The medical device industry has seen its share of David vs. Goliath stories over the years, but few have been as intense as the battle between Medtronic and Axonics over the sacral neuromodulation (SNM) market. The story took an unexpected turn this week as Medtronic slapped Axonics with a patent infringement lawsuit that is likely to take years to play out.
Medtronic (the Goliath of this story), filed a lawsuit against Axonics Modulation Technologies (the David of the story), alleging infringement of four patents related to Medtronic's SNM lead placement procedure and implant recharging technologies. The technology is currently indicated for treating patients with debilitating bowel and bladder conditions. The suit was filed in the United States District Court for the Central District of California and seeks the typical remedies for patent infringement, including damages and an injunction.
For those unfamiliar with the Medtronic vs. Axonics story up to this point, here is a quick rundown of recent events that have transpired in this market:
- Medtronic pioneered the sacral neuromodulation market over 20 years ago with its InterStim device.
- Axonics won FDA approval in September to market its implantable rechargeable sacral neuromodulation (r-SNM) device for the treatment of fecal incontinence, and the company is expected to get FDA approval for overactive bladder and urinary retention any time now. The fecal incontinence approval includes the claim of a 15-year functional life and the ability of patients to undergo full-body MRI scans without the necessity of having the device explanted. The r-SNM is already on the market in Europe, Canada, and Australia.
- Axonics has built a North American commercial team of 100 sales reps, 11 regional managers, and 35 clinical specialists to support the U.S. launch of the r-SNM technology.
- In October, Medtronic filed for FDA approval of its InterStim Micro neurostimulator as well as its InterStim SureScan MRI leads. Like Axonics' system, the InterStim Micro is a rechargeable, implantable sacral neuromodulation device designed to treat patients affected by overactive bladder, urinary urge incontinence, unobstructed urinary retention, and fecal incontinence. The SureScan leads, which will be used in future implants of the recharge-free InterStim II system and rechargeable InterStim Micro system, are designed to provide full-body 1.5 and 3 Tesla MRI conditional labeling, pending FDA approval.
A Legal Tactic to Slow the Competition ...
Axonics has denied the patent infringement claims alleged in the lawsuit, and said it is prepared to defend itself aggressively.
“Axonics believes that this lawsuit is the kind of response that is all too predictable from Medtronic signaling that it is lacking the wherewithal to compete fairly," said Axonics CEO Raymond Cohen. "It is ironic that the largest medical device company in the world, with over a 20-year long monopoly in the SNM market, failed to introduce any meaningful innovation for the sake of patients or their physician customers. Instead, they have chosen to employ legal tactics to engage in clear anticompetitive behavior and yet another attempt to change the dialogue with physicians and U.S. institutional investors.”
Cohen said Axonics has developed a considerable IP estate of its own to protect its technology platform.
"It should be obvious, to even the most casual observer, that this is an attempt to use legal tactics to slow down competition and deny patients and physicians the innovative new technology that they desire," Cohen said. "The bottom line is that a large number of Medtronic’s customers want to work with Axonics and offer their patients our long-lived, fuss-free, full-body MRI-capable SNM system, and we will continue to work vigorously to accomplish our objective of becoming the market leader in SNM.”
... Or a Necessary Step in IP Protection?
“Medtronic welcomes competitors and we believe competition drives innovation and broader market awareness, which is good for the industry and for patients,” said Brooke Story, vice president and general manager of Medtronic's pelvic health and gastric therapies business. “However, Medtronic is also committed to protecting our proprietary technology and intellectual property, which drives our ability to continue to innovate.”
Story said Medtronic has developed various aspects of sacral neuromodulation and related technologies for decades, including percutaneous implantable delivery techniques, recharging technologies, and microstimulators.
"Our intellectual property is a critical component in making such advancements possible," Story said.
An Analyst's Perspective:
In a report issued on Tuesday, Needham & Co.'s Mike Matson offered his perspective on the lawsuit.
"We aren't particularly surprised that [Medtronic] has filed a patent lawsuit since it has had a monopoly in the sacral neuromodulation market and is likely attempting to protect its position in the market," Matson said.
The analyst said he expects the process to take several years to play out, and he offered the following predictions for what this legal battle could entail:
- Inter partes reviews (IPRs) of the four Medtronic patents included in the suit.
Favorable IPRs for Axonics could result in some or all of the patent claims being invalidated and could potentially weaken Medtronic's position, the analyst said.
- A potential countersuit by Axonics. A countersuit against Medtronic could potentially provide Axonics with negotiating leverage, Matson said, and he noted that Axonics had 19 U.S. patents as of Dec. 31, 2018.
Ultimately, Matson said the litigation is most likely to be resolved with either a settlement or a trial. In a settlement, Medtronic and/or Axonics could agree to license patents from the other party and potentially pay royalties, he noted. In a trial, a jury would determine whether or not Axonics is infringing and if it is found to be infringing the company would likely have to pay Medtronic damages for prior infringement and ongoing royalties. Such royalties would probably be in the low-to-mid-single digits percentage, Matson said, but he added that royalties might be higher if the case goes to trial versus being settled out of court.
Whichever way this case ends up going, Axonics will most likely see its legal spending increase significantly. Matson said other companies in similar cases the industry have spent $1 million or more per quarter on patient litigation. Investors shouldn't be too concerned about the legal fees because the company is not yet profitable or close to profitability, the analyst noted, but there may be a concern about the impact such fees will have on Axonics' cash burn rate.