How Genetic Technologies turned junk into gold

Genetic Technologies (ASX: GTG) is betting that a lot of companies want to use its technology.

The company, formed in 2000 by the merger of GeneType and Duketon Goldfields and subsequently listed on the Australian Stock Exchange, is aggressively pursuing licensing and partnering opportunities with local and international biotechnology companies for their non-coding DNA patents.

Genetic Technologies' non-coding DNA patents cover more than 95 per cent of the human genome, as well as non-coding DNA in animals, plants and microbes. Broadly speaking, the patents cover intron sequence analysis and genomic mapping methods using non-coding DNA sequences. They also have patents for techniques of foetal cell recovery and sorting.

According to the chairman of Genetic Technologies, Dr Mervyn Jacobson, GeneType was originally founded to look at non-coding DNA sequences in 1989. With the completion of the human genome draft in 2000, the patents owned by Genetic Technologies have suddenly become very hot property.

"After 13 years and $20 million, we now have the proven technology, published science, and patents issued," Jacobson said. In February 2001, Genetic Technologies took out patent insurance and retained Blakely, Sokoloff, Taylor and Zafman, a specialist licensing firm based in the US. Since then they have started negotiations with more than 20 companies, in Australia, USA and Europe.

"There are a very large number of companies that would benefit from a license," Jacobson said. He said that a lot of companies don't even realise that they are infringing on Genetic Technologies' patents and that reactions to the news is mixed.

"In Europe, companies are usually apologetic when they find out. But US companies are in denial about patent infringement," he said. Jacobson added that the company has been pursuing legal action against a large US company for patent infringement.

Genetic Technologies' first licensing agreement, with Australian company Genetic Solutions, was announced in early February. Genetic Solutions provides testing systems based on genetic markers for the agricultural livestock and aquaculture industries. Dr Jacobson also hinted at a possible closer relationship with Genetic Solutions down the road. The license agreement provides Genetic Technologies with an upfront payment, plus royalties on future sales. The company hopes to be profitable this year based on licensing revenues.

"The Genetic Solutions deal is very advantageous to Genetic Technologies," said Intersuisse analyst Peter Russell, adding that it would help to raise the company's profile and prove the basis of its patents. He went on to say that a lot of Genetic Technologies' business strategy is resting on the patent claims, which until now have been largely untested, and that the market has reflected this uncertainty.

Genetic Technologies is also pursuing co-listing on the US technology stock exchange Nasdaq, which Jacobson hopes will bring the company an even higher profile. The company completed the first stage of listing using American Depositary Receipts in January. Jacobson said US investors hade a high level of interest in biotech, but that trading internationally was difficult and discouraged investors. The co-listing would also assist with any future plans to expand operations in the US.

But he maintained that Genetic Technologies would remain an Australian biotech company.

Genetic Technologies has several subsidiaries. The original company - GeneType - performed much of the research that has resulted in the patents. They also established a DNA testing service, originally focussed on paternity testing and forensic investigations. This service is now looking at expanding into testing for other human genes, including disease genes, and also DNA testing of animals, plants and even pathogens.

Another subsidiary of Genetic Technologies is RareCellect Ltd, which has been developed to commercialise the foetal cell recovery platform. Other projects include ImmunAid - a collaboration with scientists at the University of Western Australia, and the Pathogen Genetics and Genomics program in collaboration with scientists at the University of Melbourne.

Background on non-coding DNA and GTG's patents

Non-coding DNA is all of the DNA that doesn't contain genes. This includes introns, or spacers between parts of the gene, regulatory sequences that control the expression of the genes and areas of unknown function.

Until recently, a lot of this DNA was considered to be 'junk' DNA, of no apparent use. However, since the Human Genome Project released its draft human genome sequence, there has been increased interest in the non-coding regions of the genome.

Only five per cent of the human genome appears to contain genes and the remaining 95 per cent is non-coding DNA. GeneType's research has shown that there is a large amount of useful highly ordered genetic information in the non-coding regions of the genome, and that specific non-coding DNA sequences are inherited along with specific gene variants, or alleles. This was originally discovered in the major histocompatibility, or tissue typing genes, but has since been shown by GeneType to happen with other genetic loci in humans, other animals, plants and other organisms.

Genetic Technologies has several patents covering non-coding DNA. One group of patents deals with non-coding sequences in introns. A second group of patents utilises these non-coding regions in genomic mapping strategies. These patents have many applications including but not limited to development of DNA testing methods using the non-coding DNA regions.

A different group of patents covers Genetic Technologies' foetal cell recovery technology platform. This platform relies on the presence of small amounts of foetal cells in the maternal blood and uses flow cytometry techniques to sort the foetal cells from the maternal cells. The genetic profile of the foetal cells can then be examined without the side-effects inherent to methods such as amniocentesis.