Genesis flush after ArboGen stoush settles

Auckland-based biotech Genesis Research (ASX/NZSX:GEN) has received a valuable boost to its bottom line after an out-of-court settlement of its long-running dispute with former US ally, Delaware-based forestry biotech company ArboGen.

Genesis will receive US$5.5 million (about NZ$7.7 miliion) from ArboGen in return for exiting its forestry-related activities, including its ownership interest in the US company. Genesis will transfer all its forestry-related technology and IP to ArboGen, along with "certain specified agbio technology and IP."

Both companies have agreed withdraw all legal action against each other over their dispute, which Genesis CEO Stephen Hall described today as "incredibly complex".

"We had a service contract with them, and they paid us to continue working on particular programs building on our previous work [with ArboGen]," he said.

"There were disputes about the work we did and delivered, under the main equity agreement, and our right to use various technologies for our own work.

"We'd had discussions for years, and it was one of those things that just went sour and got worse and worse in the face of our inability to resolve the issues.

"Both companies were liable for expulsion in the event of any major breach of our agreements, they sought our expulsion and we counter-claimed, and we were heading to court, which would have involved a lot of expense on either side.

"In recent negotiations, we came to a settlement that we believe offers both companies a way forward.

"For Genesis, [the exit payment] basically doubles our cash backing, giving us cash reserves for three years at our current burn rate -- that's significant compared to most Australasian biotechs, and gives us the credibility and a substantial cash buffer to get on with our core work in medical applications of RNA interference technology."

Under the terms of the settlement, Genesis will not operate in the forestry field. The company had already made a strategic decision late in 2003 to spin out an independent subsidiary, AgriGenesis, to commercialise its strong IP portfolio in forestry and plant science. Genesis felt investors were undervaluing the agbiotech component of its diverse IP portfolio.

Genesis and ArboGen have agreed that Genesis will maintain its rights to receive royalties on certain patented technologies, if they are included in commercial products developed and marketed by ArboGen.

ArboGen will pay Genesis a further $1.5 million if its ownership undergoes further restructuring before March, 2007.