The Drug Short: A New Mechanism for Creating Financial Incentives for the Discovery of Invalid Pharmaceutical Patents

– Christopher Edward Neill

Unlike traditional hedge fund investing, the hedge fund directed by Kyle Bass has cleared a number of challenges to patents held by pharmaceutical companies while also shorting the stock of those companies. This hedge fund investing strategy relies on patent challenges causing the related stock price to drop. Pharmaceutical manufacturers maintain unnecessarily high prices by excluding competitors, but also claim profits are driving the abusive use of inter partes review (IPR) hedge fund practice. As a result, big pharma is demanding legislative reform. On the other hand, hedge funds argue that their activities represent a proper challenge to pharmaceutical companies unjustly reaping the benefits of bad patents that slip through the system. The Supreme Court of the United State granted certiorari on the question of whether inter partes review is unconstitutional. Regardless of the outcome of the Supreme Court’s determination, the industry should have a much clearer idea whether IPRs will continue to play a role in biopharma litigation by June 2018.

See Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, No. 16-712 (U.S. 2017).

Abstract Written by Cameron J. Cilano, 2018