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Biotechnology and the Future of DNA-Based Patents

http://www.fool.com/investing/general/2012/12/12/biotechnology-and-the-future-of-dna-based-patents.aspx

Katie Spence
December 12, 2012

Should human DNA be patentable? Or, to put it another way, should elements of the human body be commodifiable? If you're Myriad Genetics (NASDAQ: MYGN), you'd answer yes. However, if you're the Association for Molecular Pathology, you'd answer no. Ultimately, it's the Supreme Court who will have the final say, and this could have a major impact on Myriad's bottom line, as well as impact other biotech companiesImmediately following the Supreme Court's decision to hear the case, shares of Myriad fell 9% and ended the trading day down 3.8%. So, what does this mean for your portfolio? 

A brief history of time
Year-to-date, shares of Myriad have climbed more than 30% this year.  

One of the reasons for the company's recent success is its strong competitive advantage -- and this is due, in part, to a strong patent portfolio. However, Myriad's greatest advantage could also be its greatest risk going forward. Here's the problem.

Show me the money
Myriad's biggest earner is its BRACAnalysis test, which uses BRCA1 and 2 genes to help detect for mutations that can lead to an increased risk of breast and ovarian cancer. Additionally, these genes are used to help inform treatment options. More importantly, this is the gold standard of tests for breast and ovarian cancer, which makes this test a huge money-maker for Myriad.

In fact, according to Myriad's 2012 annual report, the BRACAnalysis tests accounted for 81.7% of Myriad's total revenue for 2012. A big reason for this is Myriad's exclusive rights to 24 U.S. patents that cover BRACAnalysis testing.

 Well, the Supreme Court will be ruling on Myriad's patents regarding BRCA1 and BRCA2. That means that the product that accounted for the majority of Myriad's total revenue in 2012 could be in jeopardy. I know... ouch.

Should a company be allowed to own parts of the human body?
Arguably, Myriad did discover these isolated genes and their mutations related to breast and ovarian cancer. However, the fact that these genes are naturally occurring has led many to argue that patenting them is on par with turning the human body into an object or commodity.

Additionally, because Myriad currently has a patent on BRCA1 and 2, opponents of the patent argue that standard clinical testing of these genes is restricted, hindering scientific developments of new treatments for both breast and ovarian cancer.

 Myriad responded to these criticisms in a press release by stating that contrary to their opponent's claims, Myriad supports, and helps facilitate, research regarding BRCA1 and BRCA2. Furthermore, Myriad states that as of this date, more than 18,000 scientists have studied the genes in question, making them some of the most widely researched genes in history.  

Round one goes to...
This isn't the first time Myriad has been involved in a legal suit over its patents of BRCA1 and 2. In August, the U.S. Federal Circuit Court of Appeals ruled 2-1 that Myriad has the right to patent "isolated" genes.

But, in a similar case, the Supreme Court unanimously overturned a ruling by the Federal Circuit that said Prometheus Laboratories could patent its blood test used in treating autoimmune disorders. Contrary to the Federal Circuit's ruling, the Supreme Court found that Prometheus' patent fell under the laws of nature, and therefore, could not be patented. The Association for Molecular Pathology argues that Myriad's patent is the same: "patenting of natural phenomena and basic human knowledge and thought." 

Down, down, down...
Although a decision from the Supreme Court isn't expected until June, this case has, and is, causing waves in the biotech industry.

For almost 30 years, the U.S. Patent and Trademark Office has issued DNA patents to companies like Amgen (NASDAQ: AMGN), Gil