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Supreme Court Patent Cases Haven't Hindered Diagnostics Innovation, Preliminary Data Suggest

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NEW YORK (GenomeWeb) – Several recent landmark Supreme Court patent decisions have not squelched diagnostics innovation as many in the field had feared, preliminary data collected by Duke University's Arti Rai and Santa Clara University's Colleen Chien suggest.

At a conference on precision medicine at the University of Utah last week, Chien presented data from their research exploring whether the Supreme Court's decisions in Mayo v Prometheus in 2012 and Bilski v Kappos in 2010 have hindered innovation by making it more difficult to patent and pay for diagnostics.

In Mayo, the court unanimously struck down Prometheus Laboratories' method claims for dosing thiopurine drugs, reasoning that measuring metabolite levels of the drugs in patients' blood to determine proper drug dosing takes advantage of a law of nature that cannot be patented. In Bilski, the court held that Bernard Bilski's software patent claims for hedging risk in commodities trading were invalid, not because it failed to meet the so-called machine-or-transformation test — a previously applied test of patentability where a process must either be tied to a machine or apparatus or transform an article into a different state ― but because the claims described abstract ideas.

These decisions marked a shift in the court's application of Section 101 of US patent law, which states that inventions or discoveries of a new and useful process, machine, manufacture, or composition of matter are worthy of patents, with the exception of several judicial exceptions: laws of nature, natural phenomenon, and abstract ideas.

In the precision medicine space, industry players interpreted the court's decisions in Mayo combined with the outcome in AMP v Myriad ― in which the Supreme Court ruled that isolated gene sequences were patent ineligible as products of nature ― also as bad news for innovation in the field.

The Mayo and Myriad decisions "sent a jolt" through the biotech industry, recalled Bernard Chao, a University of Denver patent law professor, at the precision medicine conference. Immediately after the AMP v Myriad decision, former US Commissioner of Patents Robert Stoll was quoted as saying the Supreme Court justices made "a very bad decision," and predicted that it would "really reduce research in a lot of areas."

In order to find out if indeed these court decisions were hindering innovation, Chien and Rai looked at 31,000 patent applications on "core" diagnostics ― standard tests that interrogate the relationship between a biomarker and outcome ― as well as 6,000 patent applications on enabling technologies, such as, tests that gauge a panel of genes or assess gene expression. They looked at applications filed between 2002 to the end of 2014, since there is an 18-month lag between filing a patent application and its publication.

"Our results are preliminary and show only that there doesn't appear to have been a clear decline in patent applications," Rai, co-director of the Duke Law Center for Innovation Policy, told GenomeWeb in an e-mail. "That said, the number of applications [in the core diagnostics sector] has not grown as much as in the 'tech' comparator field."

The Mayo decision likely impacted the core diagnostics field more than technology-focused tests and devices, Chien said at the conference, because "biomarker patents are right in the sweet spot of what Mayo was attempting to address."

Although there was a slight dip in the number of core diagnostics applications filed in 2012, the year Mayo was decided, the numbers picked up again and have remained higher than they were in the years before the court's decision.

Applications on enabling technologies have also increased during the study period. "You see a much smoother path, and there is not much sensitivity to the decision that you see immediately, but there has been a small decline in 2014," Chien said.

One potential reason for the decrease in applications, she noted, could be Alice v. CLS Bank, a 2014 case in which the Supreme Court justices ruled that a computerized escrow service was patent ineligible, because it was an abstract idea without an inventive step. Another rationale for the dip in applications that year could be the difficult reimbursement environment for diagnostics.

In the spring of 2014, labs and diagnostics firms were facing the possibility of deep reimbursement cuts. The Centers for Medicare and Medicaid Services had proposed a rule that starting in January 2015 they would review more than 1,000 CPT codes under the clinical lab-fee schedule and make pricing adjustments based on what it determined were commercial payor rates. In reaction, industry stakeholders pushed the Protecting Access to Medicare Act of 2014 through Congress, which will set up a market-based payment system in 2018 that most firms in the field believe is a better alternative to what CMS had been proposing in 2014.

In her conversations with venture capital investors and diagnostic companies, Chien said she found that changes to the reimbursement regime was much more important in guiding business decisions than changes to the patent landscape.

