Hedge fund aims algorithms at pharma patents to sink stocks

Kyle Bass

Hedge fund manager Kyle Bass has outlined how he picks pharma patents to challenge for his new money-spinning project. The project is underpinned by two emerging assets commonly thought of as a potential boon for drug developers: large data sets and algorithms with which to interrogate them.

Bass, who made his name and $500 million betting against subprime mortgages in the 2007 crash, has set his sights on drug patents in recent months, filing 14 challenges against seven products. The idea is to identify companies with shaky patents, bet against their stocks, mount legal actions against the intellectual property and profit if the share price subsequently falls. Biogen ($BIIB), Celgene ($CELG), Shire ($SHPG) and others have all found themselves targeted by Bass, who is using algorithms and publicly-available data to identify his quarry.

"You can write specific algorithms to find the worst offenders in the patent world," Bass told The Australian Financial Review. The rise of such capabilities is a relatively recent phenomenon. "Think five to 15 years ago, when some of these patents were issued, what kind of search capacity the patent office had, and now you can search the grey matter so much easier," Bass said. The tools used by Bass comb through online resources--such as PhD theses and 3-D molecular models--in an attempt to find evidence of weakness in the patents of 11,000 listings of approved drugs.

The effectiveness of the approach, which also entails working with an intellectual-property expert, is still uncertain. Officials at the patent office are due to decide whether to review the intellectual property covering Acorda Therapeutics' ($ACOR) multiple sclerosis drug Ampyra--the first product challenged by Bass--in August. Bass has already filed petitions against another 6 drugs and is looking ultimately to challenge patents protecting as many as 35 products.

- read the AFR article

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