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Investing in Genetic Testing Technology

Written By Brian Hicks

Posted October 16, 2013

In 2013, the American Cancer Society reports there will be approximately 232,340 new cases of invasive breast cancer. Approximately 39,620 deaths will be due to breast cancer, which makes it the second leading cause of death for women. Women have a one in eight chance of developing breast cancer, with a one in 36 chance of dying from it. But the death rate for breast cancer has been declining because it’s being detected earlier and treated better.

biotech researchEarly detection is imperative to increasing the chances of survival, and identifying the risk of breast cancer is even more important. Mutations in the BRCA1 and BRCA2 genes increase a woman’s risk of developing ovarian and breast cancer. Being able to identify mutations in the BRCA1 and BRCA2 genes can save millions of women’s lives.

Myriad Genetics Inc. (NASDAQ: MYGN) was the first company to develop testing for mutations in the genes responsible for the higher risk of ovarian and breast cancer. And until the U.S. Supreme Court invalidated its patents on the genes, the company ruled the industry.

Since the ruling of the U.S. Supreme Court, competing companies have come out, particularly Ambry Genetics Corporation, Quest Diagnostics (NYSE: DGX), and Gene by Gene. The introduction of gene tests from other companies is driving the costs down, which has been a major blow to Myriad’s revenue.

Quest is offering a version of the tests at 40% less than Myriad’s. The company’s tests will identify variations in BRCA1 and BRCA2 for $2,500. If there is a family history or the ethnicity of the person indicates an increased risk for cancer, patients can opt for the simpler tests costing $500.

Myriad is attempting to protect itself from its competitor’s lower pricing by emphasizing its higher quality standards. From Bloomberg:

“We feel we offer a test that is the gold standard in quality,” said Ronald Rogers, a Myriad spokesman, in a phone interview. “We have the fastest turnaround time” and “the lowest” rate of returning ambiguous results, he said.

While quality matters, money talks – especially to those who merely want to find out if they are carrying the mutated genes.

Quality standards are something many companies depend on when trying to stay ahead of their competitors; however, as more companies such as Ambry Genetics and Gene-by-Gene also come out with their versions of the tests, Myriad’s quality may also be passed up, especially as more research from other companies results in more sophisticated testing.

Legal Complications

Since the debut of the new tests, Quest has voiced concerns Myriad may attempt to sue the company with a patent-infringement lawsuit. Myriad has already attempted to bring patent-infringement lawsuits against Ambry and Gene-by-Gene, filed less than a month after the U.S. Supreme Court decided there could be no patents on BRCA gene testing. Quest is currently seeking a court order from the federal court in Santa Ana, California, which will protect it against any such lawsuits.

Once the legal issues with BRCA are over, biotech companies will likely have free reign over testing. They will be able to conduct research for new variations and possibly come up with more sensitive tests, which will identify the BRCA mutations better than the ones Myriad has come out with thus far.

As more awareness is brought to ovarian, breast, and other cancers, and as early detection is made possible, more people will be undergoing testing to determine their risk for cancer. This means the biotech industry is about see a huge increase in activity and profit.

More money will now be poured into research and modern advancements, and people around the world will be seeking the tests to find out if they hold the gene for ovarian and breast cancer.

As an investor, you can profit from the research and sales of the BRCA1 and BRCA2 tests. Investing in well-established companies that are on the road to developing their own testing will be the best way to start setting your sights on the industry.

Myriad is not a good option, as it has passed the height of its success. With new companies moving in, it will likely see incredible declines in revenue. It’s already down 16 percent this year, and these losses could continue.

Its competitors, however – particularly Quest – are positioned for gains in the next few years, and those are returns you don’t want to miss.


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