The pharmaceutical industry’s business model is predicated not just on R&D and a quality pipeline, but also on their marketing, legal, and regulatory departments prolonging intellectual property privileges. We examine the story of hedge fund activist Kyle Bass, who thought he could make money by betting against bad patents. Based on merit alone, Bass seemed to have a case: the pharmaceutical companies he targeted were indeed enjoying too much protection without producing innovation in healthcare. In other words, Bass targeted companies that were engaging in “life-cycle management” meant to prevent reaching the “patent cliff” – practices that are good for the company but bad for society at large. But as Bass found out, the patent system is not necessarily merits-based. It is rather extremely tough to bet against big pharma’s ability to affect the rules of the game.
Suitable Courses: The case will appeal primarily to healthcare and intellectual-property related courses, as well as to regulation and political economy ones.
Bigger picture: fleshes out how companies compete over who tweak the rules of the game better rather than who provides better products/services. These dynamics and their normative implications are more pronounced in the pharmaceutical industry, where the perceived purpose should be making patients’ lives better, healthier.