1 00:00:00,320 --> 00:00:02,400 Speaker 1: The Odd Thoughts podcast is brought to you by ex 2 00:00:02,480 --> 00:00:09,840 Speaker 1: On Mobile Energy Lives here. Hello and welcome to the 3 00:00:09,840 --> 00:00:12,920 Speaker 1: newest edition of Odd Lots. I'm Joe Wisenthal, Managing editor 4 00:00:12,960 --> 00:00:15,320 Speaker 1: of Bloomberg Markets and the co host of What You Miss, 5 00:00:15,560 --> 00:00:19,439 Speaker 1: And I'm Tracy Alloway, Executive editor of Bloomberg Markets. So Tracy, 6 00:00:19,480 --> 00:00:22,680 Speaker 1: there's been a lot in the news lately about controversies 7 00:00:22,680 --> 00:00:25,320 Speaker 1: in the pharmaceutical industry. It seems like there's another story 8 00:00:25,400 --> 00:00:29,880 Speaker 1: basically every day. There were politicians blasting the proposed merger 9 00:00:30,000 --> 00:00:33,040 Speaker 1: of Fiser and all organ basically accusing it of just 10 00:00:33,120 --> 00:00:36,479 Speaker 1: being away for Fiser to pay less in US taxes. 11 00:00:36,760 --> 00:00:41,640 Speaker 1: And then of course there's a lot surrounding specifically pharmaceutical pricing. Right. 12 00:00:41,640 --> 00:00:44,599 Speaker 1: We've seen a lot of controversies in pharma stocks recently, 13 00:00:44,800 --> 00:00:48,240 Speaker 1: especially in companies like Touring and Valiant. In Valiance case, 14 00:00:48,280 --> 00:00:51,680 Speaker 1: we've actually seen the stock collapse recently on fears that 15 00:00:51,720 --> 00:00:54,840 Speaker 1: the company is using this sort of shadowy network of 16 00:00:54,880 --> 00:00:59,560 Speaker 1: pharmacies to get its brand name drugs prescribed more than 17 00:00:59,680 --> 00:01:02,520 Speaker 1: cheap vir generics. Right. And then of course there was Touring, 18 00:01:02,560 --> 00:01:05,080 Speaker 1: which got a ton of attention because it has this 19 00:01:05,240 --> 00:01:09,959 Speaker 1: young CEO Martin Screlly, who is very came off very brash, 20 00:01:10,120 --> 00:01:13,160 Speaker 1: and also he acquired a drug and then said he 21 00:01:13,200 --> 00:01:17,600 Speaker 1: was going to immediately increase the price fiftyfold. So obviously 22 00:01:17,680 --> 00:01:20,880 Speaker 1: that outraged a ton of people. Indeed, so given all 23 00:01:20,880 --> 00:01:23,480 Speaker 1: these controversies, there have obviously been a lot of calls 24 00:01:23,520 --> 00:01:26,880 Speaker 1: for investigations and changes to the laws in order to 25 00:01:26,920 --> 00:01:31,600 Speaker 1: go after pharmaceutical prices. But what if the solution isn't 26 00:01:31,680 --> 00:01:35,600 Speaker 1: with politicians but with hedge funds. Go on today, we'll 27 00:01:35,640 --> 00:01:37,880 Speaker 1: be talking about a hedge fund with a very interesting 28 00:01:37,880 --> 00:01:42,039 Speaker 1: strategy short farm accompanies and then challenge their patents in 29 00:01:42,080 --> 00:01:45,119 Speaker 1: the courts in the hope that if their patents get overturned, 30 00:01:45,319 --> 00:01:48,520 Speaker 1: the stocks eventually collapse. So the basic idea is someone 31 00:01:48,640 --> 00:01:53,400 Speaker 1: short stock pharmaceutical stock. Shorting means you bet against the stock, 32 00:01:53,480 --> 00:01:55,920 Speaker 1: you profit if it goes down, and then the way 33 00:01:55,960 --> 00:01:58,280 Speaker 1: you make money on that in this case is you 34 00:01:58,360 --> 00:02:00,760 Speaker 1: go to court and say, hey, this company, their drug 35 00:02:00,840 --> 00:02:03,080 Speaker 1: is based on this patent, but we think the patent 36 00:02:03,160 --> 00:02:06,640 Speaker 1: is invalid, and if the court rules that it is invalid, 37 00:02:06,680 --> 00:02:10,200 Speaker 1: then presumably that company's business takes a huge hit, and 38 00:02:10,240 --> 00:02:13,680 Speaker 1: shorting the company works out really. Well, that's right, sort 39 00:02:13,680 --> 00:02:17,000 Speaker 1: of like a reverse patent troll. Yeah, exactly, So that 40 00:02:17,040 --> 00:02:19,400 Speaker 1: sounds like a really weird strategy, but it also seems 41 00:02:19,520 --> 00:02:21,799 Speaker 1: incredibly clever. So on that note, we want to bring 42 00:02:21,840 --> 00:02:25,519 Speaker 1: in our guests, Guanyang. Guan recently completed his PhD and 43 00:02:25,639 --> 00:02:29,400 Speaker 1: financed then his research both finance and intellectual property. He 44 00:02:29,440 --> 00:02:32,640 Speaker 1: has his doctorate from n YU, so he's perfect to 45 00:02:32,680 --> 00:02:35,359 Speaker 1: discuss this fascinating trade where where you have a marriage 46 00:02:35,520 --> 00:02:39,040 Speaker 1: of finance and intellectual property. Guan is also a Bloomberg 47 00:02:39,080 --> 00:02:42,919 Speaker 1: View contributor. So, guant, did we describe the strategy correct? 