Looming Tekna Lawsuit Verdict, What You Need To Know

We are bullish and current shareholders of Tekna as we believe the Company is in the early innings of a multi-year super cycle as demand for their advanced metal materials and PlasmicSonic systems grow across applications in 3D printing, consumer electronics, aerospace, and medical. See latest Tekna reports. 

However, Tekna remains in a legal dispute with Advanced Powders & Coatings (AP&C), a subsidiary of GE, where AP&C alleges Tekna is infringing on their patent for the production of titanium powder via plasma atomization (Tekna patent). While the court case was completed in 4Q22, Tekna is currently waiting on the verdict and we believe a decision will be made in the coming months. GE acquired AP&C when they acquired Arcam in 2016, which is an OEM of electron beam additive manufacturing systems. AP&C acquired the patent in question when they bought PyroGenesis, which developed a plasma atomization process to produce metal powders.

Different Scenarios

• If the verdict goes in favor of Tekna, we believe it represents a meaningful relief catalyst for shares. We also believe it may open up Tekna as a premier acquisition candidate, given the Company’s leadership in plasma atomization and relationships with leading aerospace and consumer electronic companies.  

• If the verdict does not go in favor of Tekna, we expect shares to see a meaningful sell off as there is material risk that the Company’s production and sales of titanium powder may be restricted in the near term. Materials accounted for ~62% of total sales in 2023, and we assume titanium sales accounted for at least 50% of those sales. In addition, the Company’s low cash position ($10M as of 1Q24) becomes increasingly concerning if this dispute is not won. Per Tekna’s 2022 Prospectus, the Company may incur costs related to the payment of historic royalty for titanium powder sold under the disputed patent. 

We are not attorneys, and admit patent infringement cases are challenging. We estimate the verdict has a 50/50 chance of going in Tekna’s favor. That said, given Tekna has had 18+ months since the court case concluded, we believe the Company has implemented workarounds to limit longer term disruptions if they lose the verdict. We are willing to remain shareholders given the traction Tekna has had over the last 18 months with aerospace and new consumer electronic customers. We specifically remain upbeat on the consumer electronics opportunity, and view Tekna as an indirect AI play as we highlight in our note here. Tekna laid out upbeat longer term financial targets on their 1Q24 earnings call, which were in-line with our estimates heading into earnings. If Tekna executes on 70% of their long-term revenue target, we believe it can translate into material upside for shareholders.

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