Exploring Critical Business and Legal Issues across the Healthcare and Life Sciences Industries
Exploring Critical Business and Legal Issues across the Healthcare and Life Sciences Industries

Five Questions with a Health Lawyer: Justin P. Aiello

Justin P. Aiello
Practice Focus Area: Healthcare M&A
Office: Miami
Years at Firm: 7

What is your favorite part about practicing healthcare law at McDermott?
The wealth of knowledge maintained by our more than 120 attorneys who are dedicated to practicing healthcare law. Healthcare law comprises dozens of subspecialties and most of our client matters require a broad understanding of multiple subspecialties to provide exceptional advice. No single person can be knowledgeable in every subspecialty. It is our group’s collective practice, in nearly every healthcare subspecialty, that enables our attorneys to provide comprehensive, seamless advice regarding our clients’ healthcare investments.

What is the biggest opportunity and greatest challenge facing clients in your area of focus today?
The biggest opportunity still seems to be consolidation—perhaps the simplest and most reliable investment thesis. Despite all of the consolidation in the healthcare industry over the last couple of decades, the physician practice space remains highly fragmented with ample opportunity for gaining competitive advantages and cost savings through scale while still delivering excellent patient care. The biggest challenge (and perhaps also an opportunity) may come with the shift from fee-for-service to value-based reimbursement and its potential impact on the financial modeling on which many investment decisions have been based.

What kind of client work gets you most excited when it comes across your desk?
I enjoy representing our private equity clients in their initial platform investments in physician practice management (PPM) businesses. PPM transactions raise complicated structuring considerations: we must find ways to meet our clients’ investment objectives while also complying with myriad healthcare laws, including corporate practice of medicine (or similar), fraud and abuse (Stark and AKS), fee-splitting, HIPAA and others. Finding a compliant structure to achieve these objectives requires a team of attorneys who have both legal and business expertise.

What is the proudest moment of your career to date?
Making partner at the best healthcare law firm in the country, especially given that I started here as a summer associate. Not many attorneys remain with the law firm at which they begin their careers. The fact that so many do here is a testament to McDermott’s positive and supportive environment.

If you were not a lawyer, what career would you pursue?
Definitely a starting center for the Miami Heat.

Click here to learn more about Justin’s practice.

Life Sciences Dealmaking Symposium: As the Dust Settles: Post-Election Update and Impact on the Life Sciences Industry

How will the election affect life sciences in 2021 and beyond? What’s ahead for the regulatory and policy environment? In this session, our elite group of policy analysts reviewed the election results and the far-reaching effects for dealmakers, executives and investors.

Eric Zimmerman, global head of McDermott’s Health Industry Advisory Practice Group, moderated this discussion that featured insights from Susan Van Meter, executive director at AdvaMedDx; Rodney Whitlock, PhD, vice president at McDermott+Consulting; and Brian Fortune, senior managing director at Farragut Square Group.

Below are the top takeaways for Life Sciences Dealmaking Symposium: As the Dust Settles: Post-Election Update and Impact on the Life Sciences Industry, click here to access the full webinar.

Access the PDF here.

President-Elect Biden’s legislative experience likely will help him reach across the aisle and engage with Republican congressional leadership to advance policy goals. “Biden spent his whole career on the Hill before he became vice
president, so he really understands how his colleagues tick, and he particularly understands the process of how the Hill makes sausage,” Mr. Fortune said. “That’s something that you can’t really say about either President Obama or President Trump. So, not surprisingly, you saw that when they had all the majorities lined up in their favor, they could move stuff, but when they didn’t, it became a little harder.”

With only a narrow projected majority in the US House of Representatives, Democrats will need to work together more effectively and reach across the aisle in order to pass legislation, including on issues such as drug pricing.
“Partisanship is getting you nowhere in this next Congress,” Mr. Whitlock said. Drug pricing, financing surrounding the Medicare program and COVID-19 relief packages are three significant legislative decisions that will take bipartisan cooperation to achieve, Mr. Zimmerman noted.