48 00:02:43,000 --> 00:02:45,680 Speaker 1: Is that basically what the idea is? Yeah, that is 49 00:02:45,680 --> 00:02:47,800 Speaker 1: basically what it is. Um. It used to be that 50 00:02:47,840 --> 00:02:49,880 Speaker 1: when you wanted to challenge a patent, you can only 51 00:02:49,880 --> 00:02:51,880 Speaker 1: do it. You can really only do it in court, 52 00:02:52,000 --> 00:02:53,600 Speaker 1: and you can only do it if someone had actually 53 00:02:53,639 --> 00:02:57,560 Speaker 1: sued you from fringing that patent. There wasn't really a 54 00:02:57,560 --> 00:03:01,119 Speaker 1: an effective way for a third party like a hedge 55 00:03:01,120 --> 00:03:03,480 Speaker 1: fund manager to come in and say, I think this 56 00:03:03,560 --> 00:03:06,959 Speaker 1: patent is invalid even though we're all in some way 57 00:03:06,960 --> 00:03:10,440 Speaker 1: affected by by drug hypbrug crisis to the patents. So 58 00:03:10,560 --> 00:03:13,320 Speaker 1: up until recently let's say out there, I saw that 59 00:03:13,440 --> 00:03:16,440 Speaker 1: some company had a patent and I thought it wasn't 60 00:03:16,440 --> 00:03:18,200 Speaker 1: a valid patent. And we'll get to that in a 61 00:03:18,280 --> 00:03:21,359 Speaker 1: second what that means valid patent. But up until recently, 62 00:03:21,480 --> 00:03:23,160 Speaker 1: I couldn't have just gone int suit. I would have 63 00:03:23,200 --> 00:03:26,239 Speaker 1: needed to be more directly tied to it. Yeah, there 64 00:03:26,400 --> 00:03:29,040 Speaker 1: was there were a couple of administrative procedures who could 65 00:03:29,040 --> 00:03:31,760 Speaker 1: have done that, the patent office, but um, they weren't 66 00:03:31,800 --> 00:03:35,160 Speaker 1: very effective. They were expensive and slow, and that wasn't 67 00:03:35,320 --> 00:03:37,920 Speaker 1: a great way to it's to challenge patents. And so 68 00:03:38,000 --> 00:03:41,640 Speaker 1: what change? What was the law that enabled anyone to 69 00:03:41,960 --> 00:03:44,920 Speaker 1: theoretically challenge a patent? So there was something called the 70 00:03:44,960 --> 00:03:48,640 Speaker 1: America Invents Act of twelve. It's also called the Lady 71 00:03:48,760 --> 00:03:51,920 Speaker 1: Smith Act, and it was a patent reform package that 72 00:03:52,040 --> 00:03:56,440 Speaker 1: introduced something called interpartist review and it's basically a way 73 00:03:56,480 --> 00:04:00,000 Speaker 1: to challenge a patent even if you're not directly involved 74 00:04:00,080 --> 00:04:03,000 Speaker 1: in infringing it or have been sued by the patent owner. 75 00:04:03,560 --> 00:04:06,400 Speaker 1: Was the idea behind it to go after patent trolls, 76 00:04:06,440 --> 00:04:08,640 Speaker 1: which people have been complaining about for a long time. 77 00:04:09,360 --> 00:04:11,240 Speaker 1: That was definitely part of the idea. But I don't 78 00:04:11,280 --> 00:04:14,920 Speaker 1: think the I don't think the Congress necessarily imagine that 79 00:04:14,960 --> 00:04:18,480 Speaker 1: you would have hedge fund managers using this process. Alright, 80 00:04:18,520 --> 00:04:22,960 Speaker 1: So talk about specifically, there's this new law it enables 81 00:04:22,960 --> 00:04:25,760 Speaker 1: outsiders to challenge a patent. Talk about what does that 82 00:04:25,800 --> 00:04:28,520 Speaker 1: mean challenge a patent? Why are some patents weak? Why 83 00:04:28,520 --> 00:04:31,960 Speaker 1: are some patents challengeable? Usually a patent can be challenged 84 00:04:32,040 --> 00:04:35,839 Speaker 1: because it's obvious. Basically, a patent has to be UM, 85 00:04:36,000 --> 00:04:37,599 Speaker 1: has to be new. You have to have some new 86 00:04:37,640 --> 00:04:41,640 Speaker 1: innovation over the existing technology, the state of the art 87 00:04:41,680 --> 00:04:43,839 Speaker 1: out there, and it also has to be non obvious. 