By Lucy Parkinson, Research Analyst
It’s been three months since the decision came down on Association for Molecular Pathology v Myriad Genetics, the Supreme Court case that determined that naturally occurring genes cannot be patented. As one could have predicted, this subject was heavily discussed among investor panels and company presentations. The ruling reflects a paradigm shift, and from watching biotech presentations at the Redefining Early Stage Investments Conference, it was evident that the result of this case has had a significant effect on the business plans of companies, especially in the genomics space.
The decision has produced winners and losers. Myriad Genetics, the main player in the supreme court case can look forward to much more competition; formerly, the company had a 75% monopoly on tests for genes that predispose women to ovarian and breast cancer. (1) Since the decision came down, Myriad’s shares have fallen from $32.50 to $25.23 today. (2) Among other companies, there are fewer clean-cut winners and losers, but there was some consensus among both investors and company CEOs on what the implications were for the industry. Here are a few of the primary points we heard about at RESI:
There has been an “IP re-shuffle.” Cash has been sunk on IP protection or on licensing DNA owned by others. These are asset investments that are now rendered valueless. This has important points of impact – mainly, established players in the market have lost their competitive advantage to more nimble emerging players (who are now attractive investment targets).
Secondly, this IP is no longer an expense for many companies that licensed gene IP in the past, meaning a massive improvement in cost-efficiency. This also means that companies can’t simply rest after patenting genetic IP, they need to maintain a competitive value position, which means more innovation and better drugs coming to market. At RESI CEOs were generally excited about the ruling, and investors were excited about the wealth of new opportunities that are now attractive propositions.
Strong product lines are reaping rewards. This is so often the case in life science; a solid pipeline wins out over one good asset. The Supreme Court’s decision means that companies have to do more than own a DNA IP asset. The real value has migrated to innovative genomics technologies, and the pitch has changed accordingly. Rather than offering sole access to a gene test, companies now aim to offer faster, more accurate tests than their competitors. In presentations at RESI, speakers stressed the value of assets they’ve developed that are covered by IP protection, such as the sequencing algorithms that read RNA; those assets put these companies in a better position than competitors whose future revenues had relied on the IP value of DNA.
Some companies now have a better product. Companies that offer genetic tests can now broaden their product lines without having to worry about licensing individual genes, and this opportunity to build value should be a significant attraction for investors.
And going forward, the biggest winners will be patients, who can look forward to cheaper, better diagnostics unhindered by litigious DNA IP holders.
There is no doubt that this ruling will have a resounding industry impact and cause a profound shift in how investors view this area. Lower cost entrants into the marketplace are poised to garner significantly more interest from investors, but only if they have a sound strategy for maintaining a market position. Brace for impact!
1. Fidler, Ben. “RainDance Secures $20M, and a Believer in Myriad Genetics.” Xconomy RSS. Xconomy, 29 Apr. 2013. Web. 20 Sept. 2013.
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