The COVID-19 pandemic has led to regulatory flexibilities from the FDA and other agencies to bring life-saving devices and treatments to market more quickly. Those flexibilities open up new avenues for innovation and improved
care coordination should agencies decide to keep some of the waivers in place and prioritize modernization. One particular area of opportunity to bring regulatory change is in the diagnostics space, Van Meter said. “Diagnostics are currently regulated as medical devices. Modernizing the framework for diagnostics would mean having a diagnostics specific regulatory framework that would apply to all diagnostics – both LDTs and IVDs – and reflect the types of evidence that are more suitable for bringing diagnostics through the agency, recognizing the diagnostics are relatively particular,” Van Meter explained. “Also in the modernization facet, thinking about how can we ensure that the regulatory framework allows for innovations to be available to patients more quickly.”

Life sciences industry stakeholders should watch to see who President-Elect Biden plans to appoint to various agency posts, Mr. Fortune said. Leaders at the US Food and Drug Administration and the US Centers for Medicare and
Medicaid Services will play a key role in shaping the regulatory environment for life sciences.

To catch up on all of the panels in our Life Sciences Dealmaking Symposium, please click here.

Life Sciences Dealmaking Symposium: Powering through the Pandemic: Trends in Early-Stage Investment

The pursuit of progress during these unprecedented times has led to a surge in life sciences investment and funding for early stage companies. Investors are on the lookout for the next big innovation while also navigating new ways of sourcing and managing portfolio companies. Our panel of experienced early-stage investors discussed the top trends in this push for advancement, including sectors attracting the most dollars in today’s challenging business landscape, key issues that early stage investors are watching as they source and vet new investment opportunities, steps that executives of early-stage companies can take to articulate their value and attract investors, and more.

McDermott partners Todd Finger and Joanna Lin moderated this discussion featuring Eric Aguiar, MD, partner at Aisling Capital; Dr. Andrew ElBardissi, partner at Deerfield Management; and Marian Nakada, vice president of venture investment at J&J Innovation.

Below are the top takeaways for Life Sciences Dealmaking Symposium: Powering through the Pandemic: Trends in Early-Stage Investment, click here to access the full webinar.

Access the PDF here.

COVID-19 fundamentally changed the process for evaluating new investment opportunities, Dr. ElBardissi said. “Meeting face-to-face with the management team, kicking the tires, touring the facility—those are intangible factors
that are very difficult to replace in this corporate environment,” he said. “Candidly, the bar has gotten significantly higher, as you think about our inability to conduct diligence the way we would like and as you think about all the constraints in the current environment.”

In today’s market, investors are more likely to target entities that are well run and have an existing management team, compared to a first-time Series A or a new entrepreneur requiring seeding, the panel observed. In particular,
companies that have a robust syndicate and businesses that are thriving in COVID-19 have less problems with fundraising than companies with first time management that need find a new syndicate.

The move to working remotely has actually made large M&A and IPOs easier to conduct because executives are more readily available. “The decision-makers don’t have 50 meetings out of the office and aren’t traveling all the
time, so decisions are moving quicker,” Mr. Finger said. Everyone working virtually in some ways addresses issues of distance bias, sometimes even opening doors to do investments with management teams that previously were not done due to distance. “If everyone’s virtual and everyone’s at the same playing field, you’re adapting to that new standard,” Ms. Lin said.

Even as the industry braces for a potential second wave of in-person clinical trial shut-downs in response to increasing COVID-19 case numbers, some companies are seeking to keep trials moving forward using innovative
remote monitoring options and home administration of clinical trial drugs. “The whole industry has adapted very, very quickly,” Dr. Aguiar said. “It’s adapted to being virtual for investors like ourselves, and there are services popping up to allow us to keep our clinical trial participants at home. Time is our friend on this. Every month we seem to get better and better at this.”