88 00:04:43,839 --> 00:04:46,520 Speaker 1: It can't be something that any pharmacist would be able 89 00:04:46,520 --> 00:04:48,239 Speaker 1: to come up with if you present if you present 90 00:04:48,320 --> 00:04:53,599 Speaker 1: him with with a particular problem. So um. Usually people 91 00:04:53,640 --> 00:04:55,640 Speaker 1: who are sort of critical of the patent system or 92 00:04:55,680 --> 00:04:57,960 Speaker 1: it's like me, talk a lot about software patents and 93 00:04:58,000 --> 00:05:02,359 Speaker 1: business method patents. These are often patents on ways of 94 00:05:02,400 --> 00:05:05,880 Speaker 1: doing business but on the internet, and even critics of 95 00:05:05,920 --> 00:05:09,520 Speaker 1: the patent system often defend at least pharmaceutical patents because 96 00:05:09,520 --> 00:05:12,240 Speaker 1: it's so obvious that it costs hundreds of millions or 97 00:05:12,320 --> 00:05:15,320 Speaker 1: billions of dollars to to develop these drugs, and you 98 00:05:15,360 --> 00:05:18,120 Speaker 1: need some kind of incentive to make that investment. So 99 00:05:18,560 --> 00:05:20,480 Speaker 1: it can be surprising to some people that a lot 100 00:05:20,520 --> 00:05:23,159 Speaker 1: of drug patents are can actually be weak, that there 101 00:05:23,240 --> 00:05:25,839 Speaker 1: is prior art or some other way that the patent 102 00:05:25,920 --> 00:05:28,600 Speaker 1: is flawed. How big of a deal is this, I mean, 103 00:05:28,640 --> 00:05:31,040 Speaker 1: we hear a lot about you know, we talked about 104 00:05:31,080 --> 00:05:34,719 Speaker 1: their controversies already in terms of surging prescription drug prices. 105 00:05:34,920 --> 00:05:37,840 Speaker 1: But if you think about the role that intellectual property 106 00:05:37,920 --> 00:05:41,359 Speaker 1: and patents play in the enormous cost that society pays 107 00:05:41,400 --> 00:05:44,880 Speaker 1: for healthcare, there's this a significant issue that's worth going after. 108 00:05:45,720 --> 00:05:48,680 Speaker 1: Drug spending in the US last year was about ten 109 00:05:48,680 --> 00:05:51,440 Speaker 1: percent of total healthcare spending. So that doesn't sound like 110 00:05:51,520 --> 00:05:53,920 Speaker 1: that much, except healthcare spending is pretty high in the 111 00:05:54,000 --> 00:05:56,600 Speaker 1: United States compared to other countries, and it's also one 112 00:05:56,600 --> 00:06:00,840 Speaker 1: of the fastest growing parts of about four trillion dollars 113 00:06:00,839 --> 00:06:04,360 Speaker 1: per year. Yes, and prescription drug spending the US is 114 00:06:04,360 --> 00:06:06,800 Speaker 1: a bit less than four hundibillion dollars, about ten percent. 115 00:06:07,279 --> 00:06:11,320 Speaker 1: So one person who has decided to go after this 116 00:06:11,400 --> 00:06:14,479 Speaker 1: particular sector is the manager of the hedge fund we've 117 00:06:14,480 --> 00:06:18,080 Speaker 1: been alluding to, and that is Kyle bass Uh. Some 118 00:06:18,120 --> 00:06:20,840 Speaker 1: people listening to this might already know who he is, 119 00:06:20,920 --> 00:06:24,480 Speaker 1: but for others, maybe Joe, you could describe exactly who 120 00:06:24,480 --> 00:06:27,320 Speaker 1: he is. Yeah, basically, Kyle Bass has been in the 121 00:06:27,360 --> 00:06:29,159 Speaker 1: news as a hedge fund manager for a long time 122 00:06:29,200 --> 00:06:32,440 Speaker 1: for various reasons. During the housing crisis, he made a 123 00:06:32,440 --> 00:06:34,920 Speaker 1: lot of money. Here's one of the people that spotted 124 00:06:34,960 --> 00:06:38,400 Speaker 1: the crash early and bet successfully that there would be 125 00:06:38,440 --> 00:06:42,040 Speaker 1: a collapse there. He was also very well known for 126 00:06:42,200 --> 00:06:46,400 Speaker 1: betting unsuccessfully for the most part, against Japanese government bonds. 127 00:06:46,440 --> 00:06:51,080 Speaker 1: He warned that because of Japanese high Japanese government debt, 128 00:06:51,160 --> 00:06:55,440 Speaker 1: that Japan could go bankrupt theoretically or of hyper inflation. 129 00:06:55,800 --> 00:06:59,640 Speaker 1: That didn't work out. But there's new strategy he has 130 00:06:59,720 --> 00:07:03,360 Speaker 1: is well, we've been talking about where he's shorting pharmaceutical 131 00:07:03,400 --> 00:07:06,080 Speaker 1: companies and then challenging their patents. So guan, how did 132 00:07:06,080 --> 00:07:08,960 Speaker 1: he embark on this path and what specifically is he doing. 