When Johnson & Johnson moved to purchase surgical robot developer Auris Health in 2019 for $3.4 billion in cash, like in many life science transactions, it agreed to pay out more—in this case, billions more—if the technologies it acquired went on to surpass certain goals.
For Auris and its investors, those milestone-based payments put J&J on the hook for up to an extra $2.35 billion. However, the company’s backers claimed in a yearslong lawsuit that the medtech giant was not living up to its end of the bargain, saying it did not devote the resources necessary to help Auris meet the deal’s deadlines. This week, a judge agreed.
In Delaware’s Court of Chancery, Vice Chancellor Lori Will said in an opinion that “J&J’s promise to Auris was broken almost immediately after closing” and ordered the company to pay more than $1 billion in damages.
The lawsuit revolves largely around Auris’ six-armed iPlatform robot, which was designed to compete with Intuitive Surgical’s da Vinci in a variety of procedures. The former Fierce 15 winner’s system was in the early stages of development when the company was bought—but, just months after the deal was closed, the FDA notified its new owners that iPlatform would have to undergo de novo product review instead of obtaining a clearance through the comparatively less-stringent 510(k) regulatory pathway, as the companies had planned.
At the same time, J&J was gearing up to take over full ownership of Verb Surgical, its long-running joint venture with Verily—with its robot placed on the FDA’s de novo track, as well. According to the court’s 144-page opinion, J&J had only budgeted enough to support one entrant, so the two systems were set to compete head-to-head in a face-off dubbed “Project Manhattan.”
Both iPlatform and the Verb robot were handed over to surgeons described as key opinion leaders, and each were used to perform procedures such as gastric bypasses, hernia repairs, lower intestine and kidney removals, and hysterectomies. Both systems completed all surgeries, but iPlatform was ultimately named the winner.
Going forward, J&J sought to incorporate Verb’s features and create a so-called iPlatform+. Merging the two development teams and dozens of employees led to “[a] calamity of excess and redundancy,” according to Will’s opinion.
“Hostility abounded between the two factions, which had just faced off in Project Manhattan for the survival of their respective projects,” she wrote. “J&J soon announced layoffs on both teams.”
Then, in April 2020, after internally pushing back development timelines, the company wrote down the value of iPlatform and zeroed out its gastrointestinal surgery milestones. Meanwhile, over the next 12 months, technical issues arose with iPlatform’s ability to manage its temperature, while its robotic arms caused problems with navigating within the operating room. The iPlatform design was eventually abandoned in favor of Verb’s bed-based approach.
“The iPlatform robot effectively became a parts shop for Verb,” Will wrote. “J&J knew Project Manhattan would hinder, rather than promote, iPlatform’s achievement of the regulatory milestones. It also knew that combining iPlatform and Verb would cause further complications. But J&J viewed the resulting delays as beneficial since it could avoid making the earnout payment.”
The lawsuit, brought by Fortis Advisors, was awarded damages over seven separate milestones listed in the acquisition deal. Their original values were adjusted downward by about 20%, based on a probability of success, along with added interest.
They included bases of $300 million for achievements in general surgery as well as $120 million apiece for objectives in urology, gynecology, gastroenterology and upper and lower abdominal surgeries. An additional $80 million was awarded over an instrument-related milestone in soft tissue ablation.
J&J has said it is considering an appeal.