Media release from Global Data

On March 20th, the US Supreme Court issued a unanimous ruling in favor of the Mayo Clinic in its appeal against Prometheus Laboratories over infringement of two patents related to a diagnostic test. The decision overturned a lower court ruling in favor of Prometheus in its lawsuit against the Mayo Clinic, who Prometheus argued was infringing on its patents by running the test on their own. The lawsuit sought to defend patents for a test, based on drug metabolites in the blood, used to determine optimal drug dosages for patients with Crohn's disease. Though it is only one case, the broader implications of the verdict may have a chilling effect on the diagnostics industry. With personalized medicine on the cusp of being a major money maker for the biotech industry, this verdict could stifle new innovative technologies which may never see the light of day.

According to GlobalData, the US market for in vitro diagnostics grew from $13.7 billion in 2004 to $18.5 in 2011, a compound annual growth rate (CAGR) of 5.2%. We believe that this market will reach $30.4 billion by 2018, a CAGR of 6.6%. However, these projections do not take into account the Court's ruling, which is likely to alter the industry's growth trajectory.

The lawsuit originated in 2004 after the Mayo Clinic, Prometheus's former customer, developed its own version of a blood test which Prometheus had already patented. The Mayo Clinic claimed they did not have to honor the Prometheus patents because they did not believe that anyone could have a monopoly on the metabolites created by a drug, in this case thiopurine, and the drug's impact on the human body.  The argument boils down to the idea that the natural relationship between processes inside our bodies and disease states is not patentable. The Supreme Court agreed, and in the ruling Justice Stephen Breyer wrote: "We conclude that the patent claims at issue here effectively claim the underlying laws of nature themselves. The claims are consequently invalid."

The Supreme Court ruling set a new precedent which no longer allows for the patent statute to be interpreted broadly in favor of biotechnology. This decision will ultimately benefit the large diagnostics companies, like LabCorp, who sided with Mayo Clinic in this case, and Quest Diagnostics, who have the resources to challenge patents from the smaller diagnostic companies. In addition, these larger players have the platforms and laboratories necessary to run many of the in vitro diagnostics currently on the market. However, they usually pay for tests that are patented. This ruling appears to allow these companies to continue the testing that they have been doing, but without paying patent holders. As a result, we will likely begin to see more copycat diagnostic tests rather than innovative tests over the next few years. Going forward, large diagnostic companies and hospital systems will find it cheaper to develop and run their own in-house tests rather than purchasing the technology from small diagnostic companies.

Without reliable IP protection, the risk of licensing new biomarkers from research laboratories is much higher. More importantly, these tests will become much less lucrative if there is no commercial exclusivity or other advantage to being first to market. The players who stand to lose the most from this ruling are small diagnostic developers, who often seek-out and develop new tests and then license them to larger diagnostics companies for marketing in exchange for royalties.  Distributors could continue to sell the tests but refuse to pay royalties. Even if these tests remain on the market, large laboratories that duplicate the tests on their own will undoubtedly erode sales.

The key debate surrounding this ruling is its effect on innovation. Prometheus and its allies argue that denying companies IP protection for new tests means that no one will develop them. This, in turn, will harm patients who will no longer have access to tests that have the potential to help cure diseases. The Mayo Clinic and their allies also claim to be on the side of innovation, arguing that the decision will free researchers from worrying about patent infringement. This will in turn, they argue, lead to a broader and deeper variety of tests available for use. Only time will tell which argument will prevail, and most importantly whether or not patients will be harmed by the Court's decision.

Before the Prometheus ruling, another patent case involving Myriad Genetics had received the most media attention. The Myriad Genetics case relates to patents the company holds on genes specific to breast cancer, which are being challenged by a group of physicians, researchers and patients, coordinated by the American Civil Liberties Union (ACLU). Lower courts have been divided on the issue, and the US Supreme Court has not yet announced whether they will hear the case. However, considering this decision, it is highly unlikely that the Court will grant Myriad and similar companies the right to patent genes.