The Patent Trial and Appeal Board handed Hayman Capital Management’s J. Kyle Bass and IP Navigation Group founder and owner Erich Spangenberg their first win in a challenge of a patent related to Gattex, a drug for short bowel syndrome sold by Shire PLC.

Bass and Spangenberg, through their Coalition for Affordable Drugs, have filed 35 petitions for inter partes review challenges of weak drug patents over the past two years. They have been successful in winning institution of IPRs in only about 50% of the petitions, which is lower than the 74% average in all IPR petitions.

The win comes two weeks after a PTAB panel rejected another IPR challenge involving Lialda, a colitis drug also sold by Shire.

The win on Friday, Oct. 21 came in two petitions the coalition filed against Gattex in 2015. In the first, IPR 2015-01093, the coalition challenged claims 1-45 of U.S. Patent No. 7,056,886 B2, related to GLP-2 formulations. In the second, the coalition challenged claims 46−52 and 61−75 of the ’886 patent.

In both final written decisions, the PTAB panels, which both included Administrative Patent Judges Lora Green, Jacqueline Wright Bonilla and Sheridan Sneddon, found most of the claims invalid as obvious based on the prior art.

In the first, the panel ruled that claims 1−27, 31−40, and 44−45 of the ’886 patent are unpatentable. In the second, the panel ruled that claims 46–52 and 61–75 of the ’886 patent are unpatentable.

The panel rejected Shire’s arguments that the patent satisfied a long-felt need and that the successful commercialization of Gattex proved that the patent was of sufficient importance to overcome obviousness. The panel also rejected Shire’s effort to exclude the testimony of the coalition’s witness Dr. Anthony Palmieri III, Ph.D., R.Ph.

The coalition has been criticized for abusing the IPR process to challenge weak patents while also shorting the stock of the companies whose patents are being challenged. The PTAB has rejected all requests to sanction the coalition for this alleged abusive behavior.

To be sure, Bass and Spangenberg appear to have had limited success in their shorting strategy. While the stocks of the drug companies they've targeted have initially fallen, much of the losses evaporated as investors became accustomed to the new reality.

Shares of Shire were down $2.10, or 1.16%, to $179.19 today and have traded between $147.60 and $231.32 over the past year.

"While Shire is disappointed with the Patent Trial and Appeal Board’s (PTAB) decision, it will continue to vigorously defend its patents to protect the innovation and value Shire products bring to patients," said Katie Joyce, a spokeswoman. She said Shire is currently reviewing the decision and will decide whether to appeal.

Joyce noted that this decision does not invalidate all claims of the ‘886 patent. "The PTAB declined to institute IPRs with respect to some claims that had been challenged in the petitions but did institute IPRs with respect to others. Claims of the patent that were not included in the IPRs remain in force."

Shire also noted that Gattex was awarded Orphan Drug Designation by the U.S. Food and Drug Administration in 2012 and has orphan drug exclusivity until December 2019. The drug also is protected by FDA Orange Book patents expiring in 2020 and 2025 as well as the ‘886 patent, which expires in 2022.

Joseph Robinson, a partner with Troutman Sanders in New York, who represented Shire, couldn't be reached immediately for comment.

Shares of Shire fell $1.60 or 0.88% to $179.69 in trading today. They've traded between $147.60 amnd $231.32 over the past year.

Bass and Spangenberg have been criticized by pharmaceutical companies they've targeted with inter partes reviews of patents of abusing the system set up under the America Invents Act, which created IPRs as a less expensive and more efficent way to challenge weak patents. Several pharmaceutical companies have sought sanctions against Bass and Spangenberg, which the Patent Trial and Appeal Board has rejected.

Bass could not be reached immediately for comment. Jeff Blake, a partner with Merchant Gould in Atlanta, who represented the coaliton, also couldn't be immediately reached for comment.

In an emailed statement, Spangenberg declined to comment on how much he and Bass have made from their IPR and shorting strategy.

"It has been an interesting experience," Spangenberg. "We absolutely would do it again. In fact, Kyle and I have filed three IPRs personally and have also won on two of those, when the patent owners decided not to respond (Bravecto and Suprenza) – with the third yet to be decided (Propofol—rubber stopper case).

Spangenberg said Gattex was satisfying in that the drug costs a typical patient over $300,000 per year—up from around $100,000 when launched a few years ago. "The pricing power provided by this particular government monopoly grant was obviously improperly granted."

"When we first launched, the vast majority of 'experts' talked about the 'unpredictable arts' and how inappropriate that a tool used to kill many patents in other technology areas were being used to potentially kill of pharmaceutical patents.

He added that today, many pharmaceutical companies are using IPRs and said he expect this trend will only continue.

"What will be interesting now is to see if these companies adjust their very tired play book to pursue things like, for example, at risk launches upon institution. World has changed for pharma—just not sure the industry fully understands how or how to take advantage of this change."

—To reach the reporter responsible for this story, please contact Dan Lonkevich at 707 318-7899 or dan@thepatentinvestor.com