Shire Strikes Back at Hedge Fund Patent Challenge Win

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By John T. Aquino

Shire’s pharmaceutical division struck back at a hedge fund’s successful challenge to the patent on its bowel drug Gattex by appealing the patent board’s invalidity ruling to the Federal Circuit Dec. 21 ( NPS Pharm., Inc. v. Coalition for Affordable Drugs , Fed. Cir., No. 17-01392 , 17-01393, 12/21/16 ).

The Coalition for Affordable Drugs (CAD), which was created by investor Kyle Bass, filed over 30 challenges to the validity of biopharma patents to the Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB) in 2015. To date, CAD has gotten claims for three products invalidated. Bass’s alleged strategy of short-selling stock in the pharmaceutical companies that own the patents he challenges has drawn the ire of the Biotechnology Innovation Organization as well as individual biopharmaceutical companies, which have asserted Bass is abusing the challenge process known as inter partes review (IPR).

The PTAB agreed with the CAD in an October ruling that 61 of the 75 claims of Shire’s U.S. Patent No. 7,056,886 are invalid as obvious in light of prior patents and publications 10 LSLR, 11/11/16 . The ‘886 patent covers Gattex, a treatment for short bowel syndrome. Gattex’s global revenues in the first nine months of 2016 were $1.5 billion, according to Shire’s financials.

The CAD’s IPR victory diluted Shire’s exclusivity for Gattex even though the Food and Drug Administration’s “ Orange Book” listing for Gattex says there are three other patents covering the product and 14 claims of the ‘886 patent remain unchallenged. The Orange Book is a listing of patents that branded drugmakers claim cover their products and is formally titled “Approved Drug Products with Therapeutic Equivalence Evaluations.”

Shire’s appeal of the PTAB’s ruling also signals the company’s refusal to tolerate Bass’s strategy.

Bass Strategy Not Working

Some in the industry also suggested that there are signs that Bass’s strategy may not be working as well as hoped.

Siegmund Gutman, partner and chair of the life sciences patent practice at Proskauer, Los Angeles, told Bloomberg BNA in a Dec. 21 e-mail, “I think Jim Harrington of Shire was correct when he noted at the 2016 Fall BIO IPCC meeting that hedge funds probably appreciate that there are easier ways to make money than trying to use inter partes reviews to drive down stock prices. The apparent reduction in the number of inter partes review petitions filed by such funds confirms that this is the case.”Kevin E. Noonan of McDonnell Boehnen Hulbert & Berghoff LLP, Chicago, told Bloomberg BNA in October when the PTAB’s decision was issued, “I don’t think [Bass’s] 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.”

Noonan also noted that the one year it takes the PTAB to decide whether to consider the patent challenge and uncertainty over how long the board will take to issue a ruling haven’t been conducive to Bass’s strategy.

Deborah Lu, a patent attorney at Vedder Price, New York, told Bloomberg BNA in a Dec. 21 e-mail that she isn’t surprised Shire appealed and noted that, to date, the CAD hasn’t appealed the PTAB’s decision upholding the validity of claims for Shire’s colitis drug Lialda.

Patent System Abuse

The ‘833 patent was issued to NPS Pharmaceuticals, which Shire acquired in 2015. The patent is one of hundreds of biopharma patents that have been challenged through the IPR process, which was created by the America Invents Act to allow third-party challenges to the validity of existing patents on the grounds of obviousness and lack of novelty.

The CAD filed 33 petitions challenging biopharma patents in 2015 and none in 2016. The PTAB has granted 18 of the petitions. The board has upheld the validity of the claims for Shire’s colitis drug Lialda, invalidated the challenged claims for Shire’ Gattex and canceled all the challenged claims of Celgene Corp.'s patents underlying the blood cancer drugs Revlimid and Thalomid.

A Shire spokeswoman declined and officials with Bass’s Hayman Capital Management didn’t immediately respond to Bloomberg BNA’s e-mail and phone requests for comment.

Bass said in a November statement that the biopharma industry has abused the patent system 10 LSLR, 11/11/16 .

Shire’s appeal was filed by Troutman Sanders LLP, Atlanta. The CAD’s attorney of record is Merchant & Gould PC, Atlanta.

To contact the reporter on this story: John T. Aquino in Washington at jaquino@bna.com

To contact the editor responsible for this story: Randy Kubetin at RKubetin@bna.com

For More Information

The two appeal documents, reflecting the PTAB's two separate rulings, are at http://src.bna.com/kWY and http://src.bna.com/kW1.

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