Pat Miles was the last man standing.
Miles, along with former NuVasive, Inc. Chairman and CEO Alex Lukianov and former President Keith Valentine took over sleepy NuVasive, Inc. in 1999 (two years after it was founded) and turned it into a $2.7 billion capitalized spine company.
When the trio left Medtronic Sofamor Danek and joined NuVasive, the company had no sales and was losing about $6 million a year. The next year NuVasive sold $52,000 of classic spine fusion products—and lost $14 million. Last year, NuVasive had revenue of almost $1 billion.
Valentine left NuVasive in January 2015 and five months later became CEO of SeaSpine Holdings, Inc. Lukianov left in April 2015 under the gaze of auditors. Miles stayed and eventually became Vice Chair of NuVasive’s Board of Directors in 2016.
Lawsuit
Then, on October 10, 2017 came a bombshell.
NuVasive announced it was suing Pat Miles after Miles abruptly resigned his post on October 1, 2017, a Sunday afternoon. The following day Miles announced he was joining Carlsbad, California-based competitor, Alphatec Holdings, Inc.—a much smaller competitor located approximately 32 miles away—as its new leader.
NuVasive went to court.
In the lawsuit filed in the Chancery Court of Delaware NuVasive alleges that Miles, “schemed for over a year to secure a massive equity stake in a struggling competitor…and then steal NuVasive’s employees, distributors, customers, medical partners, product developments, and business strategies to revitalize Alphatec, causing the value of his equity stake to skyrocket.”
Investors liked the news. Alphatec’s stock price jumped almost $1.50 per share overnight.
Miles and Alphatec Respond: “Baseless and Fictional”
Immediately after the suit was filed, Alphatec fired its own shot and issued a press release stating the NuVasive lawsuit was “baseless,” and that NuVasive had issued a press release to broadcast the suit, “not to ‘protect corporate assets’ as stated, but in an attempt to inflict maximum damage to the public reputations of both Mr. Miles and Alphatec.
“The complaint is fictional, and includes disclosures by NuVasive that breach its contractual confidentiality obligations owed to Alphatec. It was filed by a law firm in violation of its own ethical obligations, as the firm is currently actively representing Alphatec in related matters.”
Miles said he did not leave NuVasive to damage the company.
“In fact, I remain a significant shareholder. I chose to pursue a new opportunity at Alphatec because I want to align my talents and influence with a company that is focused on serving spine surgeons and their patients.”
“The allegations made by NuVasive against me are clearly false, and typical of a management team reacting to mass departures of key, spine-experienced executives. I intend, ultimately, to clear my name. In the meantime, I will not be distracted by baseless claims, and will drive Alphatec’s pursuit of improved surgical outcomes.”
The Road to Court
How did NuVasive and Miles get to this point?
According to the suit, in January 2016, NuVasive was contacted by UBS Financial Services to see if NuVasive was interested in acquiring Alphatec. NuVasive says Alphatec’s international operations were potentially an “attractive business opportunity.”
In an internal and confidential email attached to the lawsuit, Miles wrote the Alphatec acquisition opportunity was a “waste of time as far as I am concerned.”
As NuVasive’s president and CEO, Miles was heavily involved in evaluating the potential acquisition. His recommendation about the potential acquisition was given, “substantial weight” by NuVasive.
While NuVasive conducted an analysis, the company says Miles was “adamant that Alphatec was a poor acquisition target” and that he agreed that it had an “aged, undifferentiated portfolio.”
NuVasive decided to pass on the deal, but continued to consider investment opportunities in Alphatec as late as November 2016. Globus Medical, Inc. eventually bought Alphatec’s international operations.
Miles Rises to Vice Chair
During 2016, the company says Miles expressed a desire to have more input in the “big picture” strategic direction of the company. The company added him to the Board in August 2016.
A few weeks after the appointment, “out of the blue, Miles disclosed that he was considering accepting an employment offer from Alphatec. While this was surprising given that he had just disparaged Alphatec as a potential business opportunity and had just joined NuVasive’s Board, Miles leveraged this offer to negotiate a rich compensation package to remain with NuVasive as its Vice Chairman,” states the lawsuit.
He would remain heavily involved in business strategy, but would be largely relieved of day-to-day management responsibilities to spend more time with his family.
Given that Miles disclosed that he had considered joining Alphatec, the company said it was justifiably concerned about ensuring that Miles “would not turn around and use that information for the benefit of a competitor.”
“Nevertheless, Miles represented that he was happy with NuVasive and its senior management; that he was looking forward to his new position; and that he was firmly committed to NuVasive going forward.”
Restricted Covenants
But NuVasive was worried and asked Miles to agree to restrictive covenants which included a non-compete clause. Miles allegedly told the Board that he “bleeds purple.”
Without those covenants the company said it would never have allowed Miles to remain on the Board, make him Vice Chairman or continued to give him access to confidential and proprietary business secrets.
NuVasive claims Miles “never actually intended to comply with his restrictive covenants, but agreed to them in order to ensure his continued access to NuVasive’s confidential business information as part of his plan to convert NuVasive’s business and employees to Alphatec.”
Miles and Alphatec
In December 2016, Miles allegedly emailed Stephen Hochschuler, M.D, “a key surgeon within the spinal surgery field, and a substantial Alphatec shareowner, praising the appointment of former NuVasive employee Terry Rich as Alphatec’s CEO and assured Hochschuler that ‘you will like him as he is a hardass.’”
