This week, the Senate passed an expansive health bill known as the “21st Century Cures Act” after the bill received approval from the House earlier this year.  Due to its far-reaching effects in the healthcare and life science industries, among others, the bill was one of the more lobbied pieces of legislation in recent history.  President Obama is expected to sign the bill into law by the end of the year.

Highlights of the bill include significant amounts earmarked for improving cancer research (including funding for the Cancer Moonshot initiative championed by Joe Biden), fighting the epidemic of opioid abuse, making improvements in mental health treatment, helping the Food and Drug Administration (FDA) speed up drug approvals, and facilitating improved use of technology in medicine (such as the Brain Research through Advancing Innovative Neurotechnologies® (BRAIN) Initiative and the Precision Medicine Initiative).

Below is a brief summary of winners and losers under the bill:

Winners

  • Healthcare Information Technology and Software Companies: Healthcare IT companies and data management companies are set to gain millions of dollars in new business as a result of incentives in the bill for federal agencies and healthcare providers to use electronic health records systems and enhance research and treatment through the collection of electronic data.
  • Pharmaceutical and Medical Device Companies: The bill allows the FDA to require fewer studies from pharmaceutical and medical device companies and gives the FDA additional resources to speed up approvals. This will likely allow drug and device companies to save billions of dollars in bringing products to market.
  • Medical Schools, Hospitals and Physicians: Subject to annual appropriations, the bill provides $4.8 billion over 10 years in additional funding to the National Institutes of Health. This funding is intended to open the door to hundreds of millions in additional research grant dollars for researchers at universities and medical centers, many of whom will be focusing on cancer, neurobiology and genetic medicine.
  • Mental Health and Substance Abuse Advocates: The bill provides $1 billion in state grants over 2 years to address opioid abuse and addiction. The majority of this amount will fund both new and existing treatment facilities, while the remainder will fund improvements in mental health research and treatment.
  • Patient Groups: Many specialty disease and patient advocacy groups receive a portion of their funding from drug and device companies. With the allocation of additional dollars and requirements for more patient input in the drug development and approval process under the bill, these patient groups are slated to wield more power and influence.

Losers

  • Preventive Medicine: The bill cuts $3.5 billion, or about 30 percent, from the Prevention and Public Health Fund previously established under Obamacare. This fund promotes prevention of Alzheimer’s disease, hospital-acquired infections, chronic illnesses and other ailments.
  • The FDA: The bill provides the FDA with an additional $500 million through 2026 and more hiring authority. A win?  Sure, but the FDA contends that these measures aren’t enough to offset the additional workload that the bill will impose on its resources.  In addition, the agency fought and lost with respect to a controversial voucher program which awards companies that approve drugs for rare pediatric diseases.
  • Consumer and Patient Safety Groups: Many consumer and patient safety advocates (such as Public Citizen and the National Center for Health Research) are adamant that the bill will result in unsafe drug and device approvals and doesn’t address rising drug costs.
  • Hair Growth Patients: Under the bill, federal Medicaid will no longer help pay for drugs that help patients restore hair. Hair growth patient advocates such as the National Alopecia Areata Foundation spent significant sums of money to fight this.

While some of those against the bill continue to be disappointed and claim that “Congress gave Big Pharma and the medical device industry an early Christmas present by passing the 21st Century Cures Act”, most seem to be encouraged by lawmakers’ renewed and bipartisan efforts to focus on scientific research, effective care delivery, and the removal of barriers to scientific progress.


Update: A representative of the National Alopecia Areata Foundation (NAAF) recently reached out to me regarding this post. I think it’s important to clarify that NAAF does not oppose the Act – on the contrary, it has been supportive of it. They had spent significant sums specifically for greater insurance parity through the bill for those with alopecia areata so they could better afford cranial prosthetics, but were unsuccessful. They have worked toward a separate bill introduced in the House in April, the Cranial Prosthetic Medicaid Coverage Enhancement Act, to address the issue via Medicaid.

Philadelphia skyline
Copyright: sepavo / 123RF Stock Photo

A group of Philadelphia-area companies and organizations just released a joint study describing the state of the information technology industry in the region. The group is composed of Ben Franklin Technology Partners of Southeastern PA, CEO Council for Growth, Select Greater Philadelphia, Ernst & Young LLP, Fairmount Partners, Comcast, and the Greater Philadelphia Alliance for Capital and Technologies (PACT) . In pointing out that the routes of the IT revolution were established in Philadelphia in 1946 with the demonstration of the ENIAC (Electronic Numerical Integrator and Computer) at the University of Pennsylvania, the report seeks (successfully) to detail investment in IT companies in the Greater Philadelphia region from 2010 through the first half of 2015.  It also describes the many resources available to members of the IT community in Philadelphia, from incubators and co-working spaces to colleges and universities, and it provides an in-depth look into IT-based occupations in the Greater Philadelphia region.

