Hedge fund patent challenges are growing by the numbers, and drugmakers aren't happy

Generics makers aren't the only ones filing challenges to pharma patents anymore. Hedge funds are doing it, too, and it's got drugmakers on edge.

The funds, taking advantage of rules Congress created three years ago, have been challenging an increasing number of pharma's IP shields, Bloomberg reports. They may be filing in search of payouts to drop their claims, or they may be shorting the stock, betting that drugmakers' shares will sink as a result.

Under the new rules from 2012, hedge funds can file for a patent office review, which costs a fraction of the amount it takes to bring a civil suit. And it's easier to kill patents in these proceedings than in district court, too, the Biotechnology Industry Organization's deputy general counsel told the news service.

Kyle Bass

Allergan ($AGN)--now part of Actavis ($ACT)--and Acorda Therapeutics ($ACOR) have already run up against hedge fund challenges. In Acorda's case, activist investor Kyle Bass' Hayman Capital Management targeted two of the 5 patents protecting MS moneymaker Ampyra, and his filings preceded two February stock drops of 9.7% and 4.8%.

Kevin Barnes, founder of Ferrum Ferro--which has challenged Allergan's safeguard on glaucoma drug Combigan--told Bloomberg the move is a response to "the core public policy issue of monopolistic pricing for branded pharmaceuticals with low-quality patents"--and one that he sees bringing "multiple pathways to monetization."

Pharma and biotech, unsurprisingly, aren't on board with the strategy. But luckily for industry players, patent office Director Michelle Lee says it's "open to considering changes to ensure the most effective and fair" trials, Bloomberg reports.

"We don't claim we have created a perfect system on our first try," she said.

- read the Bloomberg story

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