Biotech partner faces chop

A legal scrap has broken out over the ownership of one of New Zealand's main biotechnology projects.

Partners in ArborGen - which is pioneering the breeding of genetically modified trees - are set to become embroiled in court action which could see listed biotech company Genesis Research expelled from the joint venture.

But yesterday Genesis Research went on the attack, saying it was facing action from the other three partners in ArborGen.

Those partners include Carter Holt Harvey's US parent company International Paper and local listed company Rubicon. The third partner is US pulp and paper company Mead-Westvaco.

Genesis told the stock exchange it strongly rejected the claims and allegations made by ArborGen.

Just what those allegations were is less clear.

Rubicon chief executive Luke Moriarty declined to comment yesterday.

It is understood the dispute is highly complex but is, ultimately, about the ownership of intellectual property generated by the project.

Two months of negotiations to sort out ownership grey areas were unable to resolve outstanding issues about rights to the use of intellectual property.

Under the terms of the joint venture, Genesis could be expelled if it was proved that it had materially breached its contract.

Genesis was served notice that it was facing legal action late on Friday.

Aware that the news could eventually leak to the market, the company went to the NZX yesterday morning.

Genesis shares immediately fell 12 per cent to 35c, although they bounced back to close at 37c.

There is little love left between Genesis and Rubicon - a company which evolved from the remains of Fletcher Challenge and owns a majority stake in Tenon.

The two had a similar dispute in 2001 over joint venture intellectual property rights that had to be resolved by arbitration.

Genesis chief executive Stephen Hall said yesterday that his company intended to defend vigorously the proceedings and preserve its stake in ArborGen.

"It was our vision of creating this international venture that got it off the ground," he said. "Out of that, we took a 5 per cent stake and licensed technology which gave us rights to royalties."

The three major ArborGen shareholders agreed in 2000 - when the joint venture was established - to put US$4 million a year into the company for five years.

Unlisted biotechnology companies are notoriously difficult to value but, in 2002, a Grant Samuel report said Rubicon's stake in ArborGen was worth between $49.4 million and $98.8 million.

ArborGen is working on radiata pine, eucalypt and loblolly pine. It aims to develop traits such as herbicide tolerance, reduced lignin content (to create logs which are more easily pulped), faster growth and more reproductive control.