash flow to pursue this patent litigation with vigor. Therefore, IMO PerClot’s long term profitability is highly problematic. Also, unless PerClot can be sold in volume in the USA, it is not likely to ever generate much in the way of after tax earnings. So I’m guessing PerClot will prove to be another SA screw-up.

    This discussion represents nothing more than my own views and opinions. I am not representing anything here as being factually accurate. You’re responsible for your own due diligence.

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    • dlhild@ymail.com dlhild Aug 18, 2012 12:31 AM Flag

      I think the two of us could have a lot of laughs getting mildly smashed together. We would certainly have a lot of ground to cover politically, financially, and economically.

    • If Perclot is infringing Medafor's patent, why isn't Medafor suing right now? Yes, it's more expensive to sue in Europe but if Medafor waits several years until Cryolife starts selling in the U.S., that doesn't look very good to a judge.

      • 2 Replies to shawb735
      • dlhild@ymail.com dlhild Aug 15, 2012 12:13 AM Flag

        Question: If PerClot is infringing Medafor’s patent, why isn’t Medafor suing right now?

        WAG Response: I’m guessing that it is because the European markets are fragmented. It would be very expensive to do litigation in multiple countries, particularly when those markets are not going to generate profitable sales anyway. What would be the point? So I think it was a business decision as to how resources are to be used. I’m guessing that Medafor is focusing on rapidly sales growth.

        Comment: Yes, it’s more expensive to sue in Europe but if Medafor waits several years until CRY starts selling in the US, that doesn’t look very good to a judge.

        WAG Response: As a layman (no patent law background) I think the answer may be because patent law is technical and based on salutatory law. I don’t think your argument will carry much, if any, weight in law. The prevailing factor will be the US statutes themselves. I think it will all come down to patent technology, perhaps other relevant facts, and the application of law to facts. It seems to me there is a close connection between Arista and PerClot (both historically and product wise). Additionally, I’m guessing that Medafor may have again out foxed SA. This is a guess. I will tell you what I think.

        In January 2012, Medafor received an Office Action from the US Patent and Trademark Office following a request from an anonymous third party seeking a reexamination of the Medafor patent. Initially this scared Medafor shareholders, but ultimately it probably did Medafor a BIG favor. It afforded Medafor the opportunity to prove-up the original patent now, rather than later during litigation. On July 19, 2012 the Patent Office accepted all of Medafor’s original patent claims and validated 18 additional claims made to the original patent. What does this mean? In layman’s language, to me it means that Medafor’s patent now has SUPER PATENT status. So, I’m guessing that CRY is going to have a difficult time ever selling PerClot into US market.

        Conclusion: I think that SA first thought he could take over Medafor. He miscalculated the timeline. Medafor’s cash flow improved. When SA felt the Hemostase sales slipping through his fingers, he went for an end run, PerClot. CRY almost certainly got some sort of outside patent opinion on PerClot before making the initial $8 million investment. To fail to have done so would likely have been a serious fiduciary violation. Surprisingly, SA has not shared this outside opinion with me! But I think that the facts make it appear that Medafor is likely positioning for a US patent fight down the road. Remember, Medafor has now had their patent challenged, reviewed, and upheld, end of story. Also, I suspect that patent litigation, if it occurs, will now be simplified because the non patent holder will likely no longer be able to challenge the patent itself. Does PerClot have a US patent? Not to my knowledge. So I’m betting PerClot is going to encounter a serious patent infringement law suit in the future.

        Conclusion: If CRY starts selling PerClot in the US, I think CRY will be hit with a patent infringement law suit before spit can hit the ground. I don’t know, but Medafor may once again pay CRY a few/several/many million to make the problem go away faster, who knows.

        This is just my opinion. I’m not representing anything here as factual. I don’t claim to know anything about anything. You’re responsible for your own due diligence.

      • Well, I think I can answer my own question. They don't have a European patent.

    • While Madafor will more than certainly want to protect their intellectual property rights. I could be wrong, but IMO I would have serious doubts CRY would want to get involved into another lawsuit with Madafor. Given on how important the product might be to future revenues and profits to CRY. FWIW -Upon assumed FDA approval. I can possibly see both coming to a possible licensing deal. Perhaps with CRY exchanging as compensation it's Medafor shares back to Medafor along with royalties on each item sold. This ending their rocky relationship and giving Madafor space to grow on their own without a major shareholder breathing down their neck. JMO

      Since neither company has scale in regards to the competitive nature of this industry. Both companies already know how expensive & time consuming legal costs can be to the bottom line. Considering Medafor agreed to settle ongoing litigation with a seemingly bad taste in their mouth. I'm sure both have legal counsel to access the validity going forward with new legal suits and their ramifications.

      • 1 Reply to rreding1
      • dhild, I'm not sure of the potential intelectual property issues regarding Perclot. What I do understand is that the same amount of Perclot absorbs twice as much fluid as the other product. SA has said there is a huge difference just in the effectiveness of Perclot on multiple occasions. SA has said that doctors are impressed with Perclot.

        This is my own personal opinion. Do your own homework.

    • dlhild@ymail.com dlhild Aug 7, 2012 5:57 PM Flag

      Correction:

      PerClot is likely a near imitation of Arista, the Medafor product. Both are similar I think.

      This is just my opinion. You are responsible for doing your own due diligence.

 
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