On January 10, 2013, the United States Patent and Trademark Office (PTO) conducted a third (and likely final) public hearing on the impact of patents on genetic diagnostic testing.  This issue has implications across the spectrum of the health care industry – not just for biotech companies, but for research organizations, public and private health insurers, providers, and their patients.

Background

The 2011 America Invents Act (Pub. Law 112-98) directed the PTO to evaluate the availability of independent, confirmatory genetic diagnostic testing and recommend patent and licensing practices in the context of genetic diagnostic testing.  Specifically, the PTO was directed to analyze the following topics:

• How the lack of independent second opinion genetic diagnostic testing may affect the provision of medical care.
• How independent second opinion genetic diagnostic testing may affect existing patent and license holders.
• How exclusive licensing of genetic testing patents may affect the practice of medicine, including the interpretation of test results and the performance of testing procedures.
• The effects that the cost of genetic testing and the availability of insurance coverage have on access to and provision of genetic diagnostic tests.

In early 2012, the PTO held two hearings, at which speakers described two diametrically opposing viewpoints:

• Those favoring changes to the current patent system argued that genetic diagnostic testing patents significantly increase health care costs and reduce access to second opinion diagnostics.
• Those opposed to change asserted that patents are necessary to promote innovation in genetic research by enabling patent owners to recoup their investments in research and commercialization.

The January 2013 hearing elicited more detailed discussion of the effect of current and alternative patent licensing practices on patient treatment, and the role of the federal government and insurance coverage in genetic diagnostic testing.  The hearing consisted of 19 speakers representing the National Institute of Standards of Technology (NIST), the National Institute of Health (NIH), academia, patent owners, patent pooling companies, insurance analysts, patient advocates, the biotechnology industry, and patent lawyers. 

Some of the key issues discussed at the hearing are summarized below.

Licensing:  Best Practices and Forced Hands

• With respect to the impact of patent licensing on genetic testing activity, Henry Wixon, Chief Counsel to the NIST, stated that securing regulatory approval for clinical diagnostic testing can be expensive, and that incentive structures (such as those provided for so-called “orphan drugs”) could be useful to induce investment into secondary genetic diagnostic testing.
• Mark Rohrbaugh, Director of the Office of Technology Transfer at the NIH, discussed the agency’s general preference for nonexclusive licenses.  Dr. Rohrbaugh noted, however, that some genetic testing technologies have not yet been commercialized because interested companies have refused to accept NIH’s nonexclusive license provisions, and that rarely is more than one party interested in licensing NIH’s early stage genetic patents.  On rare occasions, the NIH will offer exclusive licenses for products with high development risks (such as class 3 medical devices) in specific fields-of-use, which can be renegotiated if specific due diligence measures and aggressive performance milestones are not met.  Dr. Rohrbaugh also discussed the government’s march-in rights, stating that they are most useful as a deterrent.
• Kristin Neuman, Executive Director of Librassay® (a new patent licensing facility offered by MPEG LA, LLC) discussed her company’s experiences in pooling and nonexclusively licensing genetic patents for commercialization as examples of working within the current patent system.

Medical Insurance and Science Behind Second Opinion Diagnostic Tests

• Bruce Quinn, from the Coalition for 21st Century Medicine, testified that Medicare doesn’t generally cover repeat diagnostic tests.  Medicare only pays for one genetic test for a given analyte in the lifetime of a beneficiary.  In addition, Medicare does not provide coverage for a number of existing genetic tests on the basis that they are not supported by sufficient research.  Dr. Quinn also noted that it is difficult for small genetics companies to negotiate private medical insurance reimbursement for their diagnostic products, characterizing the genetic diagnostics field as having more of a “valley of death” problem than a “free rider” problem. 
• Patient advocacy groups testified that information regarding the accuracy and reliability of genetic testing should be in the public domain.  Deborah Leonard, representing the College of American Pathologists, and Charis Eng, Chair of the Genomic Medicine Institute of the Cleveland Clinic, both contended that genetic tests need to be replicated on a national basis by pathologists to ascertain the quality of any particular test. 
• Some witnesses argued that there is no significant need for second opinion testing.  For example, Hathaway Russell, a patent attorney representing the Coalition for 21st Century Medicine, stated that the mere duplication of diagnostic tests does not address the uncertainty of results.  Russell argued that patents will encourage the development of innovative, superior, design-around diagnostic tests that are far more useful than a second opinion diagnosis. 
• In a similar vein, Hans Sauer, Associate General Counsel for Intellectual Property for the Biotechnology Industry Organization and Leonard Svensson from BIOCOM, cautioned that Congress should await more empirical evidence about error rates and the quality and sensitivity of genetic tests before taking any legislative action. 

The Impact of the Supreme Court’s Ruling in Myriad

• Finally, both sides of the pending U.S. Supreme Court case, Association for Molecular Pathology v. Myriad, presented their positions as to whether or when genetic material can be patentable subject matter.  Almost all acknowledged that the need for any further legislative or regulatory action may be moot if the Supreme Court rules that genes are not patentable.  The Supreme Court granted the petition for writ of certiorari in the case in late November 2012, and thus far has not set a date for oral arguments; its decision is expected in mid-2013.

Implications and Next Steps

The outcome of this debate has important consequences.  A lessening of patent protections for genetic tests may discourage investment in the field, to the detriment of the biotech industry, and thereby deprive the practice of medicine of important tools to reduce the incidence of disease.  However, higher costs of patented tests are likely to affect the cost of health care services and health insurance, which in turn may discourage some patients from obtaining tests from which they could benefit.  Likewise, mandated second opinion coverage could be expected to create cost challenges for health insurers in the more regulated environment of the Affordable Care Act, even though it is possible that some patients could benefit from second opinion testing.

The America Invents Act required the PTO to make its recommendations for establishing the availability of independent confirming genetic diagnostic testing by June 16, 2012.  However, on that date, the PTO’s website announced that a draft report was undergoing an “intra-agency clearance process” and therefore could not be published on the due date.  This announcement was generally interpreted to mean that other interested federal agencies disagreed with, or found incomplete, the PTO’s proposed findings and recommendations.

The date on which the PTO’s report and recommendations will be made available is unknown at present, and the Supreme Court’s expected decision in Myriad may be a factor in the timing of that report.  Many observers believe that the PTO ultimately will defer much of the controversy to the Department of Health and Human Services and its constituent agencies.