Drugmakers Strike Back: Bass Blasted Over Patent Challenges

Drugmakers with patents being challenged by Kyle Bass are striking back, accusing the hedge-fund manager of abusing a government review process designed to weed out useless patents and demanding his petitions be tossed.

Celgene Corp. and Pharmacyclics Inc. are asking the U.S. Patent and Trademark Office to dismiss efforts to invalidate their patents by Bass’s Coalition for Affordable Drugs, saying it’s an “abuse of process.” Biogen Inc., meanwhile, is demanding more information about the funds Bass controls to prove his main goal is to manipulate stock prices for profit.

The patent office reviews, created in a sweeping change to U.S. patent law in 2011, didn’t limit who could file. As a result, Bass and other third parties -- some funded by tech companies often sued over patents -- have filed petitions questioning the validity of some patents.

Celgene, in a filing with the patent office Tuesday, said Bass partner Erich Spangenberg, the founder of patent-licensing firm IP Navigation Group, initially sought to extract a settlement from the company in return for not filing a petition challenging patents on its blood cancer treatment based on the drug thalidomide. When Celgene declined to pay, Spangenberg became a consultant to Bass and they “concocted a new scheme to profit from affecting companies’ stock prices,” according to the filing.

Bass, founder and principal of Hayman Capital Management, has said the drugmakers are using invalid patents to protect billions of dollars of sales from generic-drug competition. Without the patents, he has said, Americans would get quicker access to low-cost versions of life-saving treatments.

Cancer Treatment

Pharmacyclics on Monday was given the go-ahead by the patent office to ask that the petition over its cancer drug Imbruvica be dismissed as a sanction for “improper use of the proceeding.”

Bass’s Hayman Capital said it would submit a response to Celgene’s filing with the patent office on Friday.

“Celgene’s motion is another farcical legal attempt to avoid a public, merit-based review of its undeserved Revlimid monopoly that costs consumers and tax payers billions of dollars each year,” Steele Schottenheimer, director of investor relations for Hayman Capital, said in an e-mail. “We believe the motion is frivolous and look forward to providing our formal response.”

In a July 3 filing with the agency in the Biogen case, Bass said there’s nothing wrong with shorting stock and no evidence that he’s trying to manipulate the stock prices of any of the drug companies.

Betting on Stocks

The “unsupported accusations seem designed to harass petitioner and score points in the court of public opinion,” Bass’s Hayman Capital said in the July 3 filing.

Under the law, the “underlying motivations for filing are simply not relevant,” Bass said in the document.

The Hayman Credes Fund, which began raising money in January, is listed as one of the “real parties of interest” in the patent challenges filed by the Coalition for Affordable Drugs. The fund, which has about $295 million in assets, was formed to invest in and bet against drug stocks, according to a filing with the U.S. Securities and Exchange Commission.

The drugmakers want to prevent the government’s Patent Trial and Appeal Board from ruling that their patents are likely invalid and ordering a more in-depth review. The panel is expected to issue its first finding in August in one of several cases brought by Bass against drugmakers -- this one challenging patents for Acorda Therapeutics Inc.’s multiple sclerosis drug Ampyra.

‘Unnecessary Petitions’

Celgene, in its filing, said that if the board allows the strategy to continue, “it will be inundated with similar petitions, and no public company that relies on patents to protect its innovations will be safe from threats or unnecessary petitions from for-profit organizations” misusing the process for investment strategies.

The drug and biotechnology industries, angered over the petitions filed by Bass, are pushing Congress to exempt them from proceedings altogether. Debates over such changes have thrown a wrench into proposed legislation backed by Silicon Valley to curb nuisance patent suits.

In an April 14 letter to Congress, Bass said his plan was to challenge the “small number of monopolistic drug franchises that have gone unchecked.”