133 00:07:09,320 --> 00:07:12,440 Speaker 1: He hooked up the guy named Eric Spannenberg, who has 134 00:07:12,520 --> 00:07:14,120 Speaker 1: sort of been on the other side of the patent 135 00:07:14,120 --> 00:07:16,400 Speaker 1: litigation game. He used to buy up a lot of 136 00:07:16,440 --> 00:07:20,880 Speaker 1: patents and and litigate them, and Spendenberg had identified a 137 00:07:20,960 --> 00:07:23,640 Speaker 1: number of these pharmaceutical patents that he thought were weak 138 00:07:23,720 --> 00:07:26,760 Speaker 1: and could be attacked in this way and basically enlisted 139 00:07:26,840 --> 00:07:29,360 Speaker 1: Kyle Bass's help in in taking that strategy to the 140 00:07:29,440 --> 00:07:33,160 Speaker 1: next level. So Bass shorted or his fun Hayman Capital, 141 00:07:33,200 --> 00:07:36,080 Speaker 1: shorted a bunch of these pharma companies and then um 142 00:07:36,160 --> 00:07:40,240 Speaker 1: petition to start inter partist review proceedings. One of the 143 00:07:40,280 --> 00:07:43,560 Speaker 1: first patents that he went afterwards for a drug called Empure, 144 00:07:43,640 --> 00:07:46,920 Speaker 1: which is a multiple scorrosive drug made by a company 145 00:07:46,960 --> 00:07:50,720 Speaker 1: called the Court of Therapeutics. It costs about thirteen thousand 146 00:07:50,720 --> 00:07:55,000 Speaker 1: dollars per patient per year, and he didn't succeed in 147 00:07:55,120 --> 00:07:58,280 Speaker 1: that particular challenge, although he's refouled it with new evidence. 148 00:07:58,760 --> 00:08:02,640 Speaker 1: But he has succeeded in convincing the Patent Trademark Appeals 149 00:08:02,640 --> 00:08:07,760 Speaker 1: Board to start proceedings against Lealdo, which is inflammatory bowel 150 00:08:07,800 --> 00:08:11,360 Speaker 1: disease drug, and a couple of drugs that cure multiple 151 00:08:11,560 --> 00:08:16,200 Speaker 1: or that treat multiple myeloma owned by Celgene. I've given 152 00:08:16,240 --> 00:08:18,360 Speaker 1: up trying to keep track of every single proceeding, but 153 00:08:18,440 --> 00:08:21,040 Speaker 1: it's probably about a dozen proceedings that he has out 154 00:08:21,040 --> 00:08:24,160 Speaker 1: there where he's either trying to get the patent office 155 00:08:24,200 --> 00:08:28,080 Speaker 1: to start a trial to test this patent or they've 156 00:08:28,120 --> 00:08:30,239 Speaker 1: already accepted it and there's going to be a trial 157 00:08:30,280 --> 00:08:34,199 Speaker 1: at some point. So they are actually embarking on proceedings 158 00:08:34,200 --> 00:08:37,960 Speaker 1: for some of these drugs. They are listening to Mr Bass, Yes, 159 00:08:38,040 --> 00:08:41,160 Speaker 1: definitely they now after they decide to institute in a 160 00:08:41,280 --> 00:08:44,079 Speaker 1: partist review proceedings, they have a deadline of one year 161 00:08:44,600 --> 00:08:47,480 Speaker 1: by which time they have to be done with the trial. Basically, 162 00:08:47,520 --> 00:08:49,480 Speaker 1: there's a few ways they had extensions, but this is 163 00:08:49,559 --> 00:08:52,320 Speaker 1: much faster, a much faster process than if you had 164 00:08:52,400 --> 00:08:55,120 Speaker 1: to go into district court and challenge patents. All right, 165 00:08:55,160 --> 00:08:57,160 Speaker 1: let's take a real quick break for a word from 166 00:08:57,160 --> 00:09:03,000 Speaker 1: our sponsor. You're listening to the Odd Thoughts podcast, brought 167 00:09:03,040 --> 00:09:10,200 Speaker 1: to you by ex On Mobile Energy Loves Here. We're 168 00:09:10,240 --> 00:09:13,280 Speaker 1: back here with our guest Guan Yang, talking about the 169 00:09:13,440 --> 00:09:18,360 Speaker 1: strategy of shorting drug companies and trying to challenge their 170 00:09:18,360 --> 00:09:22,280 Speaker 1: patents in court. So you mentioned that Kyle Bass, the 171 00:09:22,280 --> 00:09:25,200 Speaker 1: hedge funder who's doing this. He hasn't had any outright 172 00:09:25,280 --> 00:09:28,800 Speaker 1: successful victories yet, but it sounds like his strategy as 173 00:09:28,840 --> 00:09:31,520 Speaker 1: to some extent working. Is he making money on his 174 00:09:31,600 --> 00:09:34,440 Speaker 1: bet so far just merely by the fact that he's 175 00:09:34,480 --> 00:09:37,720 Speaker 1: making these challenges, and some of these challenges have been greenlit. 