Biotech loves Supreme Court ruling on gene patents

(MoneyWatch) You might think that biotech companies would take a hit today in the wake of a U.S. Supreme Court decision that human genes are not patentable, after the U.S. Patent and Trademark Office had been issuing such patents for 30 years. The impact on the biotechnology industry should be significant, with an estimated 3,000 to 5,000 U.S. patents on human genes.

However, the actual impact may be different from what appears on the surface. Stocks of such companies as GlaxoSmithKline (GSK), Merck (MRK), and Amgen (AMGN), which holds gene patents, have actually seen a rise in share price today. Even Myriad Genetics (MYGN), which the court ruled against, has seen a nearly 9 percent spike in its stock.

Why? In part because the ruling could actually benefit larger biotech companies and hurt smaller ones.

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In the decision, the Supreme Court ruled that patents owned by Salt Lake City-based Myriad Genetics Inc. were invalid because they directly covered DNA isolated from the body. "We hold that a naturally occurring DNA segment is a product of nature and not patent eligible merely because it has been isolated," wrote Justice Clarence Thomas for the court.

That would seem a good reason for Myriad's stock to drop, and yet it rose in price. Part of the reason might be that shareholders were relieved to have a final resolution of the question, no matter how it came out. But a bigger part is probably due to the complexities of how biotech firms protect what they develop, as they do with products.

Patent attorneys try to add many layers of protection for a single breakthrough. Not only would they patent the gene itself, but they'd seek a family of patents to provide more tools to protect the business. The use of the gene in a specific type of test or treatment, rather than just the gene itself, could well be patentable. So would methods for isolating the gene, processing it, storing any product and putting it into a deliverable form.

The bigger the company, the more protection it can afford. Similarly, the smaller the company, the more limited it is in securing patent protection. Small biotech companies that have gene breakthroughs are more likely to have limited patent protection, and the main protection on the gene itself has now vanished.

Large companies can now target successful developments and use their larger R&D budgets to find alternative ways to isolate, process, use and deliver similar results. In essence, they have a chance to become de facto genetic drug manufacturers without being stymied by the one patent they might not be able to get around.