Myriad Fallout: Who Are the Winners and Losers in the Gene Patent Ruling?

Last Updated Apr 1, 2010 1:07 PM EDT

If the recent federal court ruling in the Myriad Genetics (MYGN) case -- which invalidated gene patents based on isolated chunks of DNA -- holds up on appeal, it will hurt any company whose drugs are based on isolating or purifying substances that can be found occurring on their own in nature.

By contrast, companies that are smart enough to make like Allergan (AGN), which has surrounded its non-patentable Botox botulinum toxin with process and manufacture patents, could prosper under the new regime.

The Myriad ruling struck down patents on genes related to breast cancer because they existed in nature before the company figured out how to isolate them. If upheld, that could have consequences for any company whose fortunes are dependent wholly on extracting a product's active ingredients from an animal or plant discovery. Potential examples include:

I'm not suggesting that all these patents will be automatically invalid, of course. Doubtless all these companies have overlapping patents addressing the development and manufacturing processes of the substances involved. Some products, such as PS's flu vaccine, may be protected because it's not "natural" for a flu gene to show up inside a caterpillar.

But a reading of the plain language of Myriad shows that if your patent rests solely on the mere isolation or purification of something that already exists in nature, then you'll need more than that to maintain your exclusive rights to it.

Luckily, there's an existing business model for just such a case. Allergan has never really held a patent for Botox, which is a purified version of the naturally occuring botulinum toxin. Botox was approved in 1989 -- 21 years ago -- and still reliably generates $1.3 billion in sales every year. Competition only arrived last year in the form of Medicis (MRX)'s Dysport. Allergan's secret: It patented everything else about the drug. As Fortune once wrote:

Patent expiration, normally the bane of a decade-old drug, doesn't seem to be an issue. Like any naturally occurring substance, Botox is difficult to patent. Thus Allergan does not have a patent on the neurotoxin itself. But the process of making and harvesting it for medical purposes is a company secret akin to the formula for Coca-Cola, though one can assume that Allergan is not buying cans of soup and tuna gone bad, then siphoning off the botulinum.
Which all suggests that the panic among biotech lawyers is misplaced: In the end, it's the science, not the law, that generates profits.

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Image by Flickr user ynse, CC.