Hedge Fund Manager Bass Wins Shire Gattex Patent Challenge

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By Tony Dutra

Oct. 25 — Hedge fund manager Kyle Bass is now one-for-two in patent challenges after the Patent Trial and Appeal Board Oct. 21 found most of the claims of Shire Plc's patent on Gattex invalid ( Coal. for Affordable Drugs II LLC v. NPS Pharm., Inc. , P.T.A.B., IPR2015-00990, 10/21/16 ; Coal. for Affordable Drugs II LLC v. NPS Pharm., Inc. , P.T.A.B., IPR2015-01093, 10/21/16 ).

Bass needs a number of such wins to support future application of his controversial strategy of short-selling stock in the pharmaceutical companies that own the patents he challenges. The board's first ruling on a Bass petition upheld Shire's patent underlying the colitis drug Lialda.

However, biotechnology patent lawyer Kevin E. Noonan of McDonnell Boehnen Hulbert & Berghoff LLP, Chicago, still questioned whether the more recent result is a success for Bass.

“I don't think the tactic worked as it has been reported to, because of how Shire responded (not panicking, controlling the message), so there was not the opportunity to profit on stock price, etc.,” he said in an e-mail.

Bass's investment firm, Hayman Capital Management LP, did not respond to a request for comment.

The focus now shifts to Bass's challenges to two Celgene Corp. patents underlying Thalomid, a treatment for multiple myeloma, a cancer formed by malignant plasma cells. The PTAB is scheduled to rule on the validity of those patents before the week's end (188 PTD, 9/29/15).

PTAB trials are also in progress on Bass's challenges to patents owned by Pozen Inc., Anacor Pharmaceuticals Inc., Trustees of the University of Pennsylvania, Acorda Therapeutics Inc. and Biogen MA Inc.

Success Rate May Matter in Long Term

The America Invents Act of 2011 enabled the inter partes review proceeding—where the challenger submits prior art that an examiner did not find when reviewing the original patent application—at issue here. Early results on IPR petitions showed a significantly better chance of defeating a patent at the PTAB than in federal court.

According to Bass's strategy, if the market can predict a successful challenge based on the very filing of an IPR, it will lower the patent owner's market value immediately (55 PTD, 3/23/15).

Bass and his Coalition for Affordable Drugs II LLC filed almost three dozen petitions in 2015; 18 were accepted for a patent validity trial.

A trial takes about a year, ending with the PTAB's “final written decision” on whether to cancel the challenged patent claims. That's 1.5 years after the short-sell. The market reaction typically has to be much quicker than that for the short-sell to work.

“The reason the [trial] initiation decision is more important than the ultimate decision for those using this strategy is timing,” Noonan said. “When a [final written] decision will come down is much less certain, so there is less opportunity to take advantage of the circumstances.”

However, ultimate success could help establish a pattern that might carry through to future IPR petitions filed by the coalition. That's why Shire and other pharmaceutical patent stakeholders were heartened by the board's Oct. 5 final written decision on the Lialda patent (194 PTD, 10/6/16). The ruling suggested that, even if Bass convinces the PTAB to institute trial, it's still hard for him to win a case outright. But the Oct. 21 rulings flipped the script.

Gattex Patent Protection Unclear

The patent invalidity decisions jeopardized Shire's future market exclusivity for Gattex, a treatment for short bowel syndrome. Gattex's revenues in the first six months of 2016 were $96.2 million, and Shire retains data exclusivity through September 2019. But Shire can rely on valid patents to extend exclusivity after that date, until the patents expire.

U.S. Patent No. 7,056,886 was granted to NPS Pharmaceuticals Inc., which Shire acquired in 2015. The board agreed with the coalition's argument that 61 of the 75 claims of the patent were invalid for being obvious, in light of the prior art in the coalition's petition.

That leaves 14 claims that the coalition didn't challenge. And the Food and Drug Administration's “ Orange Book” listing for Gattex shows three other patents that a generic maker would have to knock out or work around before challenging Gattex's exclusivity. One of those doesn't expire until 2025.

Stephen B. Maebius of Foley & Lardner LLP, Washington, told Bloomberg BNA that the reason for the coalition's limited challenge here was unclear.

“One reason why a petitioner might target only certain claims among a group of patents listed in the Orange Book would be if they are pursuing approval for a different product that is only impacted by those claims,” he said in an e-mail. “The initial press reports on [the Coalition] indicated that it was not pursuing product development, however.”

Administrative Patent Judge Sheridan K. Snedden wrote the opinions, which were joined by APJs Jacqueline Wright Bonilla and Lora M. Green.

Merchant & Gould P.C. represented the Coalition. Troutman Sanders LLP represented Shire.

To contact the reporter on this story: Tony Dutra in Washington at adutra@bna.com

To contact the editor responsible for this story: Mike Wilczek at mwilczek@bna.com

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