176 00:09:38,080 --> 00:09:40,320 Speaker 1: It doesn't look like I don't know when he entered 177 00:09:40,320 --> 00:09:42,080 Speaker 1: these shorts, but it doesn't look like he's made any 178 00:09:42,360 --> 00:09:46,440 Speaker 1: huge profits yet. It's still pretty uncertain whether he's going 179 00:09:46,480 --> 00:09:49,160 Speaker 1: to succeed in these challenges, and it's also uncertain whether 180 00:09:49,800 --> 00:09:52,719 Speaker 1: even if he manages invalidate a couple of patents or 181 00:09:52,720 --> 00:09:54,880 Speaker 1: a couple of claims of those patents. For some of 182 00:09:54,920 --> 00:09:57,280 Speaker 1: these drugs, at least they're covered by a whole bunch 183 00:09:57,280 --> 00:10:00,000 Speaker 1: of patents, so there's there are a few more steps 184 00:09:59,800 --> 00:10:03,319 Speaker 1: at actually turned these drugs into generics that that anyone 185 00:10:03,880 --> 00:10:06,240 Speaker 1: would be able to produce, and that would really affect 186 00:10:06,240 --> 00:10:09,559 Speaker 1: these drug companies earnings. So I'm curious how has the 187 00:10:09,600 --> 00:10:13,560 Speaker 1: pharma industry reacted to this, and also how have patent 188 00:10:13,640 --> 00:10:17,920 Speaker 1: lawyers and intellectual property rights people reacted as well. My 189 00:10:18,040 --> 00:10:21,440 Speaker 1: sense is that the patent law profession is kind of 190 00:10:21,480 --> 00:10:23,319 Speaker 1: split on whether this is a good idea. There are 191 00:10:23,320 --> 00:10:25,760 Speaker 1: people who are saying that these patents are weak, they 192 00:10:25,800 --> 00:10:28,319 Speaker 1: should be challenged, and the short selling profit motive is 193 00:10:28,320 --> 00:10:31,040 Speaker 1: a good way to do it. Um Some of the 194 00:10:31,080 --> 00:10:33,760 Speaker 1: so cell Gene, which owns a couple of the patents 195 00:10:33,760 --> 00:10:37,800 Speaker 1: that he's challenged, has basically made a direct criticism, a 196 00:10:37,840 --> 00:10:40,960 Speaker 1: direct attack on his strategy. Before the Appeals Board, they've 197 00:10:41,000 --> 00:10:44,840 Speaker 1: said that the Congress, when they created this new inner 198 00:10:44,840 --> 00:10:48,839 Speaker 1: partist review process, never intended for hedge fund managers for 199 00:10:48,880 --> 00:10:50,640 Speaker 1: short sellers to be able to use it. That these 200 00:10:50,679 --> 00:10:53,240 Speaker 1: are people who don't have a direct economic interest and 201 00:10:53,320 --> 00:10:56,400 Speaker 1: invalid in the validity of these patents. And so far, 202 00:10:56,440 --> 00:10:58,480 Speaker 1: at least in a couple of decisions, the Appeals Board 203 00:10:58,480 --> 00:11:02,120 Speaker 1: has gone against sell Gene and basically validated his its 204 00:11:02,160 --> 00:11:05,280 Speaker 1: overall approach. Are there any other industries that this could 205 00:11:05,280 --> 00:11:09,120 Speaker 1: be applied to, this idea of challenging company's patents and 206 00:11:09,120 --> 00:11:11,319 Speaker 1: then shorting them, or is there something unique about the 207 00:11:11,400 --> 00:11:14,120 Speaker 1: drug industry that makes this work. There's something unique by 208 00:11:14,120 --> 00:11:16,040 Speaker 1: the drug industry, and there's also something unique about the 209 00:11:16,080 --> 00:11:18,920 Speaker 1: particular targets that he's got after, because if you think 210 00:11:18,960 --> 00:11:21,080 Speaker 1: about it, you need a drug with some patents that 211 00:11:21,120 --> 00:11:23,720 Speaker 1: are actually weak. If the patents are turned out to 212 00:11:23,720 --> 00:11:25,520 Speaker 1: be valid, you know, he'll just have wasted a bunch 213 00:11:25,520 --> 00:11:28,480 Speaker 1: of money and in order to profit from this. You 214 00:11:28,640 --> 00:11:31,640 Speaker 1: also so Kalpass is not a generic drug manufacturer, so 215 00:11:31,679 --> 00:11:34,120 Speaker 1: he can only make money in the financial markets, and 216 00:11:34,160 --> 00:11:37,240 Speaker 1: he can only profit from the strategy if this particular 217 00:11:37,320 --> 00:11:40,640 Speaker 1: drug is actually a big part of that pharma company's business. 218 00:11:40,800 --> 00:11:44,880 Speaker 1: If it's a big, sort of diversified pharmaceutical company, their 219 00:11:44,920 --> 00:11:47,120 Speaker 1: stock might not go down that much just by losing 220 00:11:47,280 --> 00:11:50,280 Speaker 1: one drug. So like, if he found some weak patented fiser, 221 00:11:50,360 --> 00:11:53,760 Speaker 1: for example, he could get it overturned, but it probably theoretically, 222 00:11:53,960 --> 00:11:56,160 Speaker 1: but it wouldn't make a dent in the company's stock 223 00:11:56,200 --> 00:11:58,640 Speaker 1: price most likely maybe not that big a dent. And 224 00:11:58,720 --> 00:12:01,240 Speaker 1: fiser might also back a lot harder than some of 225 00:12:01,240 --> 00:12:05,480 Speaker 1: these companies, and so this wouldn't necessarily work. And say 226 00:12:05,520 --> 00:12:10,640 Speaker 1: software companies where the patent overturning a patent wouldn't necessarily 227 