Jan. 12, 2005 Blood feud By URIEL HEILMAN NEW YORK A lawsuit between a Jerusalem-based medical technology company and an American biotech behemoth is a classic David-and-Goliath story: A multibillion dollar US corporation signs a partnership with a small Israeli innovator, then takes advantage of the Israelis by stealing their innovation and passing it off as their own work. Crushed by the US powerhouse, the Israelis go to court to recover as much as $1.5 billion in lost profits. Or, it's the classic story of a whiny Israeli start-up grossly overestimating the importance of its product, letting petty personal conflicts get in the way of a professional partnership and trying to use courts to redress its own failure to keep up in the global marketplace. It all depends on which side is doing the talking in the lawsuit between Israeli stent-maker Medinol and US medical-device-maker Boston Scientific Corporation over the manufacture and design of a unique stent, used to ease blood flow through clogged arteries. The case, being heard in US federal court, pits Israel's $1 billion Medinol company, run by Kobi and Judith Richter, against an American company valued at some $35 billion. The parties are due to meet today in a federal courthouse in lower Manhattan for what both sides say is likely to be a decision by federal Judge Alvin Hellerstein on a trial date or the appointment of a mediator in the case. The once rosy, mutually profitable partnership between the two companies has been left in tatters. What makes this case so compelling, say lawyers for Medinol, is that bullying by big biotech firms like Boston Scientific actually end up hurting medical progress by eliminating the incentive for innovation by small biotech companies whose work could save millions of lives. "It's about Israeli start-up companies and how easily they're exploited by large American companies," said attorney Alan Dershowitz, part of the legal team representing Medinol. "I think Boston Scientific took advantage of the fact that it was an Israeli company." "Boston Scientific was a middle-range company until they met Medinol," Dershowitz said. Boston Scientific says Medinol's attorneys are overstating the importance of the company's contributions to medical science. "Medinol will have some serious words to eat when all this is said and done," said Paul Donovan, Boston Scientific's spokesman. The stent Medinol designed "really doesn't have much of an impact on what we do these days." There's no dispute that Boston Scientific today manufactures one of the two top-selling stents in the United States, the Taxus Express. The stent has the requisite flexibility and durability for safe delivery to the appropriate location in the artery-usually by balloon by way of a catheter-and holds up the artery much like a scaffolding. The Taxus is also coated with medication to prevent blockages from coagulating around it. The other popular so-called drug-eluting stent in the United States is the Cypher, manufactured by Johnson & Johnson. Medinol says the Taxus' success today is thanks to Medinol's patented Nir stent, which Boston Scientific illicitly copied, and that Medinol is due roughly 30 percent in royalties from stent sale. The case is part of a series of legal battles worldwide between the two companies. About a year ago, a Dutch court overturned a prior ruling favoring Medinol against Boston Scientific that would have barred the Boston company from selling its Express stents in the Netherlands and awarded hefty royalties to Medinol. It all started in 1995, when Boston Scientific signed an agreement with Medinol to distribute what would become Medinol's Nir stent, named for an Israeli officer killed in the bungled attempt to rescue kidnapped Israeli soldier Nachshon Waxman. The Nir's design was the brainchild of Russian engineer Grisha Pinchasik, who immigrated to Israel in 1990 and met Kobi Richter by chance one day on the street in Tel Aviv. The Richters and Pinchasik later founded Medinol together. In 1995, both Medinol and Boston Scientific viewed the Nir stent as a promising innovation in stent flexibility and durability-key stent components that often work against each other. Boston Scientific even bought a big chunk of Medinol, becoming 22 percent shareholders in the company. Medinol would make the stents, and Boston Scientific would market and sell them. But the partnership quickly ran into trouble. "The Richters were very difficult to deal with," Boston Scientific's Donovan said of Medinol's founders. He said they made numerous demands not in the contract, threatened to cut off the supply of stents to Boston Scientific and dragged their feet on building an alternate manufacturing facility in Ireland for their stents-one of Boston Scientific's contractual demands in agreeing to partner with a company operating in what was considered a potential Middle East combat zone. Medinol denies those charges, saying such allegations merely constitute attempts to portray Medinol and the Richters as stereotypically obnoxious Israelis. In any case, things improved for a while after Medinol's Nir stent hit the market in the late 1990s, followed soon by improved versions of the original model. The stents, which cost about $1,200 each, sold well. But the relationship between the two companies rapidly deteriorated in 2000, after Boston Scientific informed Medinol of the existence of a secret lab it had built in Ireland to duplicate Medinol's own backup stent manufacturing plant in the country. Boston Scientific made the disclosure in part because US Department of Justice investigators already had stumbled upon the secret plant, dubbed "Project Independence," and it quickly was shut down. Boston Scientific said it launched Project Independence because Medinol's Ireland facility was not up to snuff and company officials were fearful that Medinol would cut off its supply of stents to Boston Scientific. But Judge Hellerstein has found that claim unfounded. Medinol says the project was part of Boston Scientific's surreptitious plan to replicate the proprietary technology of Medinol's unique stent and take the Israeli company out of the picture. That, say Medinol attorneys, is then exactly what happened. Medinol filed its lawsuit in