Highlights of the study include the following:

  • From 2010 to Q2 2015, more than 6,000 IT-based companies operated in the 11-county Greater Philadelphia region, employing almost 90,000 people;
  • From 2010 to Q2 2015, over 1,000 investment rounds in IT companies were closed, more than 250 M&A deals (valued at $10.2 billion) were completed, and over 400 funded deals (valued at over $1.1 billion) involving IT companies were closed;
  • The IT industry grew from $21 billion in sales in 2001 to $35.8 billion in sales in 2014, accounting for approximately $8.3% of the Greater Philadelphia region’s GDP; and
  • A layered IT ecosystem, consisting of pre-seed/seed investment partnerships, startup communities, co-working spaces,  incubation/acceleration programs, university challenges, regional initiatives, corporate partnerships, media, and even targeted community programs, was successfully developed and continues to flourish.

The study is certainly worth a read, as both the scope and volume of IT-driven growth in this region is often overlooked by those within and outside of Philadelphia.

Copyright: tang90246 / 123RF Stock Photo
Copyright: tang90246 / 123RF Stock Photo

Are you currently working with your attorney or accountant to form a new business entity or make other important business filings in Delaware in the near future?  Are you closing a merger or acquisition involving Delaware business entities over the next week or two?  If so, be advised that the Delaware Secretary of State’s office will replace its current Delaware Corporation Information System (DCIS) with a new computer system during the upcoming Labor Day weekend.

As part of this upgrade process, the DCIS will be unavailable for a total of 4 days beginning on Thursday, September 3, 2015, at 4:30 p.m. EST.  All web services, including corporate and UCC filings, document retrievals, and business searches, will be unavailable during this 4 day period.  All priority submissions must be received by the state by 12:00 p.m. EST on September 3rd.

The Delaware Secretary of State’s office is treating the outage as an “extraordinary event” for corporate filings, meaning that documents received during this period will be not be processed until the office reopens on September 8th but will retain the original filing date.  However, be aware that this “extraordinary event” treatment will not apply to UCC filings.  The state will offer “emergency filing procedures” for a fee of $7,500, but even with this extra fee, you can expect delays processing these requests.

Here at Fox, we strongly encourage you to adjust any closings or other deadlines that may be affected by this system upgrade accordingly.  If you have UCC filings that are scheduled to lapse during the period beginning on September 3rd and ending on September 7th, you should continue them prior to the outage in order to ensure that your lien positions remain in place.

For more information about this upgrade, please visit the Delaware Division of Corporations website.

The IMPACT 2015 Capital Conference2015 IMPACT Capital Conference, one of the most established venture conferences in the Northeast, will be held on November 3 and 4, 2015 at the Ritz-Carlton Philadelphia.  As a premier signature event of the Greater Philadelphia Alliance for Capital and Technologies (PACT), the IMPACT Capital Conference has a long tradition of uniting key players from the private equity, venture capital and entrepreneurial communities.  IMPACT draws more than 1,000 participants and has been the catalyst for billions of dollars in venture funding and entrepreneurial success.  The conference will highlight emerging markets, capital resources and innovation in the region, continuing the tradition of connecting capital and companies.  This year’s event has a robust agenda with keynote speakers such as Internet entrepreneur and Kynetic founder and CEO Michael Rubin, and serial investor and co-founder of Franklin Square Capital Partners David Adelman.

Of particular note is the “200 for $200” program being offered to entrepreneurs.  The first 200 early-stage entrepreneurs who register for the conference can attend for only $200, representing an 80% discount off of the normal registration rate.  The IMPACT Conference is a great way for entrepreneurs and their companies to learn about the funding landscape in the Northeast and to make valuable connections.  We highly recommend taking advantage of this program by registering here and we encourage you to learn more about the conference.

