How much investor funding goes into diagnostics research and development is a poor way of judging whether U.S. Supreme Court decisions on patent eligibility have discouraged the development of new tests, since most development doesn’t rely on outside funding, an R Street Institute researcher said in a new study.

The number of genetic tests listed in the National Institutes of Health’s voluntary Genetic Testing Registry increased sevenfold from 2013 to 2022, with the vast majority of those being laboratory-developed tests, or LDTs, that can skip the costliest parts of regulatory approval, Charles Duan said in a report released Tuesday. By looking at only outside-funded innovation, most growth in diagnostics is being left out of the picture, according to the libertarian think tank’s senior fellow.

“That growth in LDT development challenges the conventional view that investment in clinical diagnostics is the key marker for innovation in that technological space,” the report concludes. “It suggests a need for more holistic research on the relationship between patent policy and innovation, in particular accounting for user-driven innovation. Most importantly, it suggests a need to consider carefully any changes to patent eligibility law that may diminish ongoing rapid development in this technological space.”

In 2012, the Supreme Court held in Mayo v. Prometheus that a diagnostic test correlating a blood test with a treatment plan comes down to a natural law not eligible for patent protection.

Ever since, most diagnostic patents that are challenged are controversially invalidated. The Supreme Court has shot down multiple attempts to challenge that precedent, even when urged by the solicitor general to do so in 2019.

As recently as October, two former U.S. Patent and Trademark Office directors and two former federal circuit judges claimed there has been a $9.3 billion drop in investment in diagnostic research and development since Mayo, adding that new legislation allowing diagnostic patents needs to be passed. They threw their support behind Sen. Thom Tillis’ Patent Eligibility Restoration Act, which would expand diagnostic patenting.

But Duan, who is also a member of the USPTO’s Patent Public Advisory Committee, says those arguments may be missing the point. For every commercial test, there have been 500 laboratory-developed tests, and the number of tests overall on the voluntary registry has exploded from 13,565 total reported in 2013 to 100,134 total in September 2022, the R Street report states.

“The failure of patent policy experts to consider the role of LDTs in the diagnostics industry exemplifies a more general failure of patent law to consider the role of ‘user-innovators,’ namely those individuals and firms that innovate not so much to profit off of the sale of proprietary technology as to use that technology to enhance their own businesses and practices,” Duan said.

While the registry launched in 2012, Duan said the data from that year likely isn’t useful since it reflects a low level of industry participation.

Commercially sold tests need clearance from the U.S. Food and Drug Administration to be sold, which includes showing that tests are safe and effective, and generally costs around $24 million overall, Duan said. That price tag means developers need help with the funds.

But LDTs work under a Centers for Medicare and Medicaid Services regulatory framework, where the agency sets standards for the laboratory itself and those working there, but doesn’t investigate individual tests, Duan said. Its commercial sales are over test results, not the test themselves, he added.

“That the vast majority of these tests were LDTs confirms that the ongoing focus on venture capital and investment in diagnostics is potentially misplaced,” the report states.

Those working on developing new products also may not place their emphasis on monopolizing inventions to make a profit, Duan said, noting that clinical laboratories often freely share discoveries such as new genetic variants on an online database to help other researchers.

A law like the Patent Eligibility Restoration Act could end up slowing innovation if protection for diagnostics were greater, by making it less likely that discoveries would be shared broadly and collaboratively, and discouraging the development of LDTs, he said.

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