CBO: Stop Bass-style patent challenges, and you'll pay $1.3B more for drugs

Kyle Bass

Hedge funder Kyle Bass says his pharma patent challenges may be a moneymaking strategy--but that doesn't mean they're not beneficial to society, too. And according to a new analysis by the Congressional Budget Office (CBO), he's right.

If U.S. lawmakers scrap the new inter partes review process for pharma patents--Bass' legal tool for quick-and-cheap battles against "low-quality" drug patents--that would stall some generic drugs on their way to market, the CBO maintains. As The Wall Street Journal reports, the budget office says federal health programs would have to shell out an additional $1.3 billion over the next 10 years to pay for branded meds instead.

The industry trade groups PhRMA and BIO are calling on Congress to make drug patents exempt from inter partes review, a new simplified pathway for patent challenges. Instead of the usual court battle, an inter partes review happens at the U.S. Patent and Trademark Office. It's a limited option--patents can only be challenged for obviousness--but Bass and his Coalition for Affordable Drugs have so far filed formal challenges to more than a dozen drug patents. Lawmakers created the process to combat patent trolls, a common affliction in the tech industry.

In a sort of unintended consequence of the IPR legislation, Bass has coupled his challenges with short-selling drug stocks. Drugmakers obviously don't like the idea; Acorda Therapeutics ($ACOR), Bass's first target, saw its shares plummet on news of an IPR petition against patents on Ampyra, its drug for multiple sclerosis patients. The patent review board has since denied those petitions for review.

Celgene ($CELG), meanwhile, hit back hard when Bass' coalition challenged patents on its blood cancer blockbuster Revlimid, taking issue not only with the challenge itself, but with Bass and his "not entirely altruistic" reasons for going after Revlimid's IP. But according to Bass' lawyers, his financial motives are "a truthful irrelevancy." The PTO's review board hasn't yet made a decision on whether to consider the Revlimid challenges.

As Bass' challenges multiplied and the debate heated up, Congressional reps popped up with proposals to exempt pharma from IPR. But as the WSJ notes, Rep. Mimi Walters (R-CA) pulled her exemption proposal this summer after a fellow Republican opposed it. And several U.S. senators asked the CBO to estimate how much such an exemption would cost, the WSJ reports, with $1.3 billion being the answer. Private payers aren't crazy about the idea of exempting pharma from IPR, either, and generics makers see the process as another tool in getting their own products to market.

This doesn't mean a pharma exemption is dead in the water, though. Some House reps remain on board. BIO, for its part, disagrees with the CBO's conclusion, saying that the IPR process isn't likely to lead to faster generic approvals. Drugmakers also take issue with the fact that IPR challenges run counter to the Hatch-Waxman Act, the 30-year-old law that set out a process for generic drug approvals and patent litigation.

- see the WSJ piece (sub. req.)

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