In the October 2 press release announcing that Miles was joining Alphatec, Mortimer Berkowitz, III, then Alphatec’s Chairman, said he thanks CEO Rich for his efforts in bringing Miles aboard.
Dr. Hochschuler told OTW via email on October 12, 2017 that he had served on the Board of Alphatec and chaired the Scientific Advisory Board. He said he always was impressed with the quality of Alphatec’s portfolio and had personally never used NuVasive products.
He said that he had no relationship with Alphatec after Rich became CEO, but that as a “continued very minor stock holder I contacted several former NuVasive key players who worked with Terry Rich in the past as well as Pat Miles. In addition, I spoke with several other surgeon opinion leaders. All gave their opinions which I found of value. I nevertheless bought no more Alphatec stock.”
He said he was “totally surprised” by Miles’ move and has had no contact with him since moving to Alphatec.
“Pat’s reputation as a tireless advocate for whomever he works with is legendary. He is creative, honest and tireless. I wish him the best and anticipate his choice to move to Alphatec is positive for the company.”
“MOM” Acquires Alphatec Stock
On March 22, 2017, Miles executed a securities purchase agreement to purchase $500,000 of Alphatec stock in a private placement. NuVasive claims the investment was never disclosed to the company. “Had he disclosed that investment, NuVasive would have objected to such a blatant conflict of interest and breach of his fiduciary duties, and immediately terminated his positions with the Company and cut off his access to NuVasive’s confidential information,” states the suit.
The complaint states that Miles knew the investment was contrary to NuVasive’s interest.
In fact, continues the complaint, Miles concealed his investment by purchasing shares in Alphatec through an entity called “MOM.” Further, Alphatec allegedly aided his concealment by not disclosing that Miles was the beneficial owner of the shares.
Transition to Alphatec
Throughout this period, NuVasive claims Miles “was engaged in surreptitious discussions to become Alphatec’s ‘leader.’”
NuVasive also claims that it learned that during his tenure as Vice Chair, he “disparaged NuVasive and key members of its management to critical NuVasive customers, medical partners, and employees, in order to lay the groundwork to transition them to Alphatec.”
Then in June 2017, Miles sold 15,000 shares of his NuVasive stock, worth more than $1 million.
In September 2017, NuVasive claims “Miles contacted a NuVasive customer and respected spinal surgeon, informed the surgeon that Miles was considering an offer to join Alphatec, and sought the surgeon’s advice.”
At the same time, NuVasive claims Miles was negotiating with Alphatec to secure an additional equity stake in the company.
According to the Alphatec press release announcing Miles’ hiring, the company granted Miles one million Restricted Stock units. NuVasive says this amounted to a market value of $3.2 million for a company worth $35 million.
The Alphatec press release also stated that Miles agreed to purchase 1.3 million Alphatec shares at $2.26 per share (a $2,938,000 investment, in addition to the $500,000 in shares Miles had previously purchased). Miles would also receive warrants to purchase up to an additional 1.3 million shares of Alphatec stock.
Resignation
Only after securing “a massive” equity stake in Alphatec (potentially 23% if warrants are exercised) did Miles disclose to NuVasive that he was resigning immediately, according to the suit.
In his note of resignation, Miles allegedly wrote: “I do not believe the post-employment non-compete and no hire restrictions in my current contract are enforceable against me (as a California resident and employee).”
Miles Gets to Work
Immediately upon assuming his position with Alphatec, NuVasive claims Miles recruited NuVasive’s employees, customers, and medical partners to terminate their relationships with NuVasive and join Alphatec.
“For instance, on the day of the announcement, Miles was in contact with at least six NuVasive customers and medical partners (if not substantially more). He was also in contact with over a dozen current and former NuVasive employees and consultants. At least one NuVasive employee—Elizabeth Lukianov, a Senior Associate Product Manager—has already left to join Miles at Alphatec.”
NuVasive says it also learned that, immediately following Miles’ hire, Alphatec, under Miles’ direction, contacted NuVasive’s distributors, falsely claiming that NuVasive intends to terminate their contracts or convert them into direct employees. One distributor representative, Ashley Warwick, has already resigned to accept a position as a Regional Manager with Alphatec.
Alleged Breaches, Demands and Venue
In the lawsuit, NuVasive alleges: Breach of Contract and Fiduciary Duty, Unfair Competition, Tortious Interference With Contractual Relationships and Fraudulent Inducement.
NuVasive wants compensatory damages, disgorgement of compensation, attorneys’ fees and costs, punitive and exemplary damages and a trial by jury in Delaware.
The first legal battle will likely be over where case should be tried. In Ascension Ins. Holdings, LLC v. Underwood, decided in 2015, Delaware Chancery Court declined to enforce a non-compete agreement a company had with a California resident and former employee.
Bradley Fikes, a reporter for The San Diego Union-Tribune, wrote on October 10 that non-compete agreements generally aren’t enforceable under California law.
Pat Miles may have been the last man standing. Apparently, he wasn’t ready to sit and keep the NuVasive Vice Chair warm. Will history repeat itself as this former Medtronic spine guy works to transform another struggling spine company?
