Patents, Trump, Viagra: My Good and Bad Calls of 2017

(Bloomberg View) -- With 2017 barely in the rearview mirror, I thought I would take a minute to look back at some of the things I wrote about during my first year as a Bloomberg View columnist. Like most people in the opinion racket, I got some right and got some wrong. In either case, the more interesting question is why. Here goes:

In June, I wrote about a securities class-action lawsuit that had been filed against Bill Ackman, who runs Pershing Square Capital Management, as well as Valeant Pharmaceuticals International Inc. I thought that the suit posed a serious threat to the hedge fund activist and the company.

You’ll recall, perhaps, that Pershing Square made $2.2 billion by buying Allergan shares in 2014 knowing that Valeant was going to make a bid for Allergan, Inc. (They had formed a partnership for that purpose.) It was Ackman’s biggest win in years. But because he had accumulated the Allergan stake prior to the launch of Valeant’s merger attempt, there were questions about whether he was profiting from inside information. (Ackman and Valeant both insisted that their partnership was legal, and pointed to the fact that the Securities and Exchange Commission took no action.)

I was privy to some accidentally unsealed evidence, which made me think that the plaintiffs had a strong case — and that if a trial scheduled for Jan. 30 went forward, it could put a few more dents in Ackman’s reputation.

Instead, on the Friday before New Year’s Day, Ackman and Valeant settled with the plaintiffs for $290 million, with Pershing Square paying $194 million. Ackman insisted that the case had “no merit,” and that he was settling simply to put the matter behind him. Be that as it may, the settlement means that he still made over $2 billion using a tactic that may not have constituted insider trading, but sure caused a lot of raised eyebrows on Wall Street.

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Why can’t President Donald Trump keep his mouth shut about proposed mergers? Yes, we all know the answer — he can’t help himself — but I continue to believe that his willingness to insert himself in big deals is causing credibility problems for the antitrust division of the U.S. Justice Department.

Exhibit A, which I wrote about in November, was Trump’s stated opposition to AT&T Inc.’s plan to merge with Time Warner Inc., a deal that had been grinding toward completion for nearly a year without any visible opposition from Justice. Then, suddenly, a new antitrust chief, Makan Delrahim, was installed, and wouldn’t you know it? The government sued to block the merger. I was not alone is suspecting that the move was done, at least in part, to placate the president.

Mid-December gave us Exhibit B when Walt Disney Co. announced that it was buying most of Rupert Murdoch’s 21st Century Fox Inc. for $52.4 billion. Although, as a matter of antitrust law, Disney-Fox is more problematic than AT&T-Time Warner, this time Trump took a different position. He not only praised the deal — “This could be great for jobs,” his press secretary quoted him as saying — he even called Murdoch to congratulate him. If the antitrust division winds up waving Disney-Fox through while fighting AT&T-Time Warner, it's going to appear that the rule of law is being tossed aside to cater to the president’s whims.

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After the passage of the new tax bill, I got more than a few emails from Trump supporters mocking me for having predicted in August that Trump would have no more success with tax legislation than he had with the Obamacare repeal. My thesis was that Trump’s tweets and insults and ignorance about the repeal bill played a big role in its demise. I assumed he would act in a similar fashion during the debate of taxes.

But two things were different. First, while Trump pushed hard for the tax bill, he kept the venom to a minimum. Second, and I think more importantly, the Republican leadership mostly ignored him, writing the bill it wanted and cutting deals to gain the support of reluctant members without involving the president. In effect, the politicians were following the lead of corporate executives, who realized early on that the key to success with Trump was to tell him what he wanted to hear (“We won’t move our plant to Mexico”), knowing they could do whatever they wanted and Trump wouldn’t say a word.

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The most bone-headed corporate move of the year belongs to Allergan, which in September transferred the patent rights to its $1.5 billion-a-year dry-eye medication Restasis to the Saint Regis Mohawk Tribe. Allergan’s theory was that the tribe’s sovereign immunity would prevent generic competitors from being able to invalidate the patent via the Patent Trial and Appeal Board, a relatively new review mechanism that the pharmaceutical industry loathes. This tactic wasn’t just criticized by journalists like me; it was also deplored by other pharma executives, who, despite their dislike of the patent appeals board, realized that Allergan’s move made the industry look terrible.

In late November, the U.S. Supreme Court took up the question whether this patent review process was constitutional. The board was created as part of the 2011 America Invents Act; its purpose was to take a second look at disputed patents, and to rule on whether they were valid.

To my mind, the patent appeals board is an important brake on the pharmaceutical industry, which routinely abuses the patent system to extend monopolies on brand-name drugs long after the original patent has expired — a practice that costs Americans billions of dollars. On the other hand, big tech companies like Apple love the patent appeals board, which they use to pressure smaller companies and inventors whose innovations they want to use. Busting the patent is the cheapest and easiest way to accomplish that.

As you can see, I’m conflicted as to whether the patent appeals board should stay or go. My own solution would be to abolish the board and create an alternative patent system for the drug industry. I hope to lay out the details in a column soon.

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Two quick thoughts about television and streaming, which I wrote about often in 2017.

When I wrote about cord cutting in November, I was using Sling TV as my streaming service. But I didn’t like it much. It was expensive and it had too many channels I didn’t care about. It felt too much like having cable TV.

So I switched to FuboTV, which emphasizes sports but also includes some news and other channels. That worked until New Year’s Eve, when my wife and I wanted to watch CNN, where Anderson Cooper and Andy Cohen were counting down the minutes in Times Square. Alas, Fubo didn’t have CNN. So now I’ve switched to my third streaming service: Playstation Vue. So far, at least, it has what I want. People who extol cord-cutting make it sound so easy. But when you have been a lifelong cable subscriber and you cut the cord, it's harder than you might think to create a satisfactory television experience.

My second thought has to do with ESPN, the decline of which I noted several times last year. No doubt ESPN will continue to lose subscribers and see profits drop as viewers who aren't sports fans cut the cord. But if you are a sports fan, you simply can’t live without it.

To take just the example from Monday night: There is no place else you could have watched that spectacular college football playoff semifinal between Oklahoma and Georgia.

ESPN’s dilemma is that its survival depends on showing must-watch sports like the college football playoffs. Yet as profits decline, it becomes harder for ESPN to afford the rights to those games. Whoever replaces its recently departed president, John Skipper, will have to solve that problem. Or else.

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If you want to see the effect on price when a generic drug is introduced into the market, take a look at Viagra. As I noted last month, Teva Pharmaceutical Industries Ltd just brought generic Viagra to the U.S. market. According to the Associated Press, Pfizer Inc., the maker of Viagra, decided to compete with Teva’s generic by selling a generic of its own. As a monopoly drug, Viagra cost $65 a pill. The new generics will cost half that amount.

Oh, and this summer all the other generic-drug companies will be able to make their own version of Viagra. When that happens, the price of alleviating erectile dysfunction will probably drop by 90 percent.

Enjoy 2018.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Joe Nocera is a Bloomberg View columnist. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune. He is the co-author of "Indentured: The Inside Story of the Rebellion Against the NCAA."

To contact the author of this story: Joe Nocera at jnocera3@bloomberg.net.

To contact the editor responsible for this story: Jonathan Landman at jlandman4@bloomberg.net.

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