Supreme Court Ruling May Have Big Impact on How Investors View Biotech Market

This week, the US Supreme Court (the “Court”) delivered their opinion in the matter of Association for Molecular Pathology v. Myriad Genetics, 12-398.  Going against years of precedent set by lower courts and the United States Patent and Trademark Office, the Court unanimously held that naturally occurring DNA sequences are “products of nature” and therefore cannot be patented.  This ruling marks a potentially major transition in patent law, and may greatly limit the scope of patentable subject matter in the biotech industry .

Without giving a detailed biology lecture, this case asked the question of whether or not isolating human gene sequences, or “isolated DNA”, is a patent-eligible discovery.  Genes are encoded strands of nucleotides in different sequences that are responsible for inherited traits.  Prior to this ruling, companies who had identified, or isolated, specific sequences were able to patent this knowledge exclusively.  Proponents of such patents argue that they incentivize investment in biotechnology and promote innovation in genetic research. Opponents argue that these patents stifle innovation by preventing others from conducting research on these gene sequences, thus limiting the ability for genetic testing, and should not be patentable because such genetic information is intrinsic to all humans .

It’s too early to tell how this ruling will affect investments made in the biotech industry.  The impact will depend greatly upon the breadth this opinion is given in subsequent cases since the Court failed to address exactly “how much” of a change to naturally occurring substances is required to transform them into patentable inventions.  The Court did state in its opinion that those patents held by Myriad Genetics regarding complementary DNA, or cDNA, required enough human intervention so as to be eligible for legal protection.  cDNA, in its most basic definition, is essentially a synthesized copy of actual DNA, which is generally a more stable form to use in experimentation.   Thus, the Court clearly believes there is a line to be drawn between “naturally occurring” and “patentable” inventions, however where that line is exactly remains unclear.

If the opinion is interpreted narrowly, so that it applies only to DNA sequences, or sections of those sequences, then its economic impact may be slight.  However, if interpreted broadly, it could invalidate patents held by several companies, causing the value of these companies to decrease dramatically as their value is often directly tied to the number, and types, of patents they hold.  As such, advisers should stay abreast of these changes, and monitor client assets invested in this sector of industry closely.

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