High Court's Ruling on DNA Could Boost Biotech

Justice Clarence Thomas
Getty Images
Justice Clarence Thomas

An unusual unanimous Supreme Court decision Thursday barring patents on naturally occurring DNA appeared to do little, if any, harm to biotech companies that research and market tests for genetic abnormalities.

That's because the other part of the long-anticipated Supreme Court decision upheld patents on so-called cDNA, or complementary DNA: a synthetically produced form of genetic material that also can be the basis for such tests.

And the case's defendant, Salt Lake City-based Myriad Genetics, noted that 75 percent of its business, from BRCA analysis tests that screen for hereditary breast and ovarian cancer, remains protected by patents that were not struck down by the Supreme Court decision written by Justice Clarence Thomas.

(Read More: Jolie's Decision Boosts BRCA Test-Maker Myriad)

"This could have had a lot of broad and really unintended consequences if all the patents had gone away," said Doug Schenkel, who analyzes biotech companies for Cowen. "Potentially Monsanto and some of their peers could have been affected if all of their [DNA-based] patents had gone.

"Given you have this mixed outcome, there may be no impact" on the entire biotech sector from the Supreme Court decision, he said. "And if there is an impact, it's not going to be as clear an impact as if you had thrown out all these patents."

Penn State law professor Eileen Kane, who has a Ph.D. in molecular biology, said that for companies that "rely on a cDNA, this is a good decision for them, for sure."

But Kane added that for companies whose business is solely based on tests that are derived from isolating naturally occurring DNA from humans, "yes, their business models are in question."

(Read More: Australian Court Backs Human Gene Patents)

Kane also said that by barring patents on natural DNA found in human bodies, "I think the opinion would encourage research" by a wide-range of entities, which will lead to more options for tests.

Les Funtleyder, Poliwogg's health-care strategist, agreed, saying, "We actually like the ruling because it's going to allow smaller companies and scientists to develop new tests without fear of reprisal from monopoly, and ultimately those will find their way into commercial use and be better for most companies.

"To the extent that that limitation is off, that should allow for greater innovation," he said. "It becomes an innovation risk and a business risk, instead of a legal risk."

But Matthew Gibson, a patent lawyer in the biotech industry group of the Oklahoma firm McAfee & Taft, said, "If it's 'free game' and there's no exclusivity from a patent standpoint, I think at the end that's going to benefit the bigger company."

"It's really going to hurt the small companies," said Gibson, noting the entry costs are a steeper barrier for such firms, compared with large companies.

By CNBC's Dan Mangan and Bertha Coombs. Follow them on Twitter @danpostman, @berthacoombs.