Saturday , December 14 2019
Home / Zerohedge / Kyle Bass Returns Money To Investors After Throwing In Towel On Short Pharma Strategy

Kyle Bass Returns Money To Investors After Throwing In Towel On Short Pharma Strategy

Summary:
Last year, Kyle Bass - and a few other enterprising members of the 2 and 20 crowd - had an idea. Changes in patent laws implemented in 2012 allow individuals to challenge patents for the bargain price of just ,000. Apparently, the thinking was that there were too many patents being awarded and making the challenge process easier would go some ways toward ameliorating the “problem.” As we put it last March: “That makes sense. When too many people are inventing things, one way to stop such nonsense is to make suing inventors cost far less than it used to.” Not surprisingly, the new process is used far more frequently than the old way of going about things which required the party contesting the patent to file a civil suit. Now clearly, ,000 is not a lot of money for a hedge fund with substantial AUM which means managers could theoretically challenge as many patents as they wanted to without incurring material costs. A simple strategy was born: challenge a drug company’s patent and then short the equity which would invariably tank if said patent is invalidated. That sounds shady but the likes of Bass claim the patents drive drug costs higher and keep them there.

Topics:
Tyler Durden considers the following as important: ,

This could be interesting, too:

Wolf Richter writes As Chinese Conglomerate HNA Unravels Further, its Airlines Default & Get State Bailouts. All But Hong Kong Airlines?

David Henderson writes How Much do the Chinese Fail to Comply with WTO?

Scott Sumner writes Bill Gates and Ohio auto parts factory workers

Wolf Richter writes Chinese Stock Collapses 98% in Hours After MSCI Flip-Flops: How Index Providers Saddle US Pension Funds with Stock Scams

Last year, Kyle Bass - and a few other enterprising members of the 2 and 20 crowd - had an idea.

Changes in patent laws implemented in 2012 allow individuals to challenge patents for the bargain price of just $23,000. Apparently, the thinking was that there were too many patents being awarded and making the challenge process easier would go some ways toward ameliorating the “problem.” As we put it last March: “That makes sense. When too many people are inventing things, one way to stop such nonsense is to make suing inventors cost far less than it used to.”

Not surprisingly, the new process is used far more frequently than the old way of going about things which required the party contesting the patent to file a civil suit.

Now clearly, $23,000 is not a lot of money for a hedge fund with substantial AUM which means managers could theoretically challenge as many patents as they wanted to without incurring material costs. A simple strategy was born: challenge a drug company’s patent and then short the equity which would invariably tank if said patent is invalidated.

That sounds shady but the likes of Bass claim the patents drive drug costs higher and keep them there. “The political debate has moved on to drug pricing,” he says, “but the key enabler of drug companies’ ability to raise prices ad infinitum is the fact that the US government grants a monopoly, and that monopoly is maintained by the US patent office.”

A long-running biotech rally driven in part by M&A tied to specialty drug companies drove valuations into the stratosphere at one point, making short bets all that much more attractive.

Well as it turns out, all of this was easier said than done because as FT reports, “Bass has returned most of the $700m he raised last year for a high-profile campaign against pharmaceuticals companies and their drug patents.”

More than half of Hayman’s challenges have been thrown out even before getting a hearing at the US Patent and Trademark Office,” The Times continues. Most of the important challenges “were rejected at the door,” RBC’s Michael Yee says, adding that the ones that were accepted “didn’t matter.”

So just as Martin Shkreli can no longer go massively long insolvent biotechs and inflate the value of his holdings by driving up the price of a drug and subsequently pulling the borrow, it looks like Bass's plan to go massively short and then pull the patent rug from beneath companies' feet isn't going to work anymore either. 

Of course Bass can't exactly abandon the strategy now, lest everyone would see the move as proof that his plan had nothing to do with lowering drug prices and everything to do with his short positions. 

"We are not stopping," he says, noting that he still has "all the capital he needs to pursue everuthing to its logical conclusion at the patent office."

When it comes to "logical conclusions," he probably should have known last year that the government wasn't likely to let him make a killing by filing $23,000 patent challenges one at a time. 

That's ok. If his China thesis is even half right he'll make enough money for a dozen lifetimes. 

Ironically, the following headline came across the wires this afternoon: "Bass Wins Right to Challenge Pozen Drug on Vimovo Arthritis Drug."

Kyle Bass Returns Money To Investors After Throwing In Towel On Short Pharma Strategy









Kyle Bass Returns Money To Investors After Throwing In Towel On Short Pharma Strategy
Tyler Durden
Tyler Durden (a pseudonym) represents the idea that a return to truly efficient markets is a possibility and a necessity. After having experienced the inner workings of capitalism at various asset managers and advisors, Tyler believes that the current model is flawed and a deleveraging at every level of modern society is needed to reinspire the fundamental entrepreneurial spirit.

Leave a Reply

Your email address will not be published. Required fields are marked *