To catch up on all of the panels in our Life Sciences Dealmaking Symposium, please click here.

Life Sciences Dealmaking Symposium: New Factors in the Mix: Diligence in the Time of COVID-19

Navigating the ever-changing global life sciences deal landscape has become more challenging in the post-pandemic world. Conducting virtual inspections and examining security and privacy risks for remote working and new operating procedures will be central to evaluating current and future collaboration partners and targets. Thinking quickly yet carefully is essential for successfully adapting to this new normal. This panel explored the critical issues that executives and investors should watch out for in a post-COVID-19 world.

McDermott partner Michael Siekman moderated this discussion featuring Tom Brida, general counsel and chief compliance officer at Invitae; Dr. Anna French, partner at Qiming Venture Partners; Chuck Wilson, president and CEO of Cogent Biosciences; McDermott attorney Jennifer Bock; and Laura Jehl, global head of McDermott’s Privacy and Cybersecurity Practice Group.

Below are the top takeaways for Life Sciences Dealmaking Symposium: New Factors in the Mix: Diligence in the Time of COVID-19, click here to access the full webinar.

Access the PDF here.

The COVID-19 pandemic has forced dealmakers to conduct due diligence virtually, using tools such as videoconferencing and virtual data rooms more than ever before. In some ways, this shift has actually made the due diligence process more efficient, the panel observed. With the complications of travel replaced with the convenience of videoconferencing, some aspects of the process are moving along more quickly than before the pandemic shutdown.

Despite increased efficiencies, lack of in-person interactions may impact deal pipelines long-term as investors move from doing deals with known parties to interacting with CEOs and businesses they did not already know pre-pandemic. “We haven’t completely been able to replicate some of the real human factors when doing a deal,” Dr. French stated. The lack of in-person communication can also be challenging for cross-border deals when cultural difference come into play, Ms. Bock noted.

Finding alternatives to onsite visits presents more of a challenge, but many dealmakers are deploying creative solutions, such as drone use. Other more traditional options include reliance on historical third-party reports, or
having onsite personnel carry a laptop around the premises for a virtual inspection.

While virtual tools make diligence possible in the COVID-19 era, they also implicate cybersecurity considerations. “The data security environment that we’re living in is dramatically worse than it was months ago, mostly due to people working remotely—either with bad remote set-ups or falling for phishing” and similar schemes because of distractions in the home work environment, Ms. Jehl explained. The recent spike in ransomware attacks has also threatened life sciences companies’ valuable intellectual property and personal data.

COVID-19 has raised its own particular diligence topics that investors should incorporate into their process. If a target has taken advantage of government assistance programs, it is important to understand how that might
affect the target’s financials, Mr. Brida noted. If a target has ongoing activities onsite (laboratories, for example), potential investors should confirm that those facilities are in compliance with all local health and safety regulations.

To catch up on all of the panels in our Life Sciences Dealmaking Symposium, please click here.

Hospital and Health System Innovation Summit: Lessons Learned: Diligence, Detours and Data, Oh My

Industry leaders shared first-hand lessons learned from their work on recent innovation related projects. We covered a range of case studies, highlighting lessons learned around mission alignment, conflicts of interest, diligence considerations, data ownership and de-identification, and strategies for protecting a minority investor.

Below are the top takeaways for Hospital and Health System Innovation Summit: Lessons Learned: Diligence, Detours and Data, Oh My, click here to access the full webinar.

Access the PDF here.

Mission Alignment
It is essential for a hospital and health systems to adopt a formal innovation strategic
plan that aligns with its overall strategic mission and vision and clearly articulates it
specific innovation goals and prioritizes focus areas. Hospital and health systems
pursue innovation initiatives largely to support the clinical mission and drive revenue
growth and diversification. “I think that alignment with the strategic mission of the
organization is key because that really drives and helps shape the culture of innovation
as an organization. We define innovation in terms of in three buckets, the research
based, hospital based and external or open innovation,” said Kolaleh Eskandanian,
Vice President and Chief Innovation Officer, Children’s National. “So research based
is the traditional model of a transfer, to identify inventions in the labs and help with the
translation of that discovery to the market space.”

Partnerships are Essential Partnerships and Drive and Shape Innovation.
There is widespread recognition that today’s complex, multi-dimensional and
technology-driven innovation requires partnerships and collaborations among
stakeholders who bring different resources and expertise to the effort. Very rarely, if
ever, can any single stakeholder provide all the ingredients and resources. However,
picking the right partners and the right partnership/collaboration approach is key. “I
think a key step is figuring out what are the role of partnerships. And then thinking
about what that portfolio looks like over time and how it contributes to innovation,” said
Mai-Tal Kennedy, Principal, Vantage Partners. “What types of partnerships you’re
going to want to have in your innovation center, and then how you build to be able to
meet the needs of those relationships.”

Understand Possible Conflicts of Interest
Conflicts of interest must be evaluated at the front end and continuously revisited and
re-evaluated during the full life cycle of the innovation, from early research &
development and design and implementation of co-investment vehicles through
commercialization and deployment in the hospital/health system’s clinical and
operational setting. “The potential for conflicts in commercialization of home grown
innovation can be particularly challenging and complex if investment interests,
royalties and compensation arrangements exist between and among the hospital and
health systems, its officers and directors (and/or their families), and employed and
voluntary members of the medical staff,” said Bernadette Broccolo, Partner,
McDermott Will & Emery. Failure to properly identify, assess and manage conflicts can
undermine the integrity of research data supporting commercialization, which in turn
can result in denial or withdrawal of FDA pre-market approval, create research subject
and patient safety risks (and associated liability), lead to false claims liability and civil
money penalties in connection with the submission of claims for reimbursement for the
innovation by government reimbursement programs. An equally important and very
real consideration is that failure to manage conflicts is of great interest to the media
and the plaintiff’s bar and can also create significant reputation and public relations risk
not only for a hospital and health system but also for other stakeholders as well.
Oversight of potential conflicts in innovation by an independent committee with board
authority has proven to be an effective step in achieving a disciplined and effective
conflict of interest management plan.

Data Strategy Supporting Innovation
Robust, complex data of various types is one of the most valuable assets hospitals
and health systems bring to the innovation table. “Many innovation partnerships begin
as a data collaboration. One challenge is making sense of the data because most
innovation initiatives depend on the aggregation and analysis of a lot of data coming
from a lot of different sources and in various forms. Contributing or licensing that data
to support the innovation endeavor also presents significant privacy compliance
challenges that require careful planning at the outset and throughout the entire
innovation life cycle, not the least of which is the HIPAA prohibition on the sale of
identifiable data,” said Bernadette Broccolo, Partner, McDermott Will & Emery. An
essential ingredient for managing the privacy risk will be development of an effective
and sustainable de-identification strategy. Key due diligence and contracting
questions in that regard include what de-identification method will be used, whether it
meets HIPAA and other application de-identification standards, who is going to deidentify
the data, whether and how often the de-identification will need to be
revalidated, who will be the cost, and who bears the risks associated with
impermissible re-identification.

Health IT Solutions Need to Focus on Problems to Solve
Emerging health technology companies often fail to make clear what problems they
are trying to solve. To be successful, it needs to be clear what problem you want to
solve and you need to be adept at convincing health systems they want to buy your
solution. “Where they fall down is going too many directions simply saying, well, our
solution can do that and it could do that and it could do that,” said Adam Gale,
President, KLAS. “It’s really seeing these emerging technology companies not make a
clear bet on what they’re really going to do, what problems they’re really going to
solve, and then they just end up, I’ll say mushy – they do one thing over here and they
do another thing over here with a different provider, and they don’t do any of them as
well as they could or should.”

To catch up on all of the panels in our Hospital and Health System Innovation Summit, please click here.