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Hedge Funds Exploit Patent Laws To Push Down Biotechs
In a move no one could have seen coming, hedge funds have devised a strategy to turn a few rules on their heads in order to drive down stocks they’re shorting. Thanks to changes in patent laws implemented in 2012, hedge funds can now challenge patents for the bargain price of just $23,000 (which effectively means deep pocketed fund managers can have as many reviewed as they want) in a process that is now far more efficient than it once was. As Bloomberg explains, those who drafted the new laws could not have foreseen that the system would one day be exploited by evil money managers and after all, Congress was trying to do the right thing for the country by stifling innovation:
A patent office review costs $23,000 to file, and the whole process is a fraction of the millions of dollars in legal fees a challenger would spend in a civil suit. Congress created the process in 2012 as part of a sweeping overhaul of the U.S. patent system, designed to counteract what was seen as an overabundance of patents being awarded.
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. And while the new process — which basically just involves a review by a judge — is being used five times more than anyone anticipated, Bloomberg notes that fortunately, the chances that a challenge will be considered is actually quite low at “only” 70%:
The mere filing of a petition is no guarantee the patent office will invalidate a patent owner’s rights to an invention, or even consider the case. In the past three months, the agency has agreed to hear only 70 percent of the petitions it’s received…
Kyle Bass is one high profile name who may be employing the strategy and although he won’t say if he’s short the stock, he did file a review of two patents owned by Acorda Therapeutics ($1.4 billion market cap), causing the company’s stock to dive on two separate occasions:
His first petitions targeted two of the five patents covering multiple sclerosis drug Ampyra, which accounts for 91 percent of the revenue of Acorda Therapeutics Inc. Acorda’s stock dropped after each of the filings: by 9.7 percent on Feb. 10 and 4.8 percent on Feb. 27.
The short-stock-file-patent-review approach has another advantage: it leaves you the option of simply extorting the patent holder:
Drugmakers only have anecdotal reports of third parties asking for money to drop a patent challenge. In other industries, the practice has led to at least one lawsuit. Chinook Licensing LLC said in a lawsuit it was threatened with a patent challenge by Iron Dome LLC unless it gave the company three transferable licenses. A judge dismissed the suit after Iron Dome argued that it had the right to make a settlement offer and that a demand letter can’t be “a crime of extortion.”
As usual though, this is just another case of the media villainizing hedge funds who, as Ferrum Ferro’s Kevin Barnes will explain to you, are really just fighting for lower perscription drug prices:
Questions about outsiders challenging patents are “a distraction from the core public policy issue of monopolistic pricing for branded pharmaceuticals with low-quality patents,” he said.
So while the media is busy “distracting” the public from the real issues with crazy accusations about fund managers seeking to capitalize on the unintended consequences of a Congressional misstep, hedge funds are busy securing your right to cheap drugs and if they have to extort some folks in the process, well that’s a small price to pay for paying a cheaper price at the pharmacy counter.
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FDA / Patent Office / HFT Sell Side - they are all in it together screwing biotech and the rest of what remains of our economy.
It doesn't matter, the fed will never raise rates. So we'll get those biotechs back up with QE4.
https://www.youtube.com/watch?v=u0-wQASGZMc
I am relieved to find out our best and brightest in society are spending their valuable time and capital pursuing these sorts of advances which make us the best nation on Earth!
THIS is what capitalism is all about! I think they should get rid of math and science in school and just teach kids how to steal shit from each other. Imagine the kind of market leadership we would have then!
I feel wealthier already. I think I am going to buy some stuff I don't need and then throw it in the trash.
Regards,
Cooter
I am invested with Kyle Bass and I can tell you that his fund has been sucking ass the last 2 years so this is just a clever attempt for him to exploit the law to redeem himself and to make his returns POSITIVE and save face. Let's be honest this has nothing to do with helping aunt Mary and uncle Joe save money on their cancer drugs or Alzheimer's meds.
the only good trade idea he had was the usd/jpy long
Right on......American Exceptualism at its finest....I sure hope these hedge funds are backstopped by the american taxpayer because godforbid anything should happen to their parasitic profits....
But I WILL overspend you, Mr. Cooter-Jones! Whateva it takez!!!
maybe this is why it almost always pays to buy severe selloffs in hot bio s; eventually these hedge funds have to cover and there are face ripping rallies
look at IBB, KITE, ESPR and the list goes on and on
Fucking goons. Destructive parasites to be more exact.
taking one look at the exponential growth chart of the nasdaq biotechs index makes me think these 'parasitic hedge funds' haven't been doing too much 'pushing down' with their tactics. as with all other shorts over the last six years, life for 'biotech shorts' has been a sysyphean task.
it's a common trait when alpha begins to disappear; every industry attracts the unscrupulous in an effort to squeeze out a few dollars more. think banking and payday loan shops, supermarkets and 99cents stores, amazon and overstock.com.
This patent challenge procedure can hurt the patent holders' share price but won't end up reducing drug prices. One example of how corrupt the FDA is: Takeda Pharmaceuticals bought URL Pharma in June 2013 for $800 million just to get URL's patented version of colchinine. The FDA gave URL a three year exclusive patent on colchinine in 2010, after URL did a one week drug trial costing it under $50,000. So colchinine, a drug in use for almost 2,000 years to treat gout, in Roman times before 100 A.D, was given carte blanche by the FDA to URL Pharma, thanks to the FDA's strange interpretation of the Hatch/Waxman amendment. The price of colchinine pills to consumers went from 5 cents a pill for the generic versions available in 2009 to $5.00 a pill for Colcrys - a hundredfold increase.