00:12:10,720 --> 00:12:13,480 Speaker 1: change the business that much. I think the big problem 228 00:12:13,480 --> 00:12:16,040 Speaker 1: with software patents is in large part that there are 229 00:12:16,080 --> 00:12:17,640 Speaker 1: so many of them that you know, it's sort of 230 00:12:17,640 --> 00:12:19,360 Speaker 1: whack a mole. You can get one, but then you 231 00:12:19,400 --> 00:12:22,520 Speaker 1: still have thousands or tens of thousands of other patents 232 00:12:23,120 --> 00:12:25,080 Speaker 1: owned by people who could sue you. What do we 233 00:12:25,120 --> 00:12:28,800 Speaker 1: think about the prospect of the strategy actually starting to 234 00:12:28,840 --> 00:12:34,280 Speaker 1: reduce expensive pharma prices. I think it's hard to imagine 235 00:12:34,320 --> 00:12:36,360 Speaker 1: that he's going to be able to make a huge 236 00:12:36,480 --> 00:12:40,000 Speaker 1: dent in pharmaceular costs, but these costs go up a lot. 237 00:12:40,480 --> 00:12:43,520 Speaker 1: The statistic I saw was that US pharmaceutical spending went 238 00:12:43,600 --> 00:12:47,320 Speaker 1: up in last year compared to the year before, and 239 00:12:47,800 --> 00:12:49,840 Speaker 1: a lot of that growth in spending is due to 240 00:12:49,960 --> 00:12:53,200 Speaker 1: just a few blockbuster drugs that are really expensive. And 241 00:12:53,520 --> 00:12:56,160 Speaker 1: if he can take off a few percentage point of 242 00:12:56,160 --> 00:12:58,400 Speaker 1: that growth, that would probably that would make a meaningful 243 00:12:58,400 --> 00:13:01,040 Speaker 1: difference in the growth of how care spending in the country. 244 00:13:01,360 --> 00:13:05,600 Speaker 1: Have any other investors done this, or any trying to 245 00:13:05,679 --> 00:13:08,640 Speaker 1: glom onto his strategy or say, hey, this is smart 246 00:13:08,880 --> 00:13:10,200 Speaker 1: or is it just him? As far as you know, 247 00:13:10,320 --> 00:13:12,240 Speaker 1: as far as I know, it's just him. I think 248 00:13:12,600 --> 00:13:14,360 Speaker 1: it's in large part because it is kind of a 249 00:13:14,360 --> 00:13:16,960 Speaker 1: whiskey strategy. It's hard to know. He'll probably get a 250 00:13:17,000 --> 00:13:19,520 Speaker 1: few of these patents invalidated as far as I can 251 00:13:19,559 --> 00:13:21,760 Speaker 1: tell from people who have written about this, but it's 252 00:13:21,760 --> 00:13:25,400 Speaker 1: hard to know whether it's actually going to be strategy. 253 00:13:25,440 --> 00:13:26,840 Speaker 1: Also seems like it would be kind of easy to 254 00:13:26,880 --> 00:13:29,560 Speaker 1: free ride, like one, if you you know what you 255 00:13:29,559 --> 00:13:31,920 Speaker 1: don't have, It's like I could short those same companies 256 00:13:31,960 --> 00:13:34,480 Speaker 1: that he has and let him bear all the research, couts, 257 00:13:35,200 --> 00:13:37,960 Speaker 1: cause and all that stuff. Yeah, I think that's the 258 00:13:37,960 --> 00:13:40,280 Speaker 1: case for a lot of these hedge fund choice strategies. 259 00:13:40,280 --> 00:13:42,800 Speaker 1: I'm not really sure what the explanation is for why 260 00:13:43,040 --> 00:13:47,320 Speaker 1: they still exist. So it's so rare that we actually 261 00:13:47,440 --> 00:13:50,400 Speaker 1: mentioned these four words in the same sentence together, which 262 00:13:50,400 --> 00:13:53,439 Speaker 1: would be hedge funds and societal good. But do you 263 00:13:53,520 --> 00:13:56,000 Speaker 1: think that this is a hedge fund who might actually 264 00:13:56,040 --> 00:13:59,440 Speaker 1: be able to affect some good for society? That's what 265 00:13:59,520 --> 00:14:02,560 Speaker 1: Kyl claims. At least the entity that he's put together 266 00:14:02,679 --> 00:14:06,520 Speaker 1: to challenge these patents is called the Coalition for Affordable Drugs. 267 00:14:06,840 --> 00:14:09,719 Speaker 1: Who could be against that? All right? So, I mean, 268 00:14:10,440 --> 00:14:13,240 Speaker 1: and I don't know if he really believes that, you know, 269 00:14:13,320 --> 00:14:15,559 Speaker 1: obviously he's in it to make money, but I think 270 00:14:15,600 --> 00:14:18,199 Speaker 1: it's definitely possible that, you know, even if he is 271 00:14:18,240 --> 00:14:20,520 Speaker 1: sort of cynical about it, that the rest of us 272 00:14:20,560 --> 00:14:24,280 Speaker 1: could benefit if he's ultimately successful. What about like the 273 00:14:24,320 --> 00:14:28,560 Speaker 1: bigger picture, I mean, even outside of this um, outside 