Texan hedge fund manager J. Kyle Bass, the founder of Hayman Capital Management, has been waging a war against the US pharmaceutical industry and what he has called its “BS patents.”
He set up the Coalition for Affordable Drugs earlier this year, and the group has now filed 18 inter partes review (IPR) petitions with the US Patent and Trademark Office challenging the validity of some drugmakers’ patents while also betting against the company’s stocks.
It’s all part of an “activist short strategy” that Bass thinks will end what he considers to be “pay for delay” agreements that stop lower cost generic drug competitors from coming into the market.
The idea that Bass and his fund could make money through the IPR process by challenging drug patents and subsequently lowering stock prices doesn’t seem to sit well with the pharmaceutical companies.
One of his targets, Celgene, recently filed a motion with the USPTO for sanctions on a claim of “abuse of process” by the Coalition for Affordable Drugs, the group affiliated with Bass’ hedge fund.
Celgene seems to be Bass’ biggest target. He has filed five IPRs against the company’s drug patents.
The Celgene-Bass battle has broad implications for the Inter Partes Review process. A decision in favour of Celgene would put an end to Bass’s strategy, and stop others from challenging patents to influence a stock price.
In his response to dismiss the Celgene motion, Bass concedes that he’s going to profit by going after the patents. There’s nothing wrong with that either, he said.
He also points out that the drug companies are also in the business of making money when they fight to keep their patents longer and therefore keep their drug prices high.
“Celgene’s motion is littered with references to the Petitioner’s and Real Parties-in-Interest’s (collectively, ‘CFAD’) ‘admitted profit motive,’ and makes the curious argument that filing IPR petitions with a profit motive constitutes an ‘abuse of process.’ Yet at the heart of nearly every patent and nearly every IPR, the motivation is profit. Celgene files for and acquires patents to profit from the higher drug prices that patents enable. Generic pharmaceutical companies challenge patents to profit from generic sales. Celgene’s argument is in conflict with Supreme Court precedent expressly finding it in the public’s interest for economically motivated actors to challenge patents.”
Bass also explains that challenging drug company patents is an expensive process. He doesn’t think many people can afford to do it, and that those who can wouldn’t do so unless they could benefit financially. He also argued that making money doesn’t mean that a cause lacks “social value.”
“[Coalition for Affordable Drugs] anticipates that fees and costs to complete an IPR for a single drug is approximately $US1 million dollars. There are a limited number of entities capable of making that financial commitment. And fewer can make such a commitment without the prospect of profiting from their efforts. The fact is CFAD’s motivations do not change the social value of its activities. Poor quality patents enable pharmaceutical companies to maintain artificially high drug prices and reap unjust monopoly profits paid for by consumers and taxpayers.”
Bass also flipped the script on Celgene and pointed out that the company made $US5 billion in 2014 off one of its expensive cancer drugs.
“Celgene accuses CFAD of motives that are not entirely ‘altruistic.’ That is a truthful irrelevancy. The U.S. economy is based largely on the notion that individual self-interest, properly directed, benefits society writ large. Celgene’s motive is to profit from consumers and taxpayers from drug sales. Celgene’s patent-conferred monopoly results in Revlimid prices that exceed $US580 per pill — creating costs in excess of $US200,000 per patient year.”
What’s more, on top of Bass making money for his fund, if he is successful, his actions could save American consumers significant amounts of money.
“CFAD’s IPRs are part of its investment strategy, and it will only succeed by invalidating patents, which would serve the socially valuable purpose of reducing drug prices artificially priced above the socially optimum level. And even if, despite its best efforts, it does not profit — each petition that knocks down a barrier to generic entry benefits the public. It should be axiomatic that people do not undertake socially valuable activity for free — not Celgene, not generics, not shareholders, and not investment funds. Low drug prices will not simply materialise. They must be brought about by agents who will invest significant capital and do the hard work of identifying and challenging weak patents.”
We reached out to Celgene for comment.
Here’s the petition: