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Analysts Provide Mixed Views on Myriad After Supreme Court Agrees to Rehear Patent Case

NEW YORK (GenomeWeb News) – Wall Street analysts took a mixed view of Myriad Genetics today following the announcement on Friday by the US Supreme Court that it would review a lawsuit challenging the company's patents related to the BRCA1 and BRCA2 genes.

Mizuho Securities and Goldman Sachs both downgraded the Salt Lake City-based firm's shares to Neutral following the announcement. In a research note Mizuho's Peter Lawson said that although Myriad remains a "best-in-class molecular diagnostics lab company and fundamentals of the business remain unchanged," its stock could languish as oral arguments in the case will not be heard until March 2013.

Isaac Ro of Goldman Sachs added that a ruling against Myriad would result in a loss of protection over patents applicable to more than 80 percent of the firm's revenues.

Others, however, had a more favorable view, saying that the court could likely affirm a decision reached in August by the US Court of Appeals for the Federal Circuit that isolated genes are patentable, but that certain methods patents that compare or analyze gene sequences may not be.

"[O]ur bias is that the [appeals' court] ruling will be upheld," Jon Wood of Jefferies said in a note.

The Supreme Court heard the case earlier this year but remanded it to the appeals court — which had already ruled in 2011 in favor of Myriad — after the Supreme Court invalidated patents held by Prometheus Laboratories in a separate case, saying that the patents merely described laws of nature.

Wood had previously said that that case, Mayo Collaborative Services v. Prometheus Laboratories, was a "poor proxy" for the case against Myriad, which was filed by the American Civil Liberties Union, the Association for Molecular Pathology, the Public Patent Foundation, and others in 2009.

"[T]he Supreme Court's decision to invalidate Prometheus' patents, which dealt with 'methods to determine the optimal dosage' of certain drugs used to treat autoimmune diseases, would have limited implications for the relevance of [Myriad's] composition of matter patents," Wood said in his note today. "Clearly, the CAFC's August 2012 ruling, as well as the Supreme Court's decision to consider the case, validated such a view. As such, we believe the Supreme Court will consider the validity of [Myriad's] composition of matter claims under independent scope."

Even if the Supreme Court ultimately rules against Myriad, some analysts believe the company has other forms of protection for its BRCA1- and BRCA2-related business. David Ferreiro of Oppenheimer pointed out that it took Myriad years to establish its BRACAnalysis business and both its methods-of-use patents, as well, as its proprietary database, will be an obstacle to competitors.

Myriad has said that its method-of-use patents covering BRACAnalysis last until 2018, and legal action by Myriad protecting those patents will at least delay competitors from reaching the market with their own BRCA1 and BRCA2 tests for about five years, Ferreiro said.

Additionally, the company has created a unique database of DNA sequence variants and related clinical data. "This database is essential to interpreting BRCA testing results and remains private to [Myriad]," Ferreiro said. "While not impossible to replicate, it will take competitors time to develop comparable expertise."

He also said that competitors would still need to generate clinical data for validation, as well as to negotiate contracts with payors, while Myriad is "deeply entrenched in the market with strong branding, market share, and payor relationships."

The Supreme Court is anticipated to reach a decision on the case in June 2013.