(IBTimes) -
Will
Mayo v. Prometheus
Fire Up Pharma?: Kevin DeGeeter
Source: George S. Mack of
The Life Sciences Report
(5/10/12)
http://www.thelifesciencesreport.com/pub/na/13314
Newly discovered biomarkers could provide physicians with
information that will aid in the diagnosis and treatment of
disease. The big question for investors is whether, in light of
the recent Supreme Court ruling
Mayo Collaborative Services Inc. v. Prometheus
Laboratories,
companies will be able to profit from that innovation. In this
exclusive interview with
The Life Sciences Report
, Kevin DeGeeter, senior analyst with Ladenburg Thalmann &
Co. Inc., shares the names of a select group of companies with
good prospects, focusing on those targeting "sweet spots" in
personalized medicine.
The Life Sciences Report:
You are focused on personalized medicine. On March 20, the U.S.
Supreme Court ruling in
Mayo Collaborative Services Inc. v. Prometheus
Laboratories
was handed down. At issue was whether using a diagnostic test to
adjust a drug dosing regimen could be patented. The decision was
unanimous in favor of Mayo Foundation for Medical Education and
Research (nonprofit) on the grounds that a company cannot patent
laws of nature. This is a sweeping decision, and there is no
appeal. What is the immediate effect of this?
Kevin DeGeeter:
The immediate effect is to create more confusion in the
diagnostics group than a material change in the commercial
landscape would. Obviously, Mayo will now be able to go out and
sell its specific test. The test that Prometheus (owned by Nestle
S.A. [NESN.VX]) was selling isn't really material in the
commercial sense of the market. The question is: What does this
mean for intellectual property that's been issued to other
companies in this space, and how does this impact potential
competition?
I'd be cautious about extrapolating too much from the
Mayo v. Prometheus
decision. The rubber will hit the road when future cases end up
in the U.S. Circuit Court of Appeals, which handles more
day-to-day, mundane intellectual property disputes. How does that
group of judges interpret this specific decision from the Supreme
Court? On that issue, it's important not to take too broad a view
of what the court was saying.
TLSR:
Will this case be predictive of
ACLU v. Myriad Genetics?
KD:
It's not at all predictive of
ACLU v. Myriad.
The specific issues in
Mayo v. Prometheus
pertain to what is known as a method patent-machine versus
transformation. U.S. patent law has long held that something
existing in nature cannot be patented. Of course, underlying
everything in the life sciences are basic observations about
nature. What the court said in
Mayo v. Prometheus
is that Prometheus had not done anything novel and had not met
the standard of achieving a transformative act. In
ACLU v. Myriad,
the central issue is whether a diagnostic company can seek and be
granted patent protection pertaining to the isolation of a
specific gene or gene variant in the body. It refers to a
composition of matter patent, which really wasn't impacted one
way or the other in
Mayo v. Prometheus.
TLSR:
How might the Mayo ruling affect drug development with biomarker
assays? A developer patents a drug based on its composition of
matter and methods, and the drug goes through clinical trials
with a biomarker assay included in the package submitted to the
U.S. Food and Drug Administration (FDA). What is the effect?
KD:
At the margin, it is incrementally positive if you're a drug
company. If there is a biomarker for a subpopulation of patients,
the FDA strongly encourages drug companies to identify the
population that will benefit most. In an environment where
pricing is difficult, if you are able to identify a narrower
patient population that may get a greater magnitude of benefit,
that would ultimately help a drug company in the form of smaller
clinical trials and a stronger position with insurance companies.
From the drug maker's perspective, a diagnostic test that is low
cost and widely available improves patient access and is more
appealing to insurance companies, which are looking at the total
cost of providing both the screening test and the drug. Every
dollar that goes into the pocket of a diagnostic company and its
companion diagnostic is in essence a dollar that comes out of the
pocket of a pharmaceutical company.
