Kyle Bass' big, new hedge fund strategy isn't going so well
(REUTERS/Brendan McDermid)
Kyle Bass, founder and principal of Hayman Capital Management.
Another one of Texan hedge fund manager J. Kyle Bass' drug patent challenges has been denied, setting a worrying precedent for his big, new short strategy.
The Patent Trial and Appeal Board has denied a petition from Bass to hold a trial challenging the validity of a patent for one of Biogen's top-selling multiple sclerosis drugs, Tecfidera, Reuters reported.
Shares of Biogen were last trading up $9.38, or 3.21%, at around $301.88.
Bass' war against pharma
Since the beginning of the year, Bass, founder of Hayman Capital Management, has been going after numerous pharmaceutical companies and what he's referred to as their "BS patents."
It's all part of an "activist short strategy" that Bass thinks will stop so-called pay-for-delay agreements that prevent lower-cost generic drug competitors from entering the market.
To do this, he formed the Coalition for Affordable Drugs, and the group has now filed more than 20 inter partes review petitions with the US Patent and Trademark Office challenging the validity of certain drugmakers' patents while also betting against the company's stocks. He even set up a separate investment vehicle at Hayman.
The strategy has suffered a couple early blows, however.
Last month, the PTAB denied two petitions filed by Bass against Acorda Therapeutics, and the stock jumped on the news. That denial and the Biogen defeat set a worrying precedent for Bass' strategy.
Despite the setbacks, Bass seems undeterred.
In August, the Bass-affiliated group continued to file IPR petitions against patents held by Hoffman-La Roche, Bristol-Myers, and Aegerion.
Some of his other targets include patents held by Jazz Pharmaceuticals, Insys Therapeutics, Anacor Pharmaceuticals, Shire, Pozen, and Celgene.
Celgene, which Bass has filed five IPRs against, filed a motion last month with the PTO for sanctions on a claim of "abuse of process" by the Coalition for Affordable Drugs.
Bass' CFAD said in a response that even if the fund made money, its actions served a greater social good by potentially saving American consumers significant amounts of money.
The response said:
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 materialize. They must be brought about by agents who will invest significant capital and do the hard work of identifying and challenging weak patents.
Bass did not comment.
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