Bass' Altruistic IPR Petitions

Written by Tasha Francis.

At the beginning of 2015, Kyle Bass, founder of Dallas-based hedge fund Hayman Capital Management, announced plans to challenge 15 drug companies' patents via Inter Partes Review. As of November 30th, 2015 Bass and his various real parties in interest, which include Erich Spangenberg and the Coalitions for Affordable Drugs, delivered as promised, filing 35 IPRs petitions along the way. In sum 16 companies were the subject of the various petitions including Acorda Therapeutics, Pozen, Biogen, Celgene, Insys Pharma, and most recently Fresenius. To date a decision on institution has been decided in 14 of the 35 cases, with IPR being instituted in 7 of these cases.

Although Bass publically stated his intent in filing IPRs is to invalidate biopharma patents to clear the way for lower-priced generic entry, many criticized Bass, suggesting his use of the IPR process was to bet against, or "short," the shares of companies whose patents are targeted for IPR review. Celgene was the first targeted patent owner to challenge Bass' behavior at the PTAB by filing sanctions motions requesting dismissal of Bass' IPRs as an abuse of the IPR process. The PTAB denied the motions, stating that they "take no position on the merits of short-selling as an investment strategy other than it is legal, and regulated."

In response to allegations that Bass' and Spangenberg's motives were not altruistic, in September Spangenberg used his blog to solicit volunteers to fund and file an IPR petition targeting Depomed Inc.'s painkiller Nucynta®. While Spangenberg readily acknowledges that his background makes him "the wrong person to be the face of this effort," he hopes others, for example, a law school group, charitable organization or a consumer protection group, will take up the cause. Spangenberg has also pledged to use some of the vast patent litigation fortune he has amassed to fight the drug industry by making publicly available substantially final draft versions of IPR petitions for pharma patents that he believes are invalid. On September 29, 2015, Spangenberg posted a 63-page draft petition for inter partes review of the Depomed patent covering Nucynta®.

More recently, Spangenberg and Bass filed two IPRs this time as individuals against Alpex Pharma and Fresenius.

The first petition against Alpex Pharma's 8,440,170 patent relates to the weight-loss drug Suprenza®. The challenged patent does not cover the drug composition, but rather its "speckled" appearance, which allows doctors to easily distinguish the drug from other medication.

The second petition challenges Fresenius' 8,476,010 patent covering the anesthetic Propofol. Again this patent does not cover the active ingredient, but rather a rubber stopper used in the drug's container.

It appears as neither Bass nor Spangenberg stand to profit directly if these patents are invalidated. First, neither Alpex Pharma nor Citius Pharmaceuticals, LLC are listed on any major stock index. Second, both petitions assert that neither Bass nor Spangenberg own any securities in Alpex Pharma, Citius Pharmaceuticals or Fresenius. The petitions also state all costs associated with the petition are expected to be borne by Bass and Spangenberg.

It will be interesting to see how the pharma industry reacts to Bass and Spangenberg's petitions when raised outside the context of hedge funds. We will monitor the situation and provide timely updates.