TLSR:
Do you think that
Mayo v. Prometheus
is going to have a chilling effect on development of diagnostics,
but will actually be helpful in drug development where biomarkers
are used?
KD:
Yes. Overall, my view is that
Mayo v. Prometheus
is likely to be negative with regard to new companion diagnostics
being brought to market. From a drug company's perspective,
anything that lowers the bar for diagnostic intellectual property
protection is going to be welcomed because it may increase access
to diagnostic testing to a wider audience, which ultimately means
more people could use the drug associated with the companion
diagnostic.
TLSR:
Kevin, is there a sweet spot right now in personalized
medicine?
KD:
The sweet spot is in oncology and for single-marker tests, which
tell you something about one specific mutation or gene variant.
That is where, on a day-to-day basis, clinicians use personalized
medicine in the most tangible way for their patients. From a
regulatory perspective, this is where the FDA has been clear
about how the world of diagnostics and the world of drugs can
come together.
TLSR:
Is a genomic marker more bulletproof than a molecular marker from
a patent standpoint?
KD:
It's not necessarily more or less bulletproof.
TLSR:
Which companies are you talking to investors about currently?
KD:
There are several that play into your question about where the
sweet spot is in personalized medicine.
NeoGenomics Laboratories (NGNM:OTCBB)
provides oncology testing services and works directly with the
pathologist, who then reads the tests from a given specimen and
hands that information off to the oncologist providing day-to-day
care to a patient. The company has benefitted from the increasing
complexity of cancer testing, specifically with pathologists and
oncologists working in smaller communities where capital budgets
may not be available for the latest equipment and the full range
of testing that a patient facing a diagnosis of cancer may
need.
Last quarter we saw really nice 72% year-over-year growth,
which is coming from test volume growth. NeoGenomics is a really
interesting smaller-cap name that plays directly off the themes
we've been talking about today. Many of the tests it provides,
although very complex, are not proprietary to the company, which
means NeoGenomics does not have the direct intellectual property
issues overhanging other companies in the diagnostic space at the
moment.
TLSR:
Serving pathologists who don't have access to a large teaching
hospital or major medical center is an interesting business
model. You recently wrote that the "tech-only" segment is roughly
70% of NeoGenomics' business. What about the remaining 30%? Are
there pathologists working at the company? Does it perform as a
traditional reference lab?
KD:
The other 30% of NeoGenomics' business, as you correctly describe
it, provides both analysis and staff pathologists who can say
"that's cancer" or "that's not cancer," then relay the
information back to the community oncologist. To be clear, most
companies in this space, and most of the larger companies, such
as Quest Diagnostics Inc. (DGX:NYSE) or Laboratory Corp. of
America Holdings (LH:NYSE), provide both the analysis and the
interpretation.
The differentiating point in the NeoGenomics model is its
focus on the "tech-only" segment. Part of the reason its business
is growing so quickly is because while pathologists know how to
read slides and interpret results, there's such a rapid change in
the underlying technology that there's a pressing need for a
company like NeoGenomics to help bridge the gap.
TLSR:
Your next company?
KD:
The next company is in the cardiovascular diagnostic area.
BG Medicine (BGMD:NASDAQ)
has two diagnostics that it is bringing to market. One is
CardioSCORE, a seven-biomarker test that predicts a patient's
risk of having a heart attack. Obviously, the test appeals to an
extremely large market because heart attack is of major concern,
both medically and psychologically, for most Americans as they
get older. The test has been filed with the FDA for a 510(k)
clearance. The company should hear back on the decision later
this year. We think CardioSCORE could be a very substantial test
for the company.
The second product tests for galectin-3, a biomarker for heart
failure. Patients with high levels of galectin-3 have more
fibrosis in the heart. BG has been able to show that a patient
with more fibrosis in the heart has a higher risk of heart
failure and of having a negative outcome. One of the reasons we
like the galectin-3 test-a really interesting second prong to the
BG story-is that there is a specific molecule in the rinds of
certain fruits and vegetables that will lower galectin-3 levels.