IMPACT 2015 Capital ConferenceThe IMPACT 2015 Capital Conference, one of the most established venture conferences in the Northeast, will be held on November 3 and 4, 2015 at the Ritz-Carlton Philadelphia.  As a premier signature event of the Greater Philadelphia Alliance for Capital and Technologies (PACT), the IMPACT Capital Conference has a long tradition of uniting key players from the private equity, venture capital and entrepreneurial communities.  IMPACT draws more than 1,000 participants and has been the catalyst for billions of dollars in venture funding and entrepreneurial success.  The conference will highlight emerging markets, capital resources and innovation in the region, continuing the tradition of connecting capital and companies.  The deadline to apply to be a feature company is fast approaching – all applications must be submitted by August 28, 2015.  As a sponsor of the IMPACT 2015 Capital Conference, we encourage all early or growth stage technology and healthcare companies to apply now to present at this year’s conference.

New this year, the conference will feature an interactive company presentation format that will provide featured companies direct impact feedback from selected venture investors.  Based on the feedback, selected featured companies will be considered to present in the Lion’s Den, an interactive panel of highly successful entrepreneurs who will be presented with investment opportunities.  These “Lions” will make investment commitments live in front of the IMPACT audience.

In a December 2014 post, I presented an overview of what items should be included by an employer in a covenant not to compete in order to make it enforceable with respect to the employer’s employees and when that covenant should be implemented by the employer.  This post highlighted a Superior Court of Pennsylvania case being followed by many Pennsylvania attorneys, including my colleague, John Gotaskie.  I supplemented that post with another piece in February of this year which examined the issues being considered by the Pennsylvania Supreme Court on appeal of this case.  While this case is still on appeal, the original ruling held that a covenant not to compete is not enforceable against a former employee who went to work for a competitor due to the fact that the covenant was not supported by additional consideration given by the employer.

Another one of my colleagues, Alex Radus, recently provided another cautionary tale concerning covenants not to compete.  In a June 2015 post, Alex highlighted a Nebraska Supreme Court case which held that a franchisor’s overly broad covenant not to compete would not be enforced against a former franchisee.  One of the two reasons the court gave for not enforcing this overly broad covenant was that the State of Nebraska has a long-standing rule which provides that if a portion of a covenant not to compete is legally unenforceable, then the entire covenant will be unenforceable.  Unlike most other states that allow their courts to rewrite or “blue pencil” an otherwise illegal covenant not to compete in order to make it enforceable, Nebraska courts are not permitted to rewrite the overly broad portions of a covenant not to compete.

Alex concludes his piece by noting that franchisors and their lawyers should ensure that their covenants not to compete are enforceable from the outset under local law, especially in states that do not allow their courts to “blue pencil” these covenants.  Of course, this advice is equally applicable to employers as it is to franchisors.  However, his piece led me to place myself in the shoes of many of my clients who will likely have the following two questions:  What is my local law with respect to covenants not to compete and how do I find out if my state will allow courts to rewrite covenants that are deemed to be overly broad and unenforceable?  For those looking for answers to these questions, Fox Rothschild provides an outstanding resource.

National Survey on Restrictive CovenantsThe National Survey on Restrictive Covenants prepared by colleagues in my firm’s Labor and Employment and Securities Industry practice groups gives a state-by-state overview as to the enforceability of covenants not to compete (as well as covenants not to solicit, covenants not to hire and confidentiality covenants) and whether the so-called “blue pencil doctrine” is allowed to be used by that state’s courts.  As is the case with most laws, the answers provided in this survey are not always cut and dry and will undoubtedly continue to evolve over time, so please be sure to consult your lawyer with respect to particular questions.  In the meantime, feel free to familiarize yourself with your state’s requirements and find out whether your state will permit courts to scale back an otherwise unenforceable covenant not to compete.

 

Back in December of last year, I wrote a piece about a relatively recent Superior Court of Pennsylvania case which held that a covenant not to compete is not enforceable against a key salesperson who left his employer to work for a competitor.  The primary reasoning behind the Court’s decision was that the underlying agreement was not signed at the outset of the salesperson’s employment with his employer and the employer did not provide him with any additional benefits or consideration at the time he signed the agreement.  As the foundation for my piece, I referenced a May 2014 article authored by my colleague John Gotaskie which summarized the key findings in the case.  I also noted that during the week prior to my piece being published, the Pennsylvania Supreme Court agreed to hear an appeal of the Superior Court’s decision and that the final outcome of the case remains open.

Lucky for us, John continues to stay on top of this case and summarizes the key issues to be heard on appeal in another piece he published last week.  The focus of the appeal will be to determine whether Pennsylvania’s Uniform Written Obligations Act allows the enforcement of a restrictive covenant against an employee even without his or her employer providing additional consideration.  In other words, will the Supreme Court allow the mere fact that an employee knowingly signs and intends to be legally bound by a restrictive covenant agreement serve as a substitute for the seemingly well-established requirement that an employer must either have its employees sign this type of agreement at the outset of their employment or provide them with some specific and additional consideration (for example, cash and/or a job promotion) at the time of signing?