274 00:14:28,600 --> 00:14:31,680 Speaker 1: of this specific strategy, do you think there's a lot 275 00:14:31,760 --> 00:14:35,840 Speaker 1: of scope for just reducing the cost of the healthcare 276 00:14:35,920 --> 00:14:40,240 Speaker 1: industry purely by I'm trying to think of exactly the word, 277 00:14:40,240 --> 00:14:43,760 Speaker 1: but just the overfind reducing the financialization of healthcare just 278 00:14:43,840 --> 00:14:46,120 Speaker 1: ringing a lot of costs out that people see as 279 00:14:46,200 --> 00:14:49,840 Speaker 1: ridiculous that aren't really necessary for business models. So I'm 280 00:14:49,840 --> 00:14:52,440 Speaker 1: not an expert in healthcare economics, but I definitely think 281 00:14:52,440 --> 00:14:54,480 Speaker 1: there are things that could more that could be done 282 00:14:54,640 --> 00:14:58,760 Speaker 1: with um for example, negotiating drug prices essentially, especially in 283 00:14:58,800 --> 00:15:01,040 Speaker 1: the US, And there are other things that could be 284 00:15:01,080 --> 00:15:03,400 Speaker 1: looked at, not just in terms of patent protection. There's 285 00:15:03,440 --> 00:15:07,720 Speaker 1: also the FDA gives a certain period exclusivity between six 286 00:15:07,760 --> 00:15:09,800 Speaker 1: months and seven years for certain new drugs and for 287 00:15:09,800 --> 00:15:13,120 Speaker 1: certain generic drugs, and a lot of people who have 288 00:15:13,200 --> 00:15:16,120 Speaker 1: researched drug prices think that some of those periods could 289 00:15:16,120 --> 00:15:19,360 Speaker 1: be tweaked, either shortened or lengthen to provide better incentives 290 00:15:19,400 --> 00:15:23,840 Speaker 1: for drug research. Going back to Kyle Bass for a second, 291 00:15:23,840 --> 00:15:26,640 Speaker 1: do you think people would feel more comfortable with his 292 00:15:26,720 --> 00:15:30,120 Speaker 1: strategy if he was sort of doing this out of 293 00:15:30,120 --> 00:15:32,760 Speaker 1: the goodness of his heart and not necessarily to profit 294 00:15:32,840 --> 00:15:35,800 Speaker 1: from shorting You know, he's clearly a rich man. Had 295 00:15:35,840 --> 00:15:39,160 Speaker 1: he set up this group to go after weak patents 296 00:15:39,160 --> 00:15:41,080 Speaker 1: out of the goodness of his heart. What do you 297 00:15:41,080 --> 00:15:43,760 Speaker 1: think the reaction would be then? I think the reaction 298 00:15:43,800 --> 00:15:46,560 Speaker 1: will be a lot more positive. I also think that 299 00:15:46,680 --> 00:15:50,520 Speaker 1: if you had theoretically a nonprofit who had the strategy 300 00:15:50,560 --> 00:15:54,880 Speaker 1: that that nonprofit might um might approach things differently. They 301 00:15:54,880 --> 00:15:58,880 Speaker 1: wouldn't necessarily just go after targets that both have wheak 302 00:15:58,880 --> 00:16:02,920 Speaker 1: patents and are and obvious short. Uh. They might go 303 00:16:02,960 --> 00:16:06,520 Speaker 1: after Fieser for example. Right, instead of going just after 304 00:16:06,640 --> 00:16:09,040 Speaker 1: companies that were highly exposed to a small amount of 305 00:16:09,080 --> 00:16:12,760 Speaker 1: intellectual property. They could actually just go after any weak 306 00:16:12,800 --> 00:16:14,960 Speaker 1: patents that they saw, even if there weren't a direct 307 00:16:15,000 --> 00:16:19,720 Speaker 1: opportunity to profit and financial markets. Yeah yeah, um, let's 308 00:16:19,760 --> 00:16:22,400 Speaker 1: just say, you know, you're you've been a long term 309 00:16:22,440 --> 00:16:24,760 Speaker 1: critic of a lot of intellectual property, and some people 310 00:16:24,800 --> 00:16:27,240 Speaker 1: are really radical. They say, there really just shouldn't be 311 00:16:27,480 --> 00:16:30,760 Speaker 1: any patents at all, and all patents are sort of 312 00:16:30,760 --> 00:16:34,280 Speaker 1: an intervention in the free market that are unnatural, and well, 313 00:16:34,320 --> 00:16:37,640 Speaker 1: I kind of get this argument for some technology like software, 314 00:16:37,680 --> 00:16:42,160 Speaker 1: for example, it seems harder to defend for pharmaceuticals. Could 315 00:16:42,200 --> 00:16:46,320 Speaker 1: you envision us having a pharmaceutical industry without patents, without 316 00:16:46,360 --> 00:16:50,080 Speaker 1: intellectual property protection? I think I could so I'm not 317 00:16:50,120 --> 00:16:52,400 Speaker 1: as radicals as a lot of these critics, of course, 318 00:16:52,440 --> 00:16:55,280 Speaker 1: but um, I think