This is an actionable piece of information that doctors can talk
to patients about. Physicians can recommend dietary supplements
or foods that contain a lot of the active agent to bring
galectin-3 levels down over time and improve a patient's
prognosis.
TLSR:
I spoke to the company eight years ago when it was called Beyond
Genomics. Its focus back then was on oncology, and it saw itself
as a systems biology company. What transformed it?
KD:
The Beyond Genomics business model ran its course, probably about
six years ago. It was one of the earliest companies to look at
how basic insights from mapping the human genome could be
translated into clinically useful therapeutics. There are a
couple of things that are valuable and interesting in the
company's lineage. First off, unlike nearly all diagnostic
companies, BG started off with a more therapeutic focus. In
practice that meant running large clinical studies and thinking
about clinical data as being the central piece of how to develop
value. Most of the early genomics companies found that to create
value they needed to be able to find a relatively small number of
projects to work through to commercial completion. In the case of
BG Medicine, the two lead programs ended up being in
cardiovascular health.
TLSR:
What is the next company you wanted to speak about?
KD:
I want to talk about
Sequenom Inc. (SQNM:NASDAQ)
. The company's MaterniT21 test is a new, noninvasive test to
screen for Down syndrome and other potential birth defects. The
test is based on a sequencing platform from Illumina Inc.
(ILMN:NASDAQ), so it taps into and combines cutting-edge genetic
sequencing technology with the clinical ability to bring better
products to the market. The product has shown very strong
performance, with 99%+ sensitivity and accuracy in detecting Down
syndrome. It was launched in October and has so far, admittedly
early, exceeded our expectations in terms of commercial adoption.
It's a large market, more than 4 million (
M
) pregnancies a year in the U.S.
I think it's interesting in the context of the conversation
we're having that this is a case where intellectual property is
important. Specifically, Sequenom has licensed some of the
earlier patents on processes for extracting and interpreting
fetal DNA from maternal blood. At least three private companies
have announced plans to launch-or have launched-similar products.
Each company has filed a lawsuit against Sequenom, claiming that
Sequenom's broad patents are either not applicable or not valid.
The question is working its way through the court system. The
first of the suits was filed in December 2011, so we don't have
much feedback yet in terms of the ultimate legal outcomes. In the
next six to 12 months, I think we'll begin to see some more
clarity.
From the investor's standpoint, there is a tremendous amount
of interest in this product. The test is technologically
complicated and is first to market, before potential competitors.
If the court ultimately deems that other competitors can't enter
the market or can't enter the market without licensing Sequenom's
intellectual property, that's additional upside in our view.
TLSR:
Do you have another company you wanted to speak about?
KD:
Yes, a last one that's germane to the topic.
Genetic Technologies Ltd. (GENE:NASDAQ;
ASX:GTG)
launched a pretty interesting test for predicting a woman's
nonhereditary risk of breast cancer. You're familiar with
Myriad Genetics Inc. (MYGN:NASDAQ)
, which provides the BRACAnalysis test for BRCA1 and BRCA2 gene
mutations to determine if a woman is at high risk for eventually
developing breast or ovarian cancer. The BREVAGen test from
Genetic Technologies also tells a woman something about her
genetic risk of eventually developing breast cancer, but it looks
at markers that are not hereditary.
TLSR:
Somatic mutations?
KD:
Precisely. The BREVAGen test was launched last June, and the
company's sales force effort has only begun to ramp up in the
last three to four months. The other reason I think it's
interesting in light of our discussion is that part of the
company, admittedly a legacy business model, was involved in
gathering intellectual property around what was known as
noncoding DNA (ncDNA) and then licensing that intellectual
property to third parties, diagnostic companies and testing labs.
In the last couple of years, it has used a carrot-and-stick
approach in dealing with companies that want to license. For
those that the company thinks are infringing, it has been
systematically filing lawsuits and then seeking licenses as a
means of settlement. The company has been able to recoup pretty
significant economic inflows from that strategy. This is an
example of a different model used to capture some of the value of
discoveries made through observations in genomics, but it's been
a very constructive element for the company.
