The U.S. Supreme Court ruling that human genes can’t be patented shows the court drawing a firmer line between products that naturally occur and those that are created by humans and it will force biotechnology companies to adjust.

In many regards, they already have.

In seeking a patent on the BRCA genes for breast cancer, Utah company Myriad Genetics (Nasdaq: MYGN) was trying to protect the genetic tests it had developed to test for the cancer. But the high court’s ruling last week said that just isolating a naturally occurring segment of DNA is not enough to secure a patent.

Even though Myriad did not get the BRCA gene patent protection it wanted, it can still claim a victory. The court said patents on synthetic DNA, or cDNA, are still allowed meaning Myriad’s patents on those parts of its technology remain protected.

That’s probably why the company’s stock price initially soared after the court decision was released, said Edward Ergenzinger, a patent attorney with Ward and Smith in Raleigh who also has a Ph.D in neuroscience.

A company whose business model is based sole on the sale or use of naturally occurring genes could face problems from court’s decision. But the reality is that there are few such companies now.

Most biotechnology companies these days are not based on a single patent around an isolated naturally occurring DNA sequence, Ergenzinger said. He notes that Myriad Genetics has already developed a proprietary database of DNA sequence variants and related clinical information for the BRCA-1 and BRCA-2 breast cancer genes. Even if a drug is based on human DNA, companies usually have patents covering the synthetic DNA or the methods of using DNA and new applications of knowledge about naturally occurring genes.

“In fact, there has been a shift over the past decade where most genetic patents are now for synthetic sequences, so some in the industry view synthetic DNA as the most commercially important form of DNA used in biotechnology,” Ergenzinger said.

Change in 30 years of patent policy

The court’s decision to disallow patents on human genes runs counter to the last 30 years of U.S. patent policy.

Thirty years ago, no one really knew how to apply patent law to molecular biology, said John Ryals, CEO of Research Triangle Park Company Metabolon. If a company isolated a gene from its natural source and purified it from the other molecules that were naturally associated with it, that was enough to secure a patent. A company could describe or define the gene and get a patent without needing to show a use for it. The bar for patenting a gene wasn’t very high and as a result, thousands of patents were allowed over the years without showing a strong use, Ryals said.

Metabolon isn’t directly affected by the court’s decision. The company’s technology measures small molecules and biomarkers and its patents cover methods and uses of Metabolon’s proprietary technology. But Ryals believes that the court decided the Myriad case correctly. And even though the decision runs counter to the last 30 years of patent policy, Ryals said it’s in line with a U.S. Supreme Court decision last year in another biotech patent case, Mayo v. Prometheus.

In Mayo v. Prometheus, the Supreme Court held that the body’s process for metabolizing drugs is a natural one that can’t be patented. Therefore, observing that process without adding anything else to it did not rise to the level being patentable. That decision has had an impact on diagnostic methods patents that involve the correlation between diseases and certain biomarkers, Ergenzinger said. It’s still possible to get patents but it’s a higher threshold. The company must show that its patent claims go beyond what happens in nature.

“It’s tricky – if claims are too broad they may be struck down, but if they are too narrow it may not adequately protect the invention from copycats,” Ergenzinger said.

At about $4,000, Myriad’s BRCA gene test is not cheap. And even though the Supreme Court ruling protects Myriad’s synthetic patents, it ends Myriad’s lucrative monopoly on testing the BRCA gene. For fiscal 2012, Myriad reported $496.0 million in revenue, the vast majority of which came from the BRCA gene test, according to company filings. In the wake of the Supreme Court’s Myriad decision, companies and at least one university are moving to offer cheaper and broader genetic testing for breast cancer.

Competitors to Myriad gene tests emerge

Within hours of the decision, the University of Washington and Ambry Genetics, a closely held company in Aliso Viejo, California, said they would immediately offer expanded testing that included the BRCA1 and BRCA2 genes, which Myriad has had under patent since the late 1990s. Quest Diagnostics Inc. said it would sell tests for the genes later this year.

As a result of the Supreme Court’s Myriad ruling, women can now undergo one-time testing for a wide band of genes that have been linked to breast and other cancers, said Mary-Claire King, the University of Washington geneticist who first proved that a single gene could vastly raise breast cancer risk, leading to the discovery of BRCA1.

That genes are products of nature and can’t be patented “has been the view of geneticists for a very long time and now it is the law of the land,” King told Bloomberg News. “I fully expect that many firms will enter this market.”

The U.S. Patent and Trademark Office issued a memorandum following the ruling that ordered its examiners to reject patent claims on isolated DNA, saying the high court ruling “significantly changes the office’s examination policy.” Further guidelines will be issued once the agency reviews the decision, according to the memo signed by Andrew Hirshfeld, deputy commissioner for patent examination policy.

While the University of Washington and Ambry previously sold DNA tests that evaluated a variety of genes linked to higher cancer risk, the screens couldn’t include the BRCA genes because of Myriad’s patents. Women who needed additional genetic testing beyond the BRCA1 and BRCA2 genes had to go through multiple rounds of often-expensive testing.

Ambry, which is offering a basic form of its BRCA test for $2,200, posted a headline on its website soon after the decision saying, “Your Genes Have Been Freed.” The company also will include the BRCA genes for no extra cost in several broader based cancer risk tests it already offers.

At the same time, the closely held Gene By Gene Ltd., based in Houston, issued a statement saying it would offer BRCA testing for $995 in the U.S.

(Bloomberg News contributed to this report)