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Biotech CEO: Bass exploiting weakness in system

Acorda CEO strikes back to Kyle Bass
Acorda CEO strikes back to Kyle Bass

Hedge fund heavyweight Kyle Bass has set his sights on a big bet against the biotech space, but one CEO is defending his company and fighting back against the activist's claims.

"Kyle Bass is actually not the problem," Dr. Ron Cohen, Acorda CEO & President told CNBC's "Fast Money" traders this week.

"He is unimportant in the sense that he is a symptom of a bigger disease here—because he's exploiting a weakness in a system that Congress created a couple of years ago," he added.

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Cohen is referring to the Inter Partes Review procedure, nicknamed IPR. The process was originally put in place to protect company's rights against so called patent trolls — people who misuse patents as a business strategy. But Cohen says IPR now serves a very different purpose.

According to Dr. Cohen, the IPR system deliberately created a lower standard for judging whether patents are valid or not.

"What this new IPR system has done is to create a second system that companies like mine have to deal with, along with the existing Hatch-Waxman system and that's dangerous," he said.

"It's scaring away investors who as it is, have to wait between 10 and 15 years for us to successfully develop a drug," Cohen added.

The CEO claims that if these patents are not protected, biotech companies will find themselves in real trouble. That may play to the advantage of hedge fund Hayman Capital's Kyle Bass, who is betting against many of these stocks.

Bass is actively seeking to invalidate patents through IPR challenges of biotech and pharmaceutical companies, while shorting each company's stock. Bass has launched thirty two IPR challenges against biotech companies under the organization he founded, Coalition for Affordable Drugs.

The hedge fund big has been unsuccessful in his pursuit against Acorda's patents. So far, two of Bass' challenges were rejected by the patent office but he has since re-filed for the same two patents and two additional.

Bass appeared on CNBC's "Squawk on the Street" Tuesday, to discuss for the first time the goals he hopes to reach by betting against these biotech companies.

"We're going to file on less than 1 percent of the drugs that exist, but the ones that we're after are kind of egregious examples of evergreening," said Bass, speaking of drugs that have extremely long patents. That costs the public "tens of billions of dollars a year in prescription drug prices," he added.

Bass's argument is that patients are forced to pay brand name prices for drugs that he believes should already have generic counterparts, but are shielded by the patents in place. Yet the seemingly altruistic crusade could turn out to be exceptionally profitable for Bass.

"We're well funded, and we have all the time in the world the way we have this set up," said Bass. "We want challenges heard on their merits, and if we win, drug prices get lowered for everyone."