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(Editors' Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.)

Executive Summary:

  • Failed delivery technology was responsible for RNAi biotechnolgy failures in the past.
  • Benitec's ddRNAi platform overcomes RNAi problems of the past.
  • The ddRNAi platform can knock down multiple genes at once providing greater flexibility.
  • The ddRNAi platform is validated with $31.5 million dollars of private placement money from private institutions.
  • Current Market Cap of $83.9 million can lead to big gains if the "One Shot" hepatitis C virus cure pans out.

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There is one RNAi biotech that has a radically different approach to delivering RNAi molecules that may prove to be useful for this specific sector. This RNAi biotech is known as Benitec Biopharma (OTCPK:BNIKF), and is an Australian company. It trades on the OTC as BNIKF, but on the Australian exchange it trades under the symbol BLT. RNAi stands for RNA interference, and in essence interferes with the mRNA -- messenger RNA -- from producing proteins of the targeted diseases. The goal is to stop the disease from being able to produce these proteins at all. There is no possibility of knowing how RNAi will play out, as there are no approved RNAi products on the market. It seems though that RNAi may be able to produce clearance of certain diseases.

Limitations Of RNAi molecules In The Past

RNAi biotech companies in the past were shunned as bad investment prospects because of the failure for the naked siRNA molecules to be delivered to the targeted cells in an efficacious manner. This is where a lot of the RNAi companies ran into a lot of trouble in being able to get the siRNA molecule to the cell, and into the cell itself for proper cellular uptake. The siRNA molecule that is created naturally inside the nucleus of the cell affects Benitec's drug by silencing the genes of the hepatitis C disease. The silencing of the genes blocks the creation of the proteins thereby inhibiting production of the disease. Here are some examples of RNAi problems, that prevented proper delivery of the siRNA molecule:

  1. Rapid degradation - This means that scientists couldn't figure out a way to deliver the siRNA molecule through the body to reach the cell without having it breakdown in some way. This limitation never allowed RNAi molecules to reach their full potential.
  2. Modification - This meant that scientists had to figure out a way to modify the molecule so that it wouldn't degrade in the body. The problem with such modification is that it can take away special properties of the siRNA molecule such as potency, selectivity, and integration.
  3. Specific tissue or cell - Building an siRNA molecule to get to the target cell was one hardship, the other hardship was the ability to find the right location on the cell for proper cellular uptake.
  4. Higher dosage - siRNA molecules in a small bundle were weak so they needed higher dosing to penetrate the cells properly. This higher dosing lead to higher toxicity for the patient.

RNAi Delivery Technology With A Twist

As mentioned above each of the other RNAi companies have either figured out a way to deliver the siRNA molecules with a delivery vehicle, or have turned the RNAi compound into a drug itself. Benitec expands on the same function as RNAi, but does so with a new twist. That twist is attaching DNA coding with a precursor molecule known as short hairpin RNA -- shRNA. This collective effort of sending both the shRNA along with DNA coding is a new platform that Benitec has created known as ddRNAi. This ddRNAi stands for DNA-directed RNAi. Both the shRNA along with the DNA coding are sent directly to the cell's nucleus. When both components reach the nucleus of the cell they allow the cell to produce a natural siRNA molecule. This is different from other RNAi biotechs which create synthetic siRNA strands that they send via encapsulation. This new method may prove to be more viable over time, because it is possible to see more efficacy in a compound that is able to produce a natural siRNA molecule as opposed to creating a synthetic one. What makes this technology good is the ability for it to down regulate genes of diseases with a very small amount of genetic DNA code. As little as 5 copies of DNA molecules can be expressed continually years afterwards. This allows Benitec to be able to treat diseases with a single low dose of the drug, and allow the drug to work years afterwards as the genetic code is long lasting.

Lead Compound TT-034

Benitec is attempting to do a single dose cure of the hepatitis C virus. It will be using its ddRNAi technology to create siRNA molecules -- small interfering RNA molecules -- naturally in the cell's nucleus.