the pharmaceutical patents are an area 319 00:16:55,320 --> 00:16:57,720 Speaker 1: where if you did abolish patents, you'd have to replace 320 00:16:57,760 --> 00:17:00,200 Speaker 1: it with something. They would have to be some would 321 00:17:00,200 --> 00:17:02,200 Speaker 1: have incentive to spend all these billions of dollars on 322 00:17:02,240 --> 00:17:05,239 Speaker 1: farm of research, and part of that could be UM. 323 00:17:05,320 --> 00:17:07,680 Speaker 1: A lot of a lot of the funding for healthcare 324 00:17:07,680 --> 00:17:10,520 Speaker 1: in general, especially globally, comes from governments anyway, so you 325 00:17:10,520 --> 00:17:12,679 Speaker 1: could take a lot of that, and by that you 326 00:17:12,720 --> 00:17:16,560 Speaker 1: mean just basically in terms of Medicare, Medicaid, all these 327 00:17:16,560 --> 00:17:20,800 Speaker 1: big government programs that ultimately exactly addition to basic research 328 00:17:21,400 --> 00:17:23,480 Speaker 1: in drugs UM and you could take a lot of 329 00:17:23,480 --> 00:17:27,119 Speaker 1: that money, and you could spend more money on public 330 00:17:27,119 --> 00:17:30,120 Speaker 1: financing of drug research. And you could also have more prizes. 331 00:17:30,160 --> 00:17:32,520 Speaker 1: So if you had, you know, ten a ten billion 332 00:17:32,560 --> 00:17:35,520 Speaker 1: dollar prize for the curative cancer or something, a drug 333 00:17:35,560 --> 00:17:39,000 Speaker 1: company that that meets the criteria would get that prize, 334 00:17:39,000 --> 00:17:41,000 Speaker 1: but then the drug would have no patent, it would 335 00:17:41,040 --> 00:17:44,280 Speaker 1: just be a generic. Well, thank you very much, Gwanyang. 336 00:17:44,320 --> 00:17:47,359 Speaker 1: That was fascinating. I learned a lot about pharmaceuticals, and 337 00:17:47,400 --> 00:17:52,360 Speaker 1: thank you for joining us. Thank you. So I'm really 338 00:17:52,520 --> 00:17:54,440 Speaker 1: I don't know about you, but I'm really fascinated now 339 00:17:54,520 --> 00:17:57,040 Speaker 1: to see how this trade works out for Kyle mass 340 00:17:57,040 --> 00:18:00,399 Speaker 1: It seems like it could be a fairly revolutionary tactic 341 00:18:00,480 --> 00:18:02,400 Speaker 1: if he makes a lot of money out is Yeah, 342 00:18:02,560 --> 00:18:05,280 Speaker 1: same here. It's definitely one to watch. We'll keep watching 343 00:18:05,359 --> 00:18:09,080 Speaker 1: Valiant and Touring as well. I'm intrigued by the idea 344 00:18:09,119 --> 00:18:12,120 Speaker 1: of a world without patents. I'm also intrigued by kind 345 00:18:12,119 --> 00:18:15,080 Speaker 1: of the entrepreneurship of a trade likeness. I mean, normally, 346 00:18:15,200 --> 00:18:17,360 Speaker 1: when you think of a hedge fund trade, you think 347 00:18:17,400 --> 00:18:21,120 Speaker 1: of someone looking over financial market data and concluding something 348 00:18:21,119 --> 00:18:24,199 Speaker 1: that something is overvalued or undervalued. But this takes a 349 00:18:24,200 --> 00:18:27,640 Speaker 1: lot of effort going to court, and obviously there's science 350 00:18:27,720 --> 00:18:31,119 Speaker 1: involved in identifying what a week patent actually looks like. 351 00:18:31,520 --> 00:18:34,240 Speaker 1: So I kind of admire the moxie that a trade 352 00:18:34,680 --> 00:18:37,359 Speaker 1: like this requires to execute. Yeah, I guess we'll have 353 00:18:37,400 --> 00:18:40,000 Speaker 1: to wait to find out whether that moxie pays off. 354 00:18:40,240 --> 00:18:43,639 Speaker 1: All Right, and that's it for today's edition of Odd Lots. 355 00:18:43,720 --> 00:18:46,320 Speaker 1: I'm Joe Wisenthal. You can follow me on Twitter at 356 00:18:46,359 --> 00:18:49,440 Speaker 1: the Stalwart, and I'm Tracy Alloway. I'm on Twitter at 357 00:18:49,480 --> 00:18:59,879 Speaker 1: Tracy Alloway. Thanks for joining us. You've been listening to 358 00:18:59,920 --> 00:19:02,000 Speaker 1: the Odd Lots podcast, brought to you by ex On 359 00:19:02,080 --> 00:19:06,679 Speaker 1: Mobile Energy lives here. Joe and I are very proud 360 00:19:06,720 --> 00:19:09,399 Speaker 1: of our new podcast, Odd Lots, but we are also 361 00:19:09,560 --> 00:19:13,560 Speaker 1: very proud of Bloomberg's other growing suite of original podcast 362 00:19:13,680 --> 00:19:16,760 Speaker 1: all designed to help you navigate the complexities of business, 363 00:19:16,840 --> 00:19:20,639 Speaker 1: financial markets, and the global economy. 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