In recent years, J. Kyle Bass has been working to reduce drug costs by challenging questionable patents. Together with Erich Spangenberg, Bass has identified pharmaceutical patents that they believe to be either weak or abusive, then request that the patents be reviewed to determine whether they are legitimate. At the same time, Bass and Spangenberg short-sell shares in companies whose patents they believe are questionable and conversely purchase stock in companies whose patents they believe truly represent innovation.
Some of the patents being challenged by Bass and Spangenberg include Propofol an anesthetic marketed as Diprivan and Suprenza, a weight-loss drug selling for $120 per thirty tablets. According to experts, the practice in which companies try to extend patents on products shortly before they expire (called “evergreening” or “product-hopping”) is among the forces keeping drug prices high. Bass believes that many patents, and also patent extentions, are “an unreasonable use of government regulation to enshrine monopoly power to the detriment of the public at large.” Bass believes this system needs to be changed for the better or we will be doomed to pay increasingly more for the same drugs we’ve already been buying for decades.
Despite insisting he was doing it for a noble reason, many experts have dismissed his claim that he’s actually trying to help patients. Here’s how the “scheme” works: Bass and Spangenberg pick out certain pharmaceutical firms, short-sell their stocks, then challenge one or more of their patents via a front organization set up precisely for this purpose, called the Coalition for Affordable Drugs. Inevitably the stocks go down, Bass and Spangenberg get a few million in quick money, and the pharmaceutical companies’ prices go up and their motive to fund medical research goes down.
Some might wonder why Bass would do something that can hurt so many people. Why would someone who had previously been doing so well sink so low in order to make even more money? According to Jim McTague, “Bass has had a dismal time of it recently….Suddenly, the former luminary can’t seem to get anything right.” News reports back up this claim saying that Bass “lost somewhere around 30% in 2014, the mirror opposite of the industry’s best-performing hedge-fund managers.”
But, of course, no one tells it better than Bass himself when speaking to Bloomberg. “It’s nice to win all of the time. When you are not winning and everyone else is, it makes life difficult.”