Will Kyle Bass’s Drug Patent Gambit Pay Off? He’ll Soon Find Out

Kyle Bass
Hedge-fund manager Kyle Bass. Photographer: Timothy Fadek/Bloomberg

Hedge-fund manager Kyle Bass has been accusing drugmakers all year of misusing patents to reap “monopoly profits” for medicines, saying he wants to cash in by getting their patents tossed.

Next week, he may learn if his tactic can win.

The U.S. Patent and Trademark Office is expected to say by Wednesday whether there’s merit in the first of Bass’s 20 drug-patent challenges, this one targeting Acorda Therapeutics Inc.’s multiple sclerosis drug Ampyra. The agency will institute a formal review if it thinks Bass has a chance of winning.

“It is the bellwether for the entire series,” said Scott Kamholz of Foley Hoag in Washington, a former judge on the patent board that will make the decision. “There’s a huge amount of attention on this.”

The decision could impact other drugmakers that Bass is challenging, such as Biogen Inc. and Celgene Inc., on patents for blockbuster painkillers, blood thinners and a cancer treatment. It may answer a fundamental question about the patent review procedure Congress authorized four years ago: who can file challenges?

The drug industry is lobbying Congress to exempt U.S. Food and Drug Administration-approved medicines from the process altogether.

Acorda argued in a filing with the patent office that Congress never intended these “inter partes” reviews -- designed to weed out low-quality patents involved in litigation -- to be used by hedge funds to affect stocks.

‘Manipulate Markets’

Allowing hedge funds to use the reviews “to manipulate financial markets is inconsistent with congressional intent and the directives given to the office,” Acorda said in its response to Bass’s petition. Instituting a review “will only encourage more such filings, which will burden additional patent owners, their industries, and the office.”

Bass makes no apologies for the strategy of his Coalition for Affordable Drugs, and defends the practice of betting on stocks falling. In a filing in another case, he called it a “truthful irrelevancy” that he’s trying to profit off drug company stocks.

The coalition’s motivations don’t play a role in the social value of its activities, Bass said. “Poor quality patents enable pharmaceutical companies to maintain artificially high drug prices and reap unjust monopoly profits paid for by consumers and taxpayers.”

The patent board’s decision whether to institute a review can’t be appealed by either side.

Broad Discretion

The board has broad discretion in whether to institute a review, and could easily use that power to cut off the spigot of filings by hedge funds, said Lana Gladstein, a drug-patent lawyer with Nutter McClennen in Boston.

``The board will have to address this, one way or another,'' she said. ``Acorda and every other patent owner that's been served with a petition has raised the issue.''

The coalition, run by Bass’s Hayman Capital Management LP, filed a petition on a second, related Ampyra patent expiring in May 2027. A preliminary decision is due in September. Even if Bass wins reviews in both cases, there are still other patents protecting Ampyra from generic-drug competition through December 2026.

A decision to review this case could be bad news for that related patent and for Acorda’s efforts to block generic-drug challengers, said Paul Matteis, a senior biotech analyst with Leerink Partners LLC.

Shares Fall

Acorda reported $192.9 million in U.S. sales in the first six months, amounting to about 90 percent of its total revenue. The drug is only available through specialty pharmacies. Outside the U.S., it’s marketed by Biogen and is known as Fampyra.

Acorda’s stock dropped after each of the coalition’s filings: by 9.7 percent on Feb. 10 and 4.8 percent on Feb. 27. Investors were trying to figure out this new wrinkle in what’s normally a routine cycle of litigation to determine when a generic drug can enter the market. Shares in other companies targeted by Bass have had little reaction thus far.

If the Patent Trial and Appeal Board decides to review Bass’s petition, it shows the panel of judges “is agnostic to the identity of the challenger,” Matteis said.

But the decision is more likely to depend on Bass’s arguments, not his motivations, Kamholz said. “I don’t think the concept is on trial -- not yet.”

Manage Symptoms

Ampyra was the first FDA-approved drug to improve walking in multiple sclerosis patients. The disorder causes the immune system to attack myelin, a fatty substance that coats and protects nerve fibers. There is no approved cure, only drugs that help to manage symptoms. Ampyra helps electrical signals flow along the nerves which have lost myelin.

The active ingredient of the drug has been known for decades. Acorda’s patents cover a dosing regimen to make sure the drug works.

Bass, in his petition, argued Acorda’s patent simply cobbles together what scientists already knew about Ampyra’s active ingredient and the optimal dosage. Putting that together to come up with a recommended dose was logical for scientists, he said.

It wasn’t that easy, Acorda said in its response. Multiple sclerosis is a complex disease that attacks both the central nervous and immune systems and has variables that change from patient to patient, and from day to day.

Research was “characterized by false starts, promising leads that failed, and inconsistent results within studies,” and the discovery of how to make the compound effective as a treatment was a “milestone” for MS patients, the company said.

Bass’s arguments are “fatally flawed,” Acorda said. His arguments against the patent’s validity were already reviewed by the patent office during the application process, so there’s nothing new to merit a review, Acorda contends.

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