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Will Kyle Bass’s win lead to more hedge fund patent challenges?

By ValueWalk
Hedge Funds

As the sting of hedge fund manager Martin Shkreli’s Turing Pharmaceuticals raising the price of a lifesaving cancer drug from $13.50 per tablet to $750, comes a victory for hedge fund manager Kyle Bass, who is challenging pharmaceutical patents and says his actions will lower drug prices.
U.S. Patent and Trademarket Office rules with Kyle Bass
In a victory for Bass, a tribunal at the U.S. Patent and Trademark Office was reported on Friday to have denied a request by Celgene Corp to sanction Bass and his Coalition for Affordable Drugs by throwing out their challenges to its patents.

In an odd-twist on the Robin Hood concept, Bass had taken short positions in various drug companies and then challenged the validity of their patents, which as of Friday’s ruling will proceed in court. His actions could benefit consumers by making drugs cheaper, but at the same time enriching his hedge fund. The goal of the $2 billion Dallas-based Hayman Capital Management was to lower drug prices and profit on it in the process.

"Profit is at the heart of nearly every patent," the Patent Trial and Appeal Board (PTAB) said in dismissing Celgene’s argument, noting that short selling was legal and regulated. "As such, an economic motive for challenging a patent claim does not itself raise abuse of process issues."

What will the fallout be from the Kyle Bass victory?
In July Celgene claimed Bass was abusing the patent review process when he sold shares in the firm, profiting when the price dropped when a patent review is filed. If this hedge fund investment tactic is not deterred, other Hedge Funds could begin using patent reviews as part of an active investment strategy.

In a statement to Reuters, a spokeswoman for Hayman Capital Management the PTAB can now turn to evaluating "challenges to Big Pharma patents that contribute to out of control prescription drug prices."

While hedge fund managers are sometimes painted as the black hats in societal discourse, this case raises the question: is it possible for a hedge fund manager to engage in positive acts for the general population (in this case by lowering drug prices) and still make a profit? What is the implication of the ruling going forward? Could it impact research and development spending? Could this ruling lead to additional moves by hedge funds to challenge patents? We will watch the issue closely.

This article was originally published by ValueWalk. 
Photo: ValueWalk

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