A long-running patent dispute with W. L. Gore & Associates over its flagship EndoBarrier has come to light as GI Dynamics Inc. looks to close its $86 million initial public offering in Australia.
The case, disclosed in a prospectus for the Lexington, Mass.-based company’s Aussie IPO (set to close tomorrow), was filed in The U.S. District Court for Arizona last year. In regulatory filings, GI Dynamics said that Flagstaff, Ariz.-based Gore asserts that it’s the co-owner of all of GI Dynamics’ patents and patent obligations.
The dispute goes back to supplier agreements both companies signed in 2003 and 2004 to have Gore develop materials for the EndoBarrier sleeve. As part of those agreements, GI Dynamics agreed to “make milestone payments and to pay royalties in connection with sales of products manufactured from the tubes,” according to court documents .
But by 2009 Gore officials were claiming they had a different interpretation of the agreements and that the company “has the right to make, use, and sell material disclosed under the CDA or MTA to any party in any form for any use, including completed intestinal sleeve devices.”
GI Dynamics insists that Gore does not have the right to produce intestinal sleeves like the EndoBarrier:
“The company strongly denies all of the claims made by Gore and has also filed counterclaims against Gore alleging misuse and misappropriation by Gore of the company’s trade secrets, breach of confidence, breach of contract, unjust enrichment, misrepresentation, and unfair and deceptive trade practices,” according to the prospectus. “The company has also sought declarations that Gore is not the co-inventor or co-owner of any of the company’s patents and that Gore should be required to pay the company’s legal fees associated with the litigation.”
GI Dynamics officials confirmed the case in an email to MassDevice about the pending litigation, writing that the company was “vigorously defending all of the claims made by Gore and is pursuing counterclaims against Gore.”
Thus far, the company has spent more than $2.5 million defending itself against the Gore claims. While a trial date has not been set, GID says it expects one to occur sometime in 2012.
Should Gore win the day, it could have implications for GI Dynamics’ ability to capture market share in the U.S. and abroad, not to mention its ability to protect its intellectual property against other claims. But company officials say they’re confident that, even if Gore is successful, it would take that firm a significant amount of time to develop a competing product and conduct the clinical trials necessary to gain regulatory approval.
“Given the time that these processes take to complete, the company believes that Gore would be several years behind the company in commercializing such products,” according to regulatory filings.
One other nagging problem for GI Dynamics is that Gore is also seeking to void its supply agreement, which could result in a scramble to find alternative vendors.
“However, the company believes that alternative suppliers are available, and that termination of the supply agreement would not delay commercialization of the EndoBarrier,” according to the filings.
GI Dynamics first filed a prospectus with Australian regulators August 3. The company is aiming for between $80 million to $95 million AUS, which is about $86 million to $102 million in U.S. dollars.
If it hits the higher mark, GI Dynamics’ IPO will be the second largest this year Down Under, behind the $200 million IPO for Collins Foods, The Australian reported.
GI Dynamics also has some heavy hitters in its back pocket. The company counts med-tech goliath Medtronic Inc. (NYSE:MDT) as a repeat investor, along with past backers Johnson & Johnson Development Corp. and big venture capital firms Advanced Technology Ventures, Domain, Polaris Ventures and Cutlass Capital.
GI Dynamics’ EndoBarrier gastrointestinal sleeve won Australian approval for treatment of Type II diabetes and obesity late last month. The device won CE Mark approval in the European Union in December 2009, prompting a $15 million investment from Minneapolis, Minn.-based Medtronic. The device is a plastic sleeve inserted endoscopically into the small intestine, where it slows the uptake of nutrients from food to induce weight loss and help control the symptoms of diabetes.
In other news, the company said yesterday that it has named Sepracor founder Timothy Barberich to its board of directors, along with Graham Bradley and Anne Keating. Both Bradley and Keating are based in Australia and are expected to assist the company in its commercialization efforts Down Under.