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-6 October 2010
With last week's announcement by the FDA that it was ordering unapproved colchicine products off the market, the year-old debate over the agency's handling of the popular gout treatment has flared anew.
In June, Aaron Kesselheim, MD, and Daniel H. Solomon, MD, published a letter in the NEJM berating the FDA for the negative impact that patients with gout and familial Mediterranean fever would suffer as a result of this policy as applied to colchicine.
Colcrys has three years of exclusivity in treatment of acute gout flares and seven years for familial Mediterranean fever, an orphan disease. The drug is also approved for preventing flares, with no exclusivity.
Whereas the unapproved products cost around 10 cents a pill, Colcrys comes with a sticker price of nearly $5 a pill, Kesselheim and Solomon wrote.
They also questioned whether URL Pharma's one-week, 185-patient trial in acute flares added significantly to scientific knowledge of the drug, which has been in clinical use for centuries.
http://www.medpagetoday.com/Rheumatology/GeneralRheumatology/22600
"hedge funds are busy securing your right to cheap drugs and if they have to extort some folks in the process, well that’s a small price to pay for paying a cheaper price at the pharmacy counter. "
Oh, I SERIOUSLY doubt this is going to end up making drugs cheaper at the pharmacy counter. This is a reshuffle in who controls the patent and it's "value", but nowhere in here do I see an obvious linkage to make drugs cheaper.
As if our society needs any more cheap drugs. Aren't prescription drugs the cause of most deaths in the Western World? Fuck biotech companies, they are up there with the Banks as the most evil companies in existence. I hope they will all bite the dust!
Edit: "Prescription drugs are now killing far more people than illegal drugs" :http://articles.mercola.com/sites/articles/archive/2011/10/26/prescripti...
"More [people] are dying from overdoses involving prescription drugs than are killed in road accidents":http://www.theage.com.au/victoria/prescription-drug-deaths-in-victoria-e...
"The U.S. Centers for Disease Control and Prevention released a report showing a 415 percent rise in the rate of fatal painkiller overdoses in women from 1999 to 2010." http://www.healthline.com/health-news/policy-fatal-painkiller-deaths-ris...
"pharmaceutical drugs are 62,000 times more likely to kill you than supplements" http://www.naturalnews.com/036804_prescription_drugs_fatal_side_effects_supplements.html#ixzz3V2DlPm5C
"the case with prescription drugs - they're killing our youth." http://www.naturalnews.com/033044_pharmageddon_drug_abuse.html#ixzz3V2EKivXQ
too true.. there are too many parties taking their cut between a package of pills or a vial of injectable leaving the production line in Mumbai and entering the patient's oral cavity or saphenous vein in Kansas City.
I'm so glad that many years ago I quit playing this rigged game
takes money to make money eh
I read the headline as "Push Down Biotches"
Kyle, you don't have the first clue.
Say no to all patent law .... we have a right to imitate and copy .... we don't have a right to misrepresent .... most inventions have multiple inventors .... besides the kiss ass patent seeking Jews .... bringing an invention into production and distribution is more important than the invention itself .... we the people have a right to enjoy new inventions as soon as possible .... let the market place work for all of us as soon as possible .... imitation is the sincerest form of flattery .... accessing human invention is the sincerest form of promoting the public welfare .... putting the product in peoples lives is paramount ! (Just kidding about the patent seeking Jews !)
Shit, nothing new here. They had evidently shot their wad shorting mining stocks since 2012. For those it was cheaper because there were no patents to contest.
A Patent is a tax .... and a monopoly .... and a burocratic drag on commerce .... you can't own an idea .... nor a word .... you can own a secret ! Patents are Crony-Socialist monopolies .... there are many, many, free market ways to protect the advantage of your business secrets !
It's hard not to be cynical about this, but I will say that the drug companies are having their way with us right now. The prices of generic drugs are crazy high. Hayman capitals' performance hasn't been great the last few years. Hopefully Kyle gets back on track soon. I would have done a lot better in a mindless index or dividend fund.
Direxion is coming out with a new 3x leveraged bear etf for biotech stocks.....maybe something to think about.
Why do that? Just create a basket of biotech funds that are valued at over 1 billion dollars that have NO REVENUES and short them equally. It will perform way better tham that ETF. Why short the Amgens of the world? Short the shit!
The Direxeion 3x Bull and Bear ETF's will be tracking the same index as XBI, not IBB. XBI is an equal weigh index that is mostly small cap bio's. Not like IBB which holds soemthing like 9% in just BIIB, etc. So, it would be similar to your proposal.
Although, I'll be taking the 3x Bull and not the bear :) XBI is my best performing asset this last year. And I don't think the train has stopped. Bubble? Maybe. Crashing in the next few months? Nope
My next growth plays will be SLVO and AGQ. SLVO pays out 15-25% a year holding SLV shares and doing 6% otm covered calls 40-50 days out, so you have appreciation and income. AGQ came from a high of 700's and is in the 20's (i think), a lot of growth there...
You should not be able to patent:
Nature
knowledge
All patents should have a max 2 year grace period then expire with no ability to renew. . . or a royalty system built in, anyone who uses the idea / design pays a royalty fee(flat rate% on sales/profits from idea)
This is the best model . . . to avoid good ideas sitting on shelfs indefinitely.
A friend recently told me of a water powered car he had driven in in the 80s, car company bought idea off guy who designed it and it has never seen the light of day. He got an obcene amount of money and i'm guessing if he didnt take the money he would not have lived another day (as has happen to other water driven motor designers). Me wonders how many other designs are sitiing on shelves and how many lives would not have been lost if they were developed. I'm guessing the military industrial complex would not have a need if they were developed.
"The FDA gave URL a three year exclusive patent on colchinine in 2010"
The FDA does not give or issue patents.