Supreme Court decision in Myriad case not likely to materially impact Myriad or clinical diagnosticsMany of you are likely aware of today’s U.S. Supreme Court (SCOTUS) ruling in the Association for Molecular Pathology (AMP) v. Myriad Genetics case (http://www.supremecourt.gov/opinions/12pdf/12-398_8njq.pdf). Justice Thomas delivered the opinion of the court: “we hold that a naturally occurring DNA segment is a product of nature and not patent eligible merely because it has been isolated, but that cDNA is patent eligible because it is not naturally occurring.” While this opinion was not entirely unexpected, there are a number of implications for Myriad Genetics and the broader clinical diagnostics industry.For Myriad Genetics, the decision might appear to be fatal but is actually not likely to materially impact their business in the near-term. Today’s ruling does invalidate their composition of matter claims on the isolated BRCA1 and BRCA2 genes, potentially impacting their BRACAnalysis test (responsible for ~75% of the company’s revenue in the first quarter of 2013). This genetic test, used to assess a patients risk for hereditary breast and ovarian cancer, was recently made famous by Angelina Jolie. Based on her BRACAnalysis tests results, the actress had a double mastectomy, and intends to have an oophorectomy (removal of both ovaries), as a preventative measure to reduce her risk of breast and ovarian cancer.While the ruling does allow other competitors to commercially test for BRCA1 and BRCA2 gene mutations, Myriad Genetics will likely remain a dominant player in this market for the near-term for 4 key reasons:Since they launched the BRACAnalysis test in 1996, they have conducted more than a million tests for patients correlating various BRCA1 and BRCA2 mutations with actual risk of recurrence. Through years of testing and data from actual patients, they have something arguably more valuable than patents: trade secrets. BRACAnalysis competitors will have a hard time being able to deliver the same level of clinical decision support as Myriad Genetics. Additionally, the company has gained a reputation for excellent customer support.The company has recently announced that over the next few years it will replace the BRACAnalysis and other hereditary cancer tests with a broad ~25 gene cancer panel (called the myRisk Hereditary Cancer panel). This approach of multi-gene panels integrated with decision support algorithms is a growing trend in cancer diagnostics (more on this topic below) and will offer Myriad Genetics better intellectual property protection and better competitive protection through additional trade secrets.Myriad has long term pricing contracts with multiple payers, which will help protect pricing in the near-term. Over time, we do expect that payers will aggressively renegotiate their contract with lower prices given higher competition.The company recently announced that AstraZeneca will use Myriad's BRACAnalysis test as a companion diagnostic to stratify patients in AstraZeneca's pivotal Phase 3 clinical studies for a novel therapy.Despite these 4 competitive advantages, Myriad is likely to face some pricing pressure and experience market share loss as competitors enter this space (e.g., Quest, Bio-Reference Laboratories / GeneDx).Beyond Myriad Genetics, today’s ruling is not likely to have a material negative impact on the broader clinical diagnostics market. While many of today’s clinical diagnostics are single gene tests similar to the BRCA1 and BRCA2 tests (e.g., KRAS mutation testing to inform therapy selection in colorectal cancer), there is very limited patent protection for the biomarkers that are at the core of these tests, providing broad freedom to operate today for clinical diagnostic companies. According to DeciBio’s analysis of required companion diagnostic tests (clinical diagnostic tests listed on a FDA approved drug label as “required” prior to prescribing a drug), all of them have (or will shortly have) more than one competitor offering the test. Because these companies have already been surviving in a market with limited patent protection, today’s Supreme Court ruling is unlikely to materially impact their business. On the upside, clinical diagnostics companies will now be able to include BRCA1 and BRCA2 gene mutations as part of their currently offered breast cancer panels. In fact, Ambry Genetics announced today that they will now include BRCA1 and BRCA2 analysis as part of their currently available BreastNext panel.Today’s ruling further supports the industry’s trend towards multi-gene decision support tests from single-gene tests. This trend is partly driven by scientific evidence and partly driven by business strategy . Scientific evidence continues to demonstrate that many diseases, particularly cancer, are the result of the interaction and influence of many genes, rather than just one gene. For these diseases, multi-gene decision support tests can drive more accurate and actionable personalized medicine for patients. As a business strategy, companies have been able to successfully develop branded multi-gene decision support tests with higher reimbursement levels and stronger barriers to entry for potential competitors.The pioneer of this business strategy has been Genomic Health with their Oncotype DX breast cancer test, which is used to inform the use of chemotherapy in early-stage breast cancer. Genomic Health provides this test as a service through its own clinical laboratory (as a CLIA rather than FDA regulated test) and have developed an evidence based clinical value proposition for this test that is compelling enough for the test to be included in the leading cancer treatment guidelines (e.g., NCCN). This inclusion has aided the company in obtaining very favorable reimbursement (more than $4,000 per test in many cases) vs. reimbursement at a commoditized molecular diagnostic (if the same test was submitted as a 21 gene “stacked” genetic test it would only receive ~$550) . Single gene clinical diagnostics or even multi-gene clinical diagnostics without decision support will increasingly become commoditized as any clinical laboratory can now offer a competitive test.As a result of the Supreme Court’s Decisions on the Myriad case, the growing body of evidence surrounding the value of multiple genetic tests and the success of companies like Genomic Health, DeciBio expects the successful trend towards multi-gene decision support services to continue to grow in the near-term.By David Cavanaugh, Partner at DeciBio LLC.