April 2001, Boston Scientific countersued, and the companies' mutually suspicious partnership came to its formal, messy end in February 2002. Meanwhile, Boston Scientific came out with its own stent, called the Express, which quickly eclipsed the Nir in sales. Medinol claims the Express and its drug-coated successor, the now-popular Taxus Express, were duplicates of Medinol's Nirflex model-a successor to the Nir-and that Medinol therefore is due a share of the profits. Attorneys estimate that that share, based on Boston Scientific's success with the Express, easily could exceed $1 billion. Speaking for Medinol, Rory Millson, a lawyer with Cravath, Swaine and Moore, said, "We were partners with [Boston Scientific] and gave them the design of our stent. They then revealed they had stolen a large number of processes from them… So we did not give them any more of our stent. So they then copied that…and invented the same stent and have refused to pay us royalties for doing that." Medinol's attorneys say Boston Scientific has stuck to its original litany of complaints despite the judge's finding that many of the complaints against Medinol have no merit. In his ruling in early December, Hellerstein found that while some of the companies' claims and counterclaims are without merit, the breach of contract dispute-the heart of Medinol's case against Boston Scientific (BSC)-can proceed. He also made several statements in his 84-page ruling that seem to bolster Medinol's breach of contract claims. On the issue of the backup facility in Ireland, for example, Hellerstein wrote: "BSC's complaint is that Medinol was slow to design an alternative manufacturing line which might, in the future, be necessary to supply BSC with stents if Medinol ever failed to meet BSC's order of stents. In truth, as [James] Tobin [CEO] of BSC admitted, BSC chose to build its own manufacturing facility, in stealth and for its own reasons, to be independent of, and to replace Medinol, as a source of supply. This is breach, not 'cover.'" Lawsuits between biotech firms are common, and they often center around alleged patent violations in a field in which intellectual property is valued at billions. Even before the judge's ruling last month in the case with Boston Scientific, Medinol and Johnson & Johnson were involved in a legal dispute of their own over alleged patent violations on stent design. "In this industry, there are lawsuits right and left-it's a big-money thing," said Dr. Mark Greenberg, a cardiologist and professor at the Albert Einstein School of Medicine, in New York. Greenberg said he remembers using the Nir stent in his own cardiovascular work, but that it was "nothing special." "The Nir was never a wildly popular stent," Greenberg said. "I think it was an also-ran." Attorneys for Medinol contend that the Nir's strong market showing soon after its release would have grown had Boston Scientific continued to promote and sell it. While Medinol officials say they have kept pace with design improvements in the stent market, their market share in the United States has dwindled to near zero because they lack a US distributor and have none of the marketing clout of Boston Scientific, company officials said. Boston Scientific's drug-eluting stents now dominate roughly 65 percent of the US market. For the time being, Boston Scientific's spokesman says the company is not too concerned about Medinol's claims, which he said have "no way in this world" to amount to anything even approaching $1 billion. The worst-case scenario, he said, is that Medinol will be awarded a fraction of that. That still may be a hefty chunk of change, however. Medinol officials say they're optimistic and that if the case goes to trial, the judge-who would make the decision in the commercial dispute rather than a jury-will give them a fair shake. The Dershowitz treatment With more than 5,000 requests to take on cases per year, it takes a lot for famed attorney Alan Dershowitz to agree to be someone's lawyer. Usually, those instances are high-profile criminal cases, like the one that made Dershowitz the star of the Oscar-winning 1990 movie "Reversal of Fortune," in which actor Ron Silver played the bespectacled Harvard Law School professor. So when Medinol CEO Kobi Richter approached Dershowitz about representing the firm in its commercial litigation suit against Boston Scientific, Dershowitz at first was very wary-and not just because he had friends working for the other side, he said. But then Dershowitz discovered that Israel's reputation and medical science was at stake, and the dispute between the two biotech firms became a matter of principle, he said. "I don't see it as a purely commercial case," Dershowitz said recently in an exclusive interview with the Jerusalem Post. Dershowitz says he got involved because Medinol's work is "what's good for Israel, what's good for science and what's good for medicine." Two years ago, Dershowitz penned a book called "The Case for Israel" to refute worldwide condemnation of the Jewish state at the zenith of the Palestinian intifada. Now on Medinol's side, Dershowitz does not shy away from painting this commercial case in the starkest of terms. "With the 6 million who died in the Holocaust, along with them went the people who could have cured cancer, diabetes," he said. In their death, the mandate they willed to the surviving Jews is to "devote themselves to saving lives," and that's what Medinol is doing, Dershowitz said. If companies like Medinol cannot reap the economic benefits of their research work, he says, the incentive to seek medical advancements will disappear and all of humanity will suffer-not to mention companies like Boston Scientific, which stands to profit from such research. "Large American companies are biting their noses to spite their faces in the interests of short-term profits," Dershowitz said. Though he acknowledges that his view of Jewish contributions to the medical field may be a bit ethnocentric, Dershowitz offers no apologies. Boston Scientific stereotyped Medinol's founders in an anti-Israeli way, Dershowitz said-portraying them in depositions as "greedy, obnoxious and pushy"-and now it's Dershowitz's turn to prove just the opposite. No trial date has yet been set.