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Mar 30, 2010

Gene Patent Ruling stalls Biotech Rally-Myriad (MYGN) down 4.9%

  • US Judge invalidates cancer gene patents

    Intellectual Property (IP) is the raw material for the creation of biotech companies. Without an invention covered by a robust patent portfolio, venture funding can be very difficult. Since the beginning of the "genomic age" in the late nineties the patenting of genetic materials and methods have gone through a minefield of lawsuits and opinions but in the end have significantly protected companies with well designed IP. However patents on human genes have always been a gray area.

    Yesterday the District Court for the Southern District of New York riled against Myriad Genetics (MYGN) and granted a motion for the plaintiffs,the American Civil Liberties Union (ACLU) and others concluding that isolated DNA compositions are not patent eligible subject matter and invalidating the Myriad patents BRCA1 and BRCA2 used in their breast cancer diagnostic tests. In their motion for summary judgement the plaintiffs alleged that the patents were invalid because human genes are products of nature. The decision by District Court Judge Robert Sweet determined that the purification of a product of nature,without more, cannot transform the product into patentable subject matter.Rather the purified product must possess "markedly different characteristics" in order to be considered eligible subject matter.

    An Alert filed by the well known Boston Law firm Brown Rudnick commented that the "decision will most likely be appealed; however this decision may have a significant impact on the biotechnology industry. The decision concludes that the discovery of new genes, gene variants, and proteins are not patentable when isolated from human cells and used as the basis of a diagnostic or therapeutic without proof of some 'markedly different characteristics' of those compounds from their natural form."

    Many biotech stocks hit an 8 year high last week supported by promising clinical data,sales growth, M&A activity and a buzz that positioned biologicals and genomics as the future with medical breakthroughs. The impact on the Myriad news today was well contained with the following diagnostic stocks up: Abaxis (ABAX), GenProbe (GPRO), Genomic Health (GXDX), Quidel (QDEL) and Sequenom (SQNM) which was up a big 7% without apparent news. As of late day trading our Mid-Cap biotech index of 34 stocks was down slightly and major ETF's - FBT, IBB, PBE and XBI - were down less than 0.5%. The Myriad CEO Peter Meldrum says he believes the final ruling will have no effect on the company's operations.

    The industry fallout from this gene patent ruling remains to be seen. The public sector has absorbed it well so for now we can say it has affected only a narrow segment of companies and markets. Look for detailed analysis coming from this ruling especially from BIO, the Biotechnology Industry Organization.


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