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Insight & Intelligence : Aug 20, 2013
Gene Test Boom Faces Lawsuits
Testing giant and two rivals clash in court, threatening to cloud a sunny growth forecast.!--h2>
Angelina Jolie went unmentioned during Myriad Genetics’ August 13 conference call to discuss results for its fourth quarter and full fiscal year ending June 30. But it wasn’t hard to guess who president and CEO Peter D. Meldrum had in mind when he discussed his company’s strong Q4 results, especially its 51% year-over-year revenue growth in its strongest segment, women’s health. He attributed the growth, in part, to “recent celebrity publicity around breast cancer,” namely the movie star’s widely reported double mastectomy.
Meldrum acknowledged that Myriad probably won’t enjoy a similar boost from Hollywood in its new fiscal year (“the duration of this publicity benefit is likely to be short-term”), and that his company will see increased competition from gene test providers going forward. Yet Myriad says intellectual property concerns rather than economic figures explain its recent patent-infringement lawsuits against rivals Ambry and Gene By Gene, filed less than a month after the U.S. Supreme Court’s mixed decision on patentability of Myriad’s breast cancer susceptibility genes BRCA1 and BRCA2.
As Revenue Pressures Build, Myriad Pushes Infringement Claims
In papers filed at U.S. District Court for the District of Utah, Central Division, Myriad contended Ambry and Gene By Gene are infringing on 10 of 24 patents covering synthetic primers, probes, and arrays, plus testing methods related to BRCA1 and BRCA2. Myriad owns 5 of the 10 patents and licenses the rest from co-plaintiffs University of Utah, University of Pennsylvania, Toronto’s Hospital for Sick Children, and Canadian company Endorecherche.
Myriad noted it spent more than $500 million to develop its BRACAnalysis® diagnostic test for hereditary breast and ovarian cancer, and argued that its rivals’ tests would reduce royalties for the patent holders, now totaling about $57 million: “Myriad has suffered and will continue to suffer substantial damage to its business, including, without limitation, lost profits, loss of business reputation, loss of business opportunities, and loss of market share.”
That’s one reason why it’s hard to divorce economics from Myriad’s patent litigation. Other reasons can be found in the Q4 results and the company’s plans to introduce future tests discussed on the conference call. BRACAnalysis represented 74% of total company revenue in Q4, generating $129.6 million, a 19% increase compared to fiscal year 2012.
The revenue percentage will likely decline over the next fiscal year, as Myriad launches three new gene tests. Starting in September, Myriad will launch myRisk Hereditary Cancer™, a 25-gene panel covering six major cancers (breast, colorectal, endometrial, gastric, ovarian, pancreatic, uterine, and melanoma), at an average selling price of $3,700. The other new tests are myPath Melanoma™ and myPlan Lung Cancer™. By summer 2015, Myriad expects to discontinue several current tests including BRACAnalysis.
Myriad says the launches, plus higher taxes and cost of patent litigation (an expected $10 million this fiscal year), will shrink its FY 2014 projected earnings-per-share (EPS) growth 6–10%, well below its 36% EPS leap this past fiscal year. Given the prospect of reduced growth, Myriad’s assertion of patent rights against competitors is understandable: “We believe that our patents are valid and enforceable, and they’re being infringed,” Ron Rogers, head of communications at Myriad, told GEN.
Ambry and Gene By Gene Accuse Myriad of Antitrust Violations
Gene By Gene won a transfer of its case to the judge assigned to Ambry’s, Robert J. Shelby—a move that should help speed up the litigation. Gene By Gene has also joined Ambry in countersuing Myriad, accusing the company of misusing the 10 patents to drive out competition in violation of federal antitrust laws. Each contended they “suffered substantial injury to its business and property as a result of Myriad’s exclusionary and anticompetitive conduct.”
Not so, Rogers said: “We are confident that our claims will prevail and that Ambry’s counterclaims lack merit.”
To win their antitrust argument, Ambry and Gene By Gene will have to show that Myriad’s suit is “sham” litigation—defined by the Supreme Court in 1993 as both “objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits,” and brought for anticompetitive purposes.
