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The much hyped Supreme Court ruling regarding legal claims that challenge its patent landscape is out for Myriad Genetics Inc. (MYGN - Analyst Report) and it seems like a halfway triumph for this molecular diagnostic company.

The Issue

In Nov 2012, Myriad revealed that the U.S. Supreme Court would review the decision of U.S. Court of Appeals for the Federal Circuit. It applies to the company’s composition of matter claims that isolated DNA of the BRCA1 and BRCA2 genes are patentable. Earlier, in Apr 2012, U.S. Court of Appeals for the Federal Circuit declared that Myriad’s composition of matter claims covering isolated DNA of the BRCA 1 and BRCA 2 genes were patentable.

Following the Supreme Court review, earlier ruling by the Federal Circuit Court of Appeals to declare the patentability of Myriad’s composition of matter claims covering isolated DNA of the BRCA 1 and BRCA 2 genes were subject to legal scrutiny once again. The legal claims pertain to the company’s flagship Bracanalysis test. The decision was anticipated in Jun 2013.

The Verdict

While the apex court upheld Myriad’s patent claims on complementary DNA or cDNA, the other five claims from the company to cover isolated DNA were declared not eligible for patents by the U.S. Supreme Court. According to the Court, most of Myriad’s unchallenged claims pertain to ‘method claims’ applying knowledge about BRCA 1 and BRCA 2 gene. This implies patent eligibility for the company’s ‘method claims’.

Subsequent to the ruling, Myriad currently has over 500 valid and enforceable claims in 24 various patents for its Bracanalysis test. This still reflects a solid patent landscape for the company’s primary revenue driver.

The Implications

The landmark Supreme Court ruling declared that isolated human genes are not patentable. This represents a downside for Myriad. As a result, the stock tanked 13.81% (or $4.42) on Jun 14 following the much awaited decision.

This is likely to spur competition for the company as its leadership in the market stands challenged. The decision also provides headway for other companies in the market which Myriad served with its exclusive Bracanalysis test. With the entry of new players, imminent price competition is another cause of concern.

Nonetheless, cDNA or synthesized DNA was declared patentable. The Supreme Court also upheld the patent eligibility of the company’s method claims. As most of Myriad’s patent claims were upheld, the company still has a strong patent protection for its Bracanalysis test.

We wait to see the impact of the Supreme Court ruling on Myriad’s growth profile going forward. Until then, the stock carries a Zacks Rank #1 (Strong Buy) on the back of positive estimate revisions for the ongoing and next fiscal and stellar earnings performance over the past few quarters.

Other Zacks Rank #1 stocks that warrant a look are Anika Therapeutics Inc. and Biogen Idec Inc. (BIIB - Analyst Report). Alexion Pharmaceuticals, Inc. (ALXN - Analyst Report), carrying a Zacks Rank #2 (Buy) is also likely to do well.

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