How to Profit from the Supreme Court DNA Ruling

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A rather complicated U.S. Supreme Court ruling in Association for Molecular Pathology v. Myriad Genetics, Inc. came out last week on whether life or more specifically DNA can be patented.

I don't want to talk about the science behind the ruling. It gets complicated. Rather, I'd like to simply breakdown how the High Court's decision can affect your wallet.

There are two distinct parts in the unanimous decision and both parts impact the market in different ways.

You may have seen Angelina Jolie in the news lately? She had a preventative double mastectomy because a genetic test indicated she was highly at risk for developing breast cancer.

Well, the Supreme Court ruling actually deals directly with the development of genetic testing.

The first part of the ruling says that DNA segments which occur naturally are ineligible for patenting.

That means biotech companies which presently have patents on a naturally occurring DNA segments will be hard-pressed to enforce them.

It effectively opens the doors to other researchers, who have been blocked in the past from utilizing these patented DNA segments in their work.

As a result, look for newer, better, cheaper, and more widely available genetic tests that can alert people if they are at risk for a range of illnesses.

Count one point for consumers and zero for patent-holding biotech companies.

However, interestingly, due to the 2nd part of the Supreme Court's ruling, biotech companies holding patents don't necessarily come out as losers.

Here's why:

Part 2 of the ruling decrees that synthetic (as opposed to natural) complementary DNA ("cDNA") *is* patent eligible because it is man-made.

After the Supreme Court's decision regarding artificial DNA, Myriad Genetics, Inc. (NASDAQ:MYGN), the defendant in the case, seemed optimistic and stated that it "…has more than 500 valid and enforceable claims in 24 patents conferring strong patent protection for its BRACAnalysis test."

Companies holding patents on artificial complementary DNA at least know those patents are enforceable.

An interesting side note, Myriad's BRACAnalysis is the very same test used by Angelina Jolie.

The company saw its stock go up as much as 4% on the day after Jolie made her public statement. However, after the High Court's decision, it dropped a whopping 14%.

Analysts are mixed on Myriad's future, but many believe despite the pricing pressures it will now face from increased competition, Myriad has faster test-to-results time, fantastic sales, marketing, and customer service, and a "massive proprietary database of variant mutations."

Myriad aside, the Supreme Court decision does two cool things for the biotech industry that investors should look out for.

First, the decision that naturally occurring DNA is ineligible for patents opens up the market for other companies to develop tests.

In fact, after the ruling was issued, several companies immediately announced plans to launch tests that will include Myriad's previously off-limits BRCA1 and BRCA2 genes.

Investors should pay attention to biotech companies that are scrambling to compete in the genetic test market.

Second, with a Supreme Court ruling on point, the biotech industry finally has a rule of thumb to follow in regards to what they can and can't patent.

Increased predictability lends itself to better business.

Money Morning's own Defense and Tech Specialist Michael A. Robinson voiced some wise words a few months back when this case popped up on the Supreme Court's radar:

"Biotech firms, federal agencies, hospitals and colleges are investing millions each year in genetics research. They need clear guidance as to exactly what qualifies for a patent. So, in that sense, any decision is good news for biotech companies in the long run because it removes the one thing Wall Street hates above all else…Uncertainty."

All-in-all, a win for consumers, investors, and the biotech industry alike.

What do you think of using genetic testing to determine the risk for certain ailments – have you tried it? Would you? Please comment below.

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