The Supreme Court facilitated such defenses in June, when it decided in FTC v. Actavis that “reverse payment” settlements of patent disputes between branded and generic pharmaceutical companies may violate antitrust laws, but must be decided individually based on whether a settlement is reasonable. “A court, by examining the size of the payment, may well be able to assess its likely anticompetitive effects along with its potential justifications without litigating the validity of the patent,” a 5–3 majority held.
“I kind-of wonder if that’s not what spurred on Ambry with respect to their counterclaims on the antitrust side,” Jennifer A. Camacho, a shareholder in the law firm Greenberg Traurig, told GEN. “While a patent may be in some sense a monopoly, it doesn’t necessarily mean that there can’t be antitrust issues within that monopoly.”
“Monopolies are not necessarily illegal. It’s whether they gained a monopoly and retained a monopoly through prohibited acts. Patent misuse is a prohibited act. The question becomes, is that patent misuse sufficient for supporting an antitrust claim?” Camacho said.
Myriad says the 10 patents aren’t misused and can be defended because their claims differ from those in the Supreme Court case. The high court ruled seven of the patents for BRCA1 and BRCA2 were unconstitutional and invalid, saying naturally occurring human genes are unpatentable “products of nature.” The justices also held that companies can patent composite DNA (cDNA) and other synthetic genetic material.
Myriad Expands Financial Assistance Programs
Myriad’s Integrated BRACAnalysis®—combining BRACAnalysis sequencing with the BRACAnalysis Large Rearrangement Test or BART™ detecting large genomic rearrangements in BRCA1 and BRCA2—is list-priced at $4,040. The company emphasizes the cost is reimbursed by most private and public insurance plans, with patients’ average out-of-pocket costs totaling less than $100. For uninsured or underinsured patients, Myriad offers free testing or financial assistance depending on level of need.
Last month, Myriad expanded its financial assistance program to include patients who are underinsured as well as uninsured. Patients in need will receive free testing or pay no more than $375 for cancer predisposition testing, the company said.
Myriad denies the expansion was a response to criticism, from Jolie and others, about its list prices being an obstacle for women: “We want to ensure that those in the greatest financial need have access to our diagnostic tests,” Rogers said.
Testing Plans of Myriad’s Rivals
Ambry’s offerings include a BRCA1/2 test list-priced at $2,200; BRCAplus, a $3,300 test that detects mutations in BRCA1/2 and four other genes (CDH1, PTEN, TP53 and STK11) implicated in breast cancer; a suite of next-generation sequencing (NGS) panels for such hereditary cancers as breast, colon, and ovarian cancer, PGL-PCC (pancreatic, paraganglioma-pheochromocytoma syndrome), and renal and uterine cancer; and a 16-gene BreastNextTM NGS panel list-priced at $4,120.
“We are actively selling and receiving samples of BRCA. We’ve had an overwhelming response from our clients, and we have not stopped selling the test,” Ardy Arianpour, Ambry’s senior vice president of business development, told GEN.
Hours after the Supreme Court decision, Gene by Gene announced plans to offer BRCA1 and BRCA2 testing for $995 in the United States. The company said that it will keep offering the test. Pathway Genomics said it would launch an NGS test to analyze genes for breast, ovarian, colorectal, and other hereditary cancers, at a below-Myriad price.
Ambry claims that Myriad’s litigation caused Pathway Genomics and another company, PreventionGenetics, to back off their testing plans. Pathway Genomics maintains that it is exercising caution: “We intend to test for BRCA1 and BRCA2. In light of recent developments, we are currently investigating existing patent claims to determine what impact, if any, these claims will have on the launch of any BRCA breast and ovarian cancer genetic tests,” Jim Plante, the company’s founder and CEO, told GEN.
PreventionGenetics president James L. Weber, Ph.D., told GEN his company would not discuss the litigation.
Lingering Disputes May Overshadow Growth Projections
Myriad and its rivals hope to capitalize on expectations of explosive growth. A study last year by UnitedHealth Group’s Center for Health Reform and Modernization predicts U.S. spending on gene tests will grow from $5 billion in 2010 to between $15 billion and $25 billion by 2021.
How quickly gene testing companies fulfill those lofty predictions will depend much on how quickly the growing tangle of patent litigation and antitrust counterclaims gets resolved.
This article has been updated to include information from Myriad's Sept. 5 announcement of the launch of myRisk Hereditary Cancer™ on the number of cancers treated and the average selling price of myRisk.
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