Kyle Bass has made waves throughout the pharmaceutical industry since February, when he and entities associated with his hedge fund, Hayman Capital, began filing IPR petitions at the PTO. While Bass claims to target “weak” patents in an effort to lower drug prices, Bass’ true motivation may be to profit through combining IPRs and a short position on a drug company’s stock. As of September 7, 2015, Bass has filed 32 IPR petitions against 11 pharmaceutical companies (see table below).
Despite the generally high institution rate, the first three Bass petitions to be reviewed have not been instituted. On August 24th, the PTAB denied institution of IPR2015-00720 and IPR2015-00817, the first two IPR petitions filed by Bass, which targeted Acorda patents 8,663,685 and 8,007,826 covering Ampyra®. The PTAB scrutinized Bass’ allegation that two posters presented at conferences qualified as printed publications under § 102(b). On September 2, 2015, the PTAB denied IPR2015-01136 against Biogen. The PTAB denied institution on all grounds, stating that Bass again failed to establish a likelihood that any of the challenged claims were unpatentable over prior art related to clinical trials. Notably none of the PTAB decisions addressed Bass’ alleged short-selling strategies in reaching the decisions. Bass, seemingly undeterred by the PTAB’s decisions, filed four additional IPR petitions against Acorda’s Ampyra® drug in the wake of the PTAB’s first two denials. Two of these IPRs challenge the same patents which were the subject of the previously denied petitions.
Joining Bass as a real party in interest in his IPRs are Coalition for Affordable Drug (CFADs) I-XI, which are LLCs created by Bass. With the exception of CFAD V, each CFAD has targeted one company/drug. For example CFAD I targets Acorda’s Ampyra® drug, CFAD II challenges patents covering NPS and Shire’s Lialda®, and CFAD III hones in on Jazz Pharmaceuticals’ Xyrem®. Breaking from this trend, CFAD V’s filings target both Biogen’s Tefidera® and Hoffman-La Roche’s Enbrel®. Enbrel is the first biologic to be the subject of a Bass IPR petition. To date, eleven of the fifteen registered CFADs have surfaced, suggesting four CFADs lay in wait to target four additional pharmaceutical companies. Could your company be next?
Your company is likely next on Bass’ list if you receive correspondence from Kyle Bass or Erich Spangenberg, or another one of the real parties in interest (RPI) in the other IPR petitions. For example, Celgene, in its request to file a motion for sanctions, indicated “one or more of the identified RPI previously threatened to file IPRs against the challenged patents unless Celgene met their demands. When Celgene did not pay, the RPI – apparently in furtherance of their efforts to abuse the IPR process for private financial gain – filed the present petitions.” IPR2015-01092, Paper 5 at 6.
Also, you may be in Bass’ crosshairs if the foreign counterparts to your U.S. patents have been subject to intense scrutiny or third party oppositions in foreign proceedings. For example, the European counterparts to at least 7 of the 27 unique U.S. patents challenged by Bass have been subject to third party oppositions in the EPO. Such challenges may lay the groundwork for Bass’ IPR petitions.
So what should you do?
First, meet with your legal counsel to evaluate whether or not you may be a potential Bass target. Confirm whether or not anyone in your organization has ever received correspondence from Bass or other previously identified real parties in interest. Also, evaluate the prosecution history of any foreign counterparts of key patents covering your drug(s). As mentioned above, scrutiny in foreign jurisdictions may highlight vulnerable patents. Being able to forecast which patents may be targeted allows you to take proactive measures like identifying and analyzing key prior art and retaining experts if necessary.
Second, work with counsel to put a plan of action together. This plan should include for example, a policy informing all relevant parties what to do in the event they receive communication from Bass or his colleagues. All such correspondence should be saved and immediately shared with legal counsel. Like the case in Celgene, such information may predict a pending IPR filing and may also be relevant in potential sanctions motions. In addition, having retained counsel in advance of an IPR filing allows you to take full advantage of the three months until the preliminary response to any IPR petition is due.
Third, get up to speed on Bass’ activities and strategies. Ensure you understand why Acorda and Biogen were successful in convincing the PTAB to deny institution, especially in light of the typically high rate of institution outside the Bass context. Also, continue to monitor the sanctions proceedings against Bass to determine if this is a viable approach to take in the future.
Finally, communicate with investors early and often so that in the event Bass does target your company, the IPR filings don’t meaningfully impact your stock price. While numerous factors impact stock prices and it is difficult to correlate changes with a particular event, it nonetheless appears as though Acorda has been able to mitigate the effect of Bass’ IPR filings. When Bass filed its first two IPRs against Acorda on Feb. 10th and 27th, Acorda’s stock price dropped 10% after the first filing and an additional 5 % with the second filing. However, when the PTAB denied institution, Acorda publicized its success, and stock prices increased 8%. Further capitalizing on the denial of institution, Acorda was able to lessen the impact of Bass’s subsequent filings. Notably the filing of Bass’ next four IPRs against Acorda on Sept. 2nd had fairly minimal impact on the stock price, with the stock decreasing approximately 2%.
Previous summaries of Bass activity can be found here. With decisions related to institution and sanctions motions expected in the near future, we will continue to monitor the Bass IPRs and provide updates.