Supreme Court Lets the Gene Out of the Bottle

A genie in a bottle has no power, but let that genie out and watch it make magic. We will soon find out if this applies for genes like it does genies. The U.S. Supreme Court announced a major ruling on Thursday that could have far-reaching implications for the world of biotech.

Source: Wikimedia Commons. 

The Court ruled in a unanimous opinion that human genes cannot be patented, freeing previously patented genes up for any organization to use. However, the nine justices determined that complementary DNA, or cDNA, which is synthetically created from gene material, is patentable under the law. Here are some of the winners and losers from this landmark decision.

Winners
Some might be surprised to learn that one winner of the Supreme Court decision was the losing party in the lawsuit. The case was Association for Molecular Pathology v. Myriad Genetics (NASDAQ: MYGN  ) . Myriad Genetics maintained the validity of patents that the company received for breast cancer genes. Even though the company must relinquish those patents, its stock still surged 9% initially before closing down almost 6%.

Myriad lost the battle in this case but perhaps won the bigger war. Most of the company's gene patents are for cDNA. The company's CEO, Peter D. Meldrum, said the Supreme Court's ruling "underscored the patent eligibility of our method claims, ensuring strong intellectual property protection for our BRACAnalysis test moving forward." In other words, Myriad can't patent the genes, but it can patent the processes surrounding isolation and use of the genes.

Other companies that have gene patents also counterintuitively won with the ruling. Biogen Idec (NASDAQ: BIIB  ) owns a patent to the KIM kidney gene. A gene patent held by Amgen (NASDAQ: AMGN  ) helped in the development of the company's Epogen anemia drug. Biogen's stock closed up nearly 1.5% on Thursday, while Amgen shares were up more than 2%.

Companies with synthetic DNA patents also benefited from the court's decision to allow patenting of cDNA. DuPont (NYSE: DD  ) , for example, holds patents for synthetic DNA used in making proteins that help make crops more insect-resistant. The chemical company is the largest holder of gene patents in the U.S. Shares of DuPont traded down slightly at the market close on Thursday.

The biggest winner could be patients. Patient care will be improved with unfettered rights to genes, according to the American Medical Association. The American Civil Liberties Union's Sandra Park stated that, thanks to the ruling, "patients will have greater access to genetic testing and scientists can engage in research on these genes without fear of being sued."

Losers
Of course, Myriad Genetics still lost the case, so the company is a loser -- for now, at least. Its stock ended down on Thursday despite an initial spike, no doubt due to investors' worries about how the ruling will impact Myriad's genetic test revenue.

The biggest loser from the Court's decision appears to be small biotechs. In the past, these companies could secure financial backing based largely on obtaining a patent for a specific gene. Now, considerably higher investments will be required to protect intellectual property.

One wish
I think the Supreme Court made a wise decision with this ruling. Justice Clarence Thomas aptly summed it up with his statement that "a naturally occurring DNA segment is a product of nature and not patent eligible merely because it has been isolated."

The court also did well, in my view, by ensuring that cDNA can be patented. These synthetic genes are created products and not products of nature. This stipulation preserves the financial incentives for biotech companies to pursue research and development that could lead to more advances. If I could be granted one wish related to this case, it would be that tremendous medical advances will be the ultimate outcome of the justices' ruling.

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Read/Post Comments (5) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 14, 2013, at 6:30 PM, cal8 wrote:

    Please stop writing about this if you are just going to repeat the press release from MYGN. They did not win in any way. This is the third article by TMF contributors and all are terrible.

    MYGN makes all of their money from genetic testing. This is what was invalidated. IF they came up with a cure for breast cancer that used BRCA1 or 2 (not going to happen) they could make money.

    They had 89% gross margins on the test they provide. Four other reputable companies have already announced launches of competing products (all within 6 hours of the ruling). All are going to undercut price and some will offer better tests. MYGN, at a minimum will suffer from loss of revenue and decreased margins.

    Imagine you saw CRA on the day the Human Genome Project completion was announced, some people thought that this meant great news for Celera. This is like Thursday.

  • Report this Comment On June 15, 2013, at 12:38 AM, MotleyJim57 wrote:

    Firstly, complementary DNA is generated from RNA in the laboratory. What Myriad does is polymerase chain reaction amplification of native human DNA to obtain a quantity large enough for Sanger sequencing. They start with double stranded DNA which exists naturally as genomic DNA. What the Supreme Court has done is maintain commerce from PCR patents. PCR amplified DNA is not cDNA!

  • Report this Comment On June 18, 2013, at 3:14 PM, Lexloeb wrote:

    For between 2 and 3 billion dollars a company like JNJ could snap up most of the shares of MYGN. I would not overly discount this company. Chances are they will let it grow to 10 billion dollars or more before they step in and buy it. MYGN has figured out how to replicate almost in RNA replication fashion their genetic tests . I think that could be a significant asset for a much larger health care company. Now that genes are not patented they can remain proprietary property like the 'secret' formula for coke. copy cat tests well yes maybe but they could be mere pepsi.

  • Report this Comment On June 18, 2013, at 3:32 PM, TMFBlacknGold wrote:

    Just to be clear...

    The reason companies with DNA patents popped was purely for the method claims (analyzing the sequences) surrounding their discoveries, not for the composition of matter claims (the sequences themselves). The latter were effectively made ineligible unless an strand of DNA contains a significant synthetic sequence.

    You were right, it's just important to make the distinction between the two type of patents.

    --Maxxwell

  • Report this Comment On June 18, 2013, at 8:02 PM, JoelBryan wrote:

    The first commenter correctly analyzed MYGNs problem.

    Too many analysts are are weighing in with opinions on MYGNs future revenue picture without any understanding of the technology behind the patents and methodologies at issue.

    In simple terms here's an analogy: there's more than one way to skin a cat.

    Before last Thursday, MYGN owned all the cats (the two BRCA genes) and a method for skinning them (sequencing the genes). The Supreme Court ruled MYGN skinning method (the cDNA primers) could be patented. But MYGN cannot claim ownership of everyone's cat (a natural product).

    But as the other commenter pointed out, there are now 4 other companies that have announced pending inclusion of the BRCA genes in their test kits to clinics. Everyone can have their own patented proprietary method to skin cats now that MYGN can no longer claim ownership of said cats.

    MYGNs revenue will fall by at (conservatively) 55% in the coming quarter now that they have reduced their BRACAnlysis price from $3000+ to $995 in desparate attempt to stave off competitors and hold onto their market share. Even the $995 price is likely to fall by half again as other competitors use cheaper,more modern sequencing methodologies (454sequencers versus MYGNs tired old Sanger method).

    My target price for MYGN is $19-$20 by Sept, and it is a very strong Short candidate.

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