As another positive indication of innovation, Rai and Chien found that US inventors still account for 63 percent of all patent applications filed and have retained their dominance globally. Moreover, firms with less than $10 million per year in revenues are still filing the most patent applications after Mayo, followed by the largest players in the space with more than $1 billion in annual revenues. "There are still a lot of small companies applying for diagnostic patents here," Chien said. "It has maybe declined a little bit from 2011, but we don't see an evidence of a clear decline."

Rai and Chien also found some evidence that patent claims may be getting narrower, containing more specific language, in light of Supreme Court decisions refining what it takes to transform a law of nature or abstract idea into a patent-worthy invention. Using the length of a claim as a proxy for its narrowness, Rai and Chien found a 12 percent increase in the length of the first claim in core diagnostics patent applications compared to a 2 percent increase in the length of first claim in applications from the tech-enabling testing sector.

"Narrower scope could be a good thing from a long-term social welfare standpoint, but not necessarily perceived as such by those filing patent apps right now," Rai told GenomeWeb.

Looking outside the patent system, since 2013 there has been a spike in the number of biomarker agreements filed with the US Securities and Exchange Commission. This data could mean "that diagnostic innovation is going really strongly, but maybe the patents aren't growing as quickly as the agreements are," Chien said, noting that since the Mayo decision occurred recently, it's difficult to extrapolate definitive conclusions about its impact.

At the same meeting in Utah last week, the University of Denver's Chao shared conclusions from his analysis of whether the Mayo decision had increased USPTO rejections of personalized medicine patent applications citing a failure to meet the Section 101 eligibility threshold. Chao analyzed nearly 86,000 USPTO actions on approximately 39,000 personalized medicine patent applications from Jan. 3, 2006 to Oct. 21, 2015.

Before Mayo, the USPTO rejected around 780 personalized medicine patent applications on Section 101 grounds, and 554 applications overcame the initial rejections. Following Mayo, the USPTO rejected approximately 1,460 personalized medicine applications citing Section 101, and 430 of those applications overcame those initial rejections and were granted, while some 4,300 applications are still pending.

Chao now plans to drill further into the data and investigate specifically how applicants get over Section 101 rejections; explore if these types of rejections are more pronounced for simple, complex, and companion diagnostics; and look into whether rejections differ by USPTO examiners. He has heard anecdotes of patent examiners "looking like they're not applying the Mayo decision," and Chao believes that some USPTO examiners may be resistant to applying Mayo as broadly as "the unbiased, logical implications of that decision are."

Shubha Ghosh, director of the technology law program at Syracuse University, reflected at the conference that the data emerging from these studies suggest that in personalized medicine, innovation is happening at the intersection of software and biotechnology. "We're going to maybe see a movement from genes to data," he said.

For example, Myriad Genetics, after the Supreme Court in 2013 invalidated several of its patent claims on isolated BRCA1 and BRCA2 gene sequences, filed a patent entitled "gene signatures for cancer prognosis," which, as Ghosh pointed out, isn't about the genes themselves but focuses on "extracting data and making inferences on that data." He expects there will be more of these types of patent applications going forward.

Industry observers mostly thought Myriad, and the whole biotech industry, would suffer if the Supreme Court deemed gene patents ineligible. Three years after the decision, Myriad remains the market leader in hereditary cancer genetic testing, and has launched a number of new diagnostic products. "If you look at their stock price and their performance right after the [court's] decision, they did quite well," Chien recalled, though she pointed out that the company may be starting feel a financial impact from increasing competition.

In the fourth quarter of fiscal year 2016, Myriad's revenues fell by 2 percent and in the first quarter of fiscal year 2017, revenues were down 3 percent compared to the year ago period due in part to lower hereditary cancer testing sales.

One of Myriad's main market advantages is a large, proprietary database of genetic variants, which has enabled it to interpret patients' variants with a high level of accuracy and report fewer variants with unclear links to breast and ovarian cancer compared to competitors. Some legal experts had opined that as a result of the Supreme Court's decision to invalidate Myriad's BRCA patent claims, companies would hold their genetic data close to their chest and increasingly utilize trade secrets.

However, a growing number of labs are depositing genetic variant data into public repositories, such as ClinVar, and even some drug firms are sharing this data, but plenty of life sciences companies aren't. Chien and Rai plan to look at whether in the aftermath of Myriad and Mayo more companies are using trade secrets to gain a market advantage. 

"When Myriad was decided in 2013, everybody sounded the death knell of biotechnology," Ghosh said. "It certainly isn't that. What the future is, is a different story, and that's what we're examining now."

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