Hayman's Bass Notches Win As U.S. PTO Tosses Celgene Patents

Oct 28 2016 | 9:08pm ET

After a string of defeats in front of the U.S. Patent and Trademark office, hedge fund manager Kyle Bass has notched another win in his “short activist” strategy of challenging the validity and legitimacy of certain key patents granted to pharmaceutical firms while reportedly shorting their shares. 

The regulator’s Patent Trials and Appeals Board, or PTAB, ruled earlier this week in favor of Bass’s entity, The Coalition for Affordable Drugs, regarding four inter partes review petitions filed last year against Celgene.

The decisions effectively void two Celgene patents that cover drug delivery and side effect mitigation. Bass challenged the patents on the grounds that the methods claimed were obvious in light of previous work. The PTAB agreed, with Judge Grace Karaffa Obermann observing Celgene essentially said the same thing in documents filed in pursuit of FDA approvals for its product. 

The Celgene decisions come closely on the heels of a similar victory against Shire Pharmaceuticals in which a patent claims on the company’s bowel disease drug Gattex were invalidated through two IPR petitions that argued, as in the Celgene case, that the claims were obvious based on “prior art” (i.e. already established methods or products). However, Bass has also seen his share of setbacks – several of the nearly 40 IPR petitions filed by Bass’s coalition have been denied outright by the PTAB, including challenges of other patents held by Shire and those owned by Acorda Therapeutics and Biogen. 

Bass, manager of $2 billion hedge fund Hayman Capital Management, came under criticism last year when he launched his “short-activist” strategy against pharmaceutical companies. Taking advantage of new legislation that allows for third-party review petitions of existing patents (and originally aimed at reducing the activity of patent trolls), Bass finds companies for whom a particular drug is a predominant portion of annual sales and which relies on patents he believes are based on previously known technology and/or minor modifications to such things as dosage, packaging and tangential activities. 

He allegedly then shorts the stock of the company in question while challenging the patent, hoping to cash in on a cratering price should the IP protections be invalidated. In some cases, the filing of the challenge alone has created a self-fulfilling reaction in the company’s share price - the shares of Acorda Therapeutics, for instance, fell nearly 10% in February 2015 on news that Bass was challenging patents on its blockbuster Ampyra MS drug. 

For his part, Bass has stated he believes abuse of intellectual property protections is a contributing factor to sky-high drug costs in the United States. In defending his strategy against industry accusations that his approach raised abuse of process questions, Bass last year described the existence of a financial interest in the revocation of a particular company’s unwarranted patent protection to be a “truthful irrelevancy.”

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