While I doubt that the Supreme Court will answer this question with a blanket “yes”, I can’t be sure.  More importantly, as John notes, the factors to be considered by the Supreme Court may suggest that they have doubts about the basis for the Superior Court’s original decision.

Please be sure to check back to see how this case unfolds, but for now the lesson remains the same.  Be prepared to pay your employees unless you have them sign a restrictive covenant agreement at the outset of their employment.

Attention all early-stage technology companies based in the Mid-Atlantic Region.  This year’s Phorum conference will be held on April 14, 2015 at Penn Museum in the heart of Philadelphia.  For the uninitiated, Phorum is a technology conference organized by the Greater Philadelphia Alliance for Capital and Technologies (PACT) which is designed to explore how companies are able to maximize the business value of specific technologies and how digital customer engagement is changing current business models.

Industry thought leaders as well as hands-on practitioners will engage participants through keynotes, panels and interactive discussions to help executives and their companies understand not just their technologies but how their technologies can be applied to transform their business models and achieve their strategic goals.  Click here to view a list of the speakers and panelists and to learn more about the conference as a whole.

In addition to the speakers and panelists, the conference features an exciting Demo Pit showcasing startup and emerging companies that provide technologies and solutions which help enterprise organizations better engage with their employees, suppliers or customers.  Over the last three years, the quality of the Demo Pit companies has been world class, featuring companies such as SocialLadder, UXFlip (subsequently acquired by Artisan Mobile), and award-winning PeopleLinx.

As a sponsor of this year’s Phorum conference and one of the founding sponsors of PACT, Fox Rothschild encourages all startup and emerging technology companies focusing on digital customer engagement to apply to be part of the Demo Pit.  Click here to learn more about the application process.

Exciting news today, as Temple University and Ben Franklin Technology Partners of Southeastern Pennsylvania have announced a joint initiative — Temple Ventures—Powered by Ben Franklin — a $1 million startup accelerator designed to assist startup companies advancing Temple-created technologies.

Read more in the press release.

Aside from the obvious (for example, lack of capital, lack of operating history, etc.), one of the most pronounced challenges facing startup and emerging companies is their dependence on one or a few key individuals, whether employees or founders.  This is such a common theme for early stage companies that it is almost universally disclosed to potential investors as a “risk factor” in private placement memoranda or similar documentation used when raising capital.  Smart business owners and investors who understand this risk often seek to protect the company’s interests by requiring that these key individuals enter into covenants not to compete with the company, usually through the form of restrictive covenant agreements. 

Covenants not to compete generally contain three components: (1) a time restriction (i.e., the period of time after employment during which the individual is prohibited from competing against the company); (2) a scope of business restriction (i.e., the type of business or industry within which the individual cannot be engaged); and (3) a geographic restriction (i.e., the locations in which the individual cannot be engaged in a competing activity).  While the laws governing these covenants vary greatly from state to state, most courts will hold that they are enforceable so long as they are intended to protect the legitimate business interests of the company and they are reasonable with respect to time, scope of business and geography.  In other words, they can’t be too long, the type of business or industry cannot be too far-reaching and the area cannot be too large.

However, no matter how reasonable the terms of a covenant not to compete may be, it will almost certainly never be enforced by any court in any state unless the company can show that the covenant not to compete was entered into at the beginning of the individual’s employment with the company or the company provided the individual with some additional and specific consideration such as an increase in salary, a cash bonus or a job promotion.  This “timing” factor was highlighted in an excellent piece authored by John Gotaskie, an attorney in our Pittsburgh office, earlier this year.

John’s piece summarizes a recent Superior Court of Pennsylvania case which held that a covenant not to compete entered into by a key salesperson who left his employer to work for a competitor is not enforceable since the underlying agreement was not signed at the outset of his employment and the employer did not provide him with any additional benefits or consideration at the time he signed the agreement.  You can also listen to John’s podcast on this topic here. Note that last week the Pennsylvania Supreme Court agreed to hear an appeal of this decision, so the final outcome remains open.

Regardless of the outcome, the lesson is fairly straightforward for business owners and their investors.  If your state’s laws allow non-competes for employees, protect your interests and tie up your key employees with covenants not to compete at the outset of their employment.  If you don’t, be prepared to pay, whether it is at the time you ask them to sign as an existing employee or in court when you are trying to enforce the covenant because a former employee that used to be a vital team member is now competing against you.