We think that the intellectual property it's been licensing
really isn't affected by the
Mayo v. Prometheus
decision specifically, because it involves very important
connections between underlying biology and discoveries that were
not at all obvious. This is an important distinction when
interpreting
Mayo v. Prometheus.
The court was saying a company can't use something that was
obvious to anyone in this field. In the case of a lot of the
intellectual property on ncDNA, when those patents were filed
there was very little understood about the basic biology, and the
patents actually helped to inform our understanding.
TLSR:
It was called "junk DNA" actually.
KD:
Exactly. We had an entire vernacular that described why it wasn't
relevant. Now many of those same segments of DNA are central to
and backbone components of what we look for in certain genetic
tests. That's an important distinction. I look at a company like
Genetic Technologies, and I don't want to lump it in with players
that may be in a more challenged position due to the outcome of
the Prometheus case.
TLSR:
Kevin, thank you.
KD:
Thank you.
Kevin DeGeeter
is a director at Ladenburg Thalmann & Co. Inc. He is
responsible for equity research coverage of personalized
medicine and medical device companies with market
capitalizations between $50M and $5 billion. His coverage
focuses on molecular diagnostics and medical equipment used to
treat oncology, cardiovascular disease and infectious disease,
as well as related research markets. Prior to joining Ladenburg
Thalmann he was an analyst at Oppenheimer & Co., with
responsibility for small-cap molecular diagnostic and
biotechnology stocks. He has 10 years of buyside and sellside
research experience, including positions with J. P. Morgan,
PaineWebber, Natexis Bleichroeder and Manning & Napier
Advisors. DeGeeter received a bachelor's degree in economics
from Colgate University.
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DISCLOSURE:
1) George S. Mack of
The Life Sciences Report
conducted this interview. He personally and/or his family own
shares of the following companies mentioned in this interview:
None.
2) The following companies mentioned in the interview are
sponsors of
The Life Sciences Report:
NeoGenomics Laboratories and Genetic Technologies Ltd. Streetwise
Reports does not accept stock in exchange for services.
3) Kevin DeGeeter: I personally and/or my family own shares of
the following companies mentioned in this interview: None. I
personally and/or my family am paid by the following companies
mentioned in this interview: None.
4) Ladenburg Thalmann & Co. Inc. acted in an advisory
capacity on a private securities transaction for Genetic
Technologies, Ltd. (
GENE
) in the last 12 months. Ladenburg Thalmann and Co. received
compensation related to investment banking services from Genetic
Technologies, Ltd. in the last 12 months. Ladenburg Thalmann
& Co. Inc. expects to receive or intends to seek compensation
for investment banking services during the next three months for
all companies mentioned. Directors of Sequenom Inc. have an
affiliation with members of the boards of directors of companies
in which the chairman of Ladenburg Thalmann Financial Services
Inc., the parent company of Ladenburg Thalmann & Co. Inc.,
has a beneficial interest. Genomic Health Inc. (
GHDX
) and Teva Pharmaceuticals Industries (
TEVA
) have joint distribution interests. The chairman of Ladenburg
Thalmann Financial Services Inc. is also chairman of Teva. The
chairman of the board and controlling shareholder of Ladenburg
Thalmann Financial Services Inc., the parent company of Ladenburg
Thalmann & Co. Inc., is the chairman of the board, CEO and
director and controlling shareholder of Opko Health Inc. Members
of the board of directors of OPK have a noninvestment banking
securities-related relationship with Ladenburg Thalmann & Co.
Inc. Ladenburg Thalmann & Co. Inc. makes a market in shares
of NGNM, BGMD, SQNM, GENE and MYGN.
5) Beyond Genomics is not covered by Ladenburg Thalmann & Co.
Inc. and is not a recommendation to buy, hold or sell the
security.
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