Cutting-edge treatments for diseases affecting millions of Americans are threatened by Wall Street’s latest moneymaking scheme. The ploy: hedge funds bet against a drug company’s stock price, launch attacks against the firm’s patents on its best-selling medicines and then reap windfall profits when investors panic and the stock price plummets.
Unless Congress protects pharmaceutical-research firms from these assaults, funding for drug discovery will dry up and many new treatments won’t ever make it into the hands of patients.
Hedge-fund manager Kyle Bass pioneered the strategy, which relies on a new legal procedure known as “inter partes review,” or IPR. Earlier this year, Bass — who previously made $590 million betting that homeowners wouldn’t be able to make their mortgage payments during the financial crisis — filed a review against Acorda Therapeutics’ patent on a drug that helps multiple-sclerosis patients walk. The challenge caused Acorda’s share price to crash by 10 percent.
Wall Street began exploiting the system after Congress created the Patent Trial and Appeal Board, a new arm of the Patent Office tasked with taking a second look at patents that some consider too vague. Since its formation in 2013, the board has proven so hungry to annihilate patents that it’s been called a patent “death squad.”
Bass quickly saw how the board was wiping out patents and jumped at the chance to make money from a self-fulfilling prophecy: challenge the patent and short the company’s stock to profit on the market’s reaction.