The ‘Money’ Genes

ECONOMIC IMPACT OF THE HUMAN GENE PATENT

While patent offices around the world have been granting patents which lay claim to human gene sequences for decades, the matter was famously decided in the US case of the Association for Molecular Pathology v Myriad Genetics. Myriad owned the rights to two genes, BRCA1 and BRCA2. Any mutation to these genes dramatically increases a woman’s chance of developing breast and ovarian cancer.

Does this mean that if you are sitting with a BRCA1 or BRCA2 gene that Myriad could now lay claim to it? The simple answer is no. A gene patent is one that includes one or more claims over an isolated or purified genetic sequence. It is this isolated gene sequence and not how it would occur naturally in the human body that can be patented.

The grant of such patents has caused much controversy. It is widely believed that the existence of a patent covering isolated biological material might inhibit research and development, thereby depriving society of advances in medicines and diagnostics. Furthermore, as in the Myriad case, the presence of the patent means that the high cost of carrying out the test for this gene mutation prevents many from seeking such care and bars them from the benefits of early detection. There is also a perception that patents hinder competition and without competition firms are at liberty to charge seemingly exorbitant prices for their products. However, is the impact of gene patents purely negative and what factors can be used in determining the economic impact of these patents?

In order to assess the possible economic impact of these gene patents, it is necessary to return to basics – what exactly is the economic rationale behind a patent? A patent provides an inventor with a limited period of exclusive control over the invention. During this time nobody is allowed to make use of the invention without obtaining permission. It essentially encourages people to innovate and to share the knowledge behind the innovation by granting them a legally enforceable right to exploit the invention for a set period. A patent is therefore a trade-off between innovation on the one hand and competition on the other.

The commercial barrier involved in bringing an idea to the market can be vast. Inventions in the medical field typically take 12-15 years and billions of dollars to become products on the market. Even then, such inventions are not always successful. Before a product or diagnostic test can even reach the market, research is conducted, clinical trials are carried out, the necessary regulatory permission is obtained and only then is the product manufactured and launched. An invention based on a human gene patent is no different. Companies, both private and public, spend hundreds of millions of dollars every year in research and development. The gene sequence is then applied to diagnostic testing such as in the Myriad case or for the development of medicines. Without the promise of a possible financial benefit, there would not be an incentive for such an investment. Companies rely on the added cash flow created by the patent rights due to licensing agreements and the bargaining strength in the market place.  Patents are therefore one way in which to recoup high development and commercialisation costs, which enables the transfer of technology between the researchers and companies.

The belief that patents grant a monopoly and therefore supress competition is not entirely correct. It is arguable that a partial monopoly is created as technical and economic substitutes can serve as competitors. In the same way, while the monopoly might delay testing as in the Myriad case, and does hinder research to a certain extent, it is arguable that the sole purpose of a patent is to incentivise innovation and spur the innovation of others. It creates a market for innovation as rival firms or researchers “design around” the innovation. The patent process disseminates information providing tools for fellow researchers or rival firms to seek new innovations. Often, as new innovations are developed, the patented innovation slowly becomes more expensive to maintain than the financial gains it provides, thereby causing the market to look towards alternatives, thus driving the cycle.

While South Africa is not a key player in the field of genetic research and in particular, gene patents, it is interesting to note that economic impact is not necessarily all bad. The purpose of patents is essentially to create incentives for new developments and advances in technology, ultimately to benefit society as a whole. However, as with most things in life, it doesn’t come without pitfalls and trade-offs.

Hillary Brennan – Attorney
hillary@rademeyer.co.za

Monty Rademeyer – Partner
monty@rademeyer.co.za