How natural is DNA? Lawyers are arguing about that in a courtroom, in New York, today, trying to convince a judge that DNA sequence can or cannot be patented.
Because natural substances can't be patented, plaintiffs, including the American Civil Liberties Union, medical researchers, and doctors associations, argue that two genes patented by the University of Utah Research Foundation, which cause susceptibility to breast cancer, can't be patented. Myriad Genetics (NASDAQ:MYGN), which licensed the patents, and the U.S. Patent and Trademark Office argue that the DNA is isolated and therefore the patent office is right to issue the patents.
Semantics? Maybe, but it's clear the ramifications of a decision that goes against Myriad will extend well beyond the company's fortunes. If companies can't patent genes, the entire biotech industry will be turned upside down.
The first to feel the effect would be companies like Myriad, which is the exclusive provider of a test to determine breast cancer susceptibility. Without a patent, competitors could develop tests that take its market share and force Myriad to lower the cost of its own test. Good for consumers -- in the short run -- but Myriad's revenue would certainly be hurt.
In the long run, patents might be the best for consumers. Sure they lead to high prices, but they also give companies incentive to take the risk and develop new drugs.
The future of medicine is a personalized approach based on the patient's genetic makeup. If drug companies aren't allowed to patent genes, it'll be harder for drug companies to set up partnerships like the one between Abbott Labs (NYSE:ABT) and GlaxoSmithKline (NYSE:GSK) to develop a companion diagnostic test for Glaxo's lung cancer therapy.
Even without companion diagnostic tests, some gene patents protect the targets that drugs go after in the body to exert their effect. Those patents give companies added time to develop drugs without having to worry about how close "me-too" drugs are to hitting the market. The effect may delay the entrance of better drugs -- Pfizer's (NYSE:PFE) Lipitor and AstraZeneca's (NYSE:AZN) Crestor arguably work better against the target HMG-CoA reductase than older statins developed by Merck (NYSE:MRK) and Bristol-Myers Squibb (NYSE:BMY) do -- but shouldn't the company that first risks going after a new target get a little more time to determine whether the target is valuable?
I'm sure this legal debate is far from over no matter which side wins today's proceedings. Investors should keep a keen eye on the debate, though; losing the right to patent genes could result in a dramatic shift in how drugs are developed.
