A Supreme Court loss on human gene patents is just what Myriad—and the biotech industry—need

Competition is coming.
Competition is coming.
Image: AP Photo/ Douglas C. Pizac
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The US Supreme Court today ruled that Myriad, the US biotech company that holds a monopoly on testing for a set of breast-cancer related genes, can’t hold a patent on genetic material. But after the news broke, Myriad’s stock shot up.

Here’s why:

The case involves a longstanding debate on the legality of Myriad’s patents on BRCA1 and BRCA2—genes associated with an increased risk of breast and ovarian cancer, recently spotlighted by carrier Angelina Jolie. And the ruling means that other biotech companies will now be allowed to pursue and market competing testing services. The American Civil Liberties Union has argued that this will drive down costs (right now, in the thousands of dollars per test) and increase testing availability. Myriad was understandably miffed at the notion of loosening its monopoly on testing for those genes.

But while the court ruled that a gene in its natural state is something that can’t be owned—even if it’s been isolated, which Myriad argued warranted a patent—it also ruled that complementary DNA, or cDNA, could be proprietary. Created artificially in the lab, the cDNA version of the BRCA genes lack so-called “junk” DNA, the pieces that don’t contribute to the gene’s production of proteins. This technical difference, according to the ruling, makes the genes unique enough to be distinguished legally from their natural cousins.

Even with the genes themselves freed up for use by other companies, it could take years for other testing options to hit the market. That’s partly because of the work involved to create related cDNA. And meanwhile Myriad still has its cDNA patents protected until 2015. Jonathan Masur, professor of law at the University of Chicago, argued last week in The New York Times that such a ruling would be the best of both worlds. Masur in an interview with Quartz today said the decision balances between providing an incentive for Myriad and other companies to continue innovating and protecting the consumer and was “the best this court could have done.”

And for most biotech companies, it’s a positive ruling.

“It’s going to affect lots of biotech companies in different ways,” Masur says. “Let’s take Monsanto for an example: They work with lots of plant DNA, but their business isn’t selling strains of that DNA. It’s combining it to sell better seeds. So for Monsanto, this is a good decision—they can still patent what they’re selling, but now no one can come in and patent the basic building blocks of the plants they’re working with.” The same is true, he says, for companies including Pfizer and Merck.

While a recent paper in Nature Biotechnology found that 3,535 patents on naturally occurring human gene sequences would risk invalidation given such a ruling, those patents only accounted for 12% of all gene patents. Most are now for synthetic sequences, which rose from 14% to 40% between 2001 and 2010 (the remaining patents are for non-human genes.)

“It’s only when you have a business model based on selling these basic building blocks,” Masur says, “that this ruling could harm you.” And while Myriad isn’t the only company that’s attempted to make money off of natural genes—Amgen and Genentech hold patents on insulin-producing genes—most of their business is in developing products and tests using synthetic DNA strains.

So Myriad suffered a major loss today—but a significant victory, as well. And investors seem confident that the biotech giants will take full advantage of their remaining patents.