Genus sell-off overdone as patent trial was 'success', say analysts

After a US court decided against Genus over a dispute over 'sorted semen' technology, analysts at house broker Peel Hunt and independent VSA Capital said the ruling was a "positive outcome" and that the sell-off in the shares was an overreaction.

A Wisconsin court said Genus must pay market leader Inguran's Sexing Technologies (ST) $1.25m upfront and $0.75m for breach of confidentiality obligations plus ongoing royalties of $1.75 per straw of semen to ST if Genus continues to commercialise its technology.

ST may still appeal, but as it is Genus will make royalty payments through to patent expiry in 2023 of $1.75 per dose, of which $1.25 relates to patent 987 and $0.50 for patent 092, which the patent office is examining in September, so might not continue.

VSA analysts said the damages award looked "fairly light" compared to previous settlements in the sector and, the good news was that the company will be free to commercialise its own sexed semen processing technology.

VSA calculated the likely result of the royalty as an operating cost saving of circa £5m, minus the royalties paid to ST. Genus sexed semen operations currently make up 5-10% of the company's total straw sales.

For Peel Hunt, based on its calculation that a wholly successful outcome of the court case would add a net £5m to Genus' profits from its currently sales of around 1m doses per annum, the jury's findings were said to equate to around £1.5m of royalties a year through to 2023 if it applies to all of the doses, resulting in a net benefit to Genus of £3.5m initially.

"This only addresses the current volumes and change in royalty with ST – there will be further opportunities for Genus as it commercialises its technology and develops IVF."

Peel Hunt noted that there are a number of further motions to be determined, plus possibly appeals, but the aspects of Genus' claim of wilful monopoly and ST's of patent infringement have been decided.

With Genus having sought an injunction from the court to allow the 2012 contract to be terminated on 90 days notice and to provide relief from restrictive provisions under the contract, a decision is expected within the next two months, with a successful outcome enabling Genus to enter the market prior to the contract ending in 2017.

With the positive outcome of the trial, the share price movement was described as "erroneously based on just one aspect of the trial", Peel Hunt has a target price of 2,600p on the shares.