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VSA Capital Market Movers - Genus

VSA Capital Market Movers - Genus

Genus: Second Update on US Court Case
Animal genetics firm Genus (LON:GNS) has delivered its second update on the ongoing US anti-trust court case against Inguran LLC (Sexing Technologies).
• Jury has found that two patents of Sexing Technologies regarding the sorting of particles (#8,206,987, #8,198,092) were valid and infringed by Genus ABS.
• Jury has also found that Genus ABS had materially breached confidentiality obligations under the 2012 semen sorting agreement between the two parties.
• A verdict on damages with regards to these matters is to be decided later this week.
• GNS awaits the court’s decision on a number of other motions related to the provisions of the 2012 semen sorting agreement and is considering post-verdict motions.
VSA Comment
This important trial for GNS began on 1 August and was expected to last up to three weeks. It concerns GNS’ sexed semen operations, which typically make up 5-10% of GNS’ total straw sales.

Following a mixed result in its first update yesterday (Sexing Technologies had maintained a monopoly since July 2012 but GNS had not suffered injury as a result of it), this second set of rulings is clearly not in favour of the company.

The best case scenario from this court case would have resulted in financial compensation (c£6m spent on legal costs since 2014) as well as the immediate go-ahead to launch its own in-house developed sexed semen technology (ramp-up in FY 2017, full impact FY 2018), saving GNS c£5m per year in operating costs (c1.5% of group operating costs).

It seems likely that GNS may now be ordered to pay damages. We had assumed that GNS would be allowed to continue to use the licensed technology from Sexing Technologies until its current contract expires in 2017. However, we are now waiting to see what the implications for its existing contract with Sexing Technologies, given GNS has been ruled to have breached confidentiality obligations, and also whether GNS will be free to launch its own sexed semen technology.

As we have previously said, whatever the result of this action, it is likely that there will be an appeal either way.

The GNS share price has had a significant post-Brexit run-up, increasing more than 30%, from a level that we already believed overvalued the company. We would continue to take the opportunity to take profits at the current level.

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