New patent buster on the block

Hedge fund rat­tles US pharma by chal­leng­ing bad patents to bring down prices and make prof­its for it­self

Down to Earth - - COLUMN -

Kis up­set­ting big pharma in a big way. YLE BASS It is this Dal­las-based hedge fund man­ager,much more than smart generic drug makers, who is un­set­tling the US pharma in­dus­try by chal­leng­ing their patents. He has even formed an or­gan­i­sa­tion, the Coali­tion for Af­ford­able Drugs (cad),to bring down prices of drugs. At least that is the rea­son he gives for chal­leng­ing over a dozen patents on a wide range of drugs in the US.

Since the be­gin­ning of 2015, Bass has made (busi­ness) head­lines for tar­get­ing com­pa­nies that ap­pear to have bad patents by fil­ing a se­ries of iprs, or Inter Partes Re­views, at the US Patent Of­fice (uspto).The ipr is like the post-grant op­po­si­tion to patents, but is a lim­ited process that was in­tro­duced just three years ago in the US. Al­though any­one can chal­lenge a bad patent by show­ing that it shouldn’t have been granted in the first place be­cause of prior art—this means some­thing al­ready ex­ist­ing and known—very few chal­lenges get past the first hur­dle.The Patent Trial and Ap­peal Board (ptab) only takes up the ipr if it de­cides “there is a rea­son­able like­li­hood” that the grounds cited will in­val­i­date the patent claims.In In­dia,the ap­pel­late board of the Patent Of­fice does not set the bar so high but ex­am­ines ev­ery patent chal­lenge with­out pre-de­cid­ing the out­come.

Kyle Bass is flam­boy­ant and con­tro­ver­sial.He is head of Hay­man Cap­i­tal Man­age­ment LP,which cor­rectly pre­dicted the 2008 sub­prime mort­gage cri­sis and made a for­tune by bet­ting on the hous­ing bust.While Bass is tar­get­ing com­pa­nies with spu­ri­ous patents that he main­tains have no value ex­cept to push up prescription drug prices, it is also true that his fund shorts such com­pa­nies.In mar­ket par­lance “short­ing stocks” is to profit from wa­ger­ing on their de­cline.

Bass has even set up a sep­a­rate phar­macy ve­hi­cle within his fund to push this “short ac­tivist strat­egy”. His de­fence is that it will help end the un­eth­i­cal “pay for de­lay” prac­tice of drug man­u­fac­tur­ers to keep less costly gener­ics out of the mar­ket,and ul­ti­mately change the way pharma com­pa­nies view patents.

For the mo­ment, all that Bass has done is to stir up rage and a huge counter cam­paign. At least one web­site ap­pears to have been set up to dis­credit him and he has been at­tacked among other things for his busi­ness links with “the cor­rupt, in­com­pe­tent Marx­ist regime” of Ar­gen­tinean Pres­i­dent Cristina de Kirch­ner, as Wall Street por­trays it. One of the com­pa­nies he has tar­geted, Cel­gene Cor­po­ra­tion, which makes ther­a­pies for can­cer and in­flam­ma­tory disorders,has got ptab to con­sider a mo­tion to sanc­tion cad for what it claims is abuse of the ipr process for fil­ing pe­ti­tions with a profit mo­tive.

To which, cad has re­sponded tartly. Call­ing it a curious ar­gu­ment, the Bass or­gan­i­sa­tion says that at the heart of nearly ev­ery patent and nearly ev­ery ipr, is the profit mo­tive. Af­ter all, Cel­gene ac­quires patents only to profit from the higher drug prices that patents en­sure. So, too, generic com­pa­nies which chal­lenge patents only to profit from sales of generic drugs. cad also cited the US Supreme Court’s ob­ser­va­tions to show that Cel­gene was way off the mark. The court had found that it is in pub­lic in­ter­est for eco­nom­i­cally mo­ti­vated ac­tors to chal­lenge patents.

Patent law an­a­lysts point out the pharma in­dus­try is us­ing Bass to un­der­mine the ipr process which is a use­ful tool for in­val­i­dat­ing bad patents. As for abuse of the process,they say the rules are so re­stric­tive that only a very tiny per­cent­age of the to­tal patents are chal­lenged through the ipr route. And of th­ese, barely a quar­ter suc­ceed. So, whether Bass is in it for him­self or not,what is hap­pen­ing is all to the good.


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