The Patent Trial and Appeal Board handed hedge fund manager J. Kyle Bass and IP Navigation Group founder Erich Spangenberg their first outright loss in a challenge of a patent related to an overpriced drug on Wednesday, finding they failed to prove the invalidity of the patent behind the colitis drug Lialda, owned by Shire PLC (SHPG).

The patent at issue in the inter partes review was U.S. Patent No. 6,773,720. The ’720 patent is directed to controlled release oral pharmaceutical compositions containing 5-amino salicylic acid, also known as Mesalazine, or 5-ASA, as an active ingredient. Mesalazine is the key pharmaceutical agent in Lialda, which is used to treat Crohn’s disease and ulcerative colitis, which involves inflammation of the intestines.

The petition seeking to institute IPR was filed with the PTAB in April of 2015 by the Coalition For Affordable Drugs II L.L.C. Fund, which is controlled by Bass and Spangenberg.

Shire said it was pleased with the decision and will continue to vigorously defend its patents to protect the innovation and value Shire products bring to patients.

LIALDA remains the only once-daily mesalamine product indicated for both the induction of remission of mild to moderate ulcerative colitis and for the maintenance of remission of UC. There have not been any approvals of generic versions of LIALDA.

The coalition has filed more than 30 IPR petitions to invalidate what it sees as weak drug patents including petitions against Celgene Corp., Acorda Technologies and Biogen IDEC.

So far the coalition has had mixed success with PTAB denying institution of IPRs filed against Biogen and Acorda, though it followed up with requests for rehearing and new petitions based on different prior art.

Bass and Spangenberg's coalition also have fended off of motion for sanctions filed by Celgene and others, which have alleged the coalition abused the IPR process under the America Invents Act of 2011 by filing IPRs to invalidate patents owned by drug companies and shorting their stocks at the same time.

"We are frustrated by the PTAB judges’ ruling as it enables Shire to improperly maintain a government-granted monopoly and to exploit the US healthcare system, doubling the price of Lialda since 2007, much like EpiPEN," said Bass, who runs Haymann Capital Management LP in Dallas, in a statement.

“The patent for Lialda should have never been issued by the U.S. Patent and Trademark Office.  The science behind the patent was already in the public domain."

Bass also criticized Shire for avoiding paying its fair share of U.S. taxes on profits by inverting into a tax-advantaged Irish company. "The system must be fixed," he said.

"We look forward to continuing our work of challenging dubious patents that enshrine monopolies protecting drugs that lack innovation to the detriment of Americans suffering from illness.”

Spangenberg couldn’t be reached for comment.

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