(click to enlarge)http://www.benitec.com/gene-silencing.php#hepc

source: Benitec website

As can be seen above Benitec is targeting 3 parts of the hepatitis C virus genome which are: shRNA-22, shRNA-19, and shRNA-6 respectively. For starters the ddRNAi platform utilizes DNA construct coding so Benitec is using DNA vector coding to create the DNA constructs. The DNA vector constructs will then be sent with the shRNA molecule to the center of the cell's nucleus where the cell will produce the siRNA responsible for down regulating the genomes of the hepatitis C virus. The reason why Benitec chose 3 genome targets is because its ddRNAi technology is flexible, and can target multiple genomes in the same dose. This flexibility will ultimately allow Benitec to achieve its one shot cure for the hepatitis C virus. The main reason why a lot of compounds fail now to cure the hepatitis C virus is because as the treatment goes on the hepatitis C genome targets become suppressive. By suppressive we mean that they are able to become resistant to the current drug target that is treating against them. With Benitec having the ability to target all 3 genome targets at the same time means the company can overcome the problem of a resistant hepatitis C virus. We believe that overcoming this resistance can be the first step to resolving a cure for the virus. According to the World Health Organization there are 150 million people worldwide infected with the hepatitis C virus. Of those 150 million people 350,000 die every year from hepatitis C-related liver diseases. If left untreated the virus can create new symptoms such as cirrhosis, and liver cancer. The trial for TT-034 will be run at the Duke Clinical Research Unit In North Carolina. The CEO Dr. Peter French explains the reasoning for selecting Duke as one of the main sites for the phase I/II trial for TT-034, and how positive results will transform the company in these quotes.

"We are very excited to be working with Duke, a world renowned research institution with significant experience in this area."

In the above quote Dr. Peter French is establishing Duke as a great site to test the hepatitis C virus drug, because of the extensive research done on this location for the virus. Building upon previous research for clinical testing at Duke, along with a new platform, Benitec should be able to establish the trials properly so that it may obtain positive results.

"The TT-034 trial marks the transition of Benitec to a clinical stage company. We expect that positive results from the trial will provide a value inflection point for the company, and also be a validation for ddRNAi technology as an effective platform."

In the quote above the CEO describes the outcome of a one shot cure for the hepatitis C virus. The outstanding results from the trial would lead to a surge in share price as their ddRNAi platform would be validated. This could lead to more partnerships, and license revenue in the future for the company.

The phase I/II trial is expected to begin the first dosing in patients in March 2014. This trial is an open-label dose escalation study that will evaluate the safety, and efficacy of TT-034 as a one shot hepatitis C cure. The trial will enroll 14 patients with genotype 1 version of the hepatitis C virus, and will only enroll those patients who had failed previous treatments. This is better for Benitec, as it will prove that it can help patients who have undergone standard of care treatment before, and failed to achieve any improvement from the virus. Upon substantial efficacy results Benitec may enroll more patients, and increase the doses of the compound as time goes on.

TT-034 Pre-Clinical Results

The TT-034 compound had been tested in a pre-clinical setting by Tacere Therapeutics -- now acquired by Benitec -- and Pfizer (NYSE:PFE). The results of the pre-clinical testing were positive, and thus the reason for moving the clinical compound into phase I/IIa testing. The results were positive for three reasons that create a big change in the hepatitis C space. The first positive result in the trial was that the drug was able to achieve complete transduction on all liver cells tested without causing toxicity to the body. Transduction of the TT-034 drug occurs when the DNA is transferred to the cells by a DNA vector. The second positive results from the study was that the compound was able to achieve excellent safety, that came nowhere near the danger of the current standard of care therapy for the hepatitis C virus known as Interferon. The final positive result from the study was effectiveness at inhibiting -- stopping -- the circulating isolates of the hepatitis C virus. The isolates of the hepatitis C virus are the genome sequences that are associated with the virus. Not only was the compound able to inhibit the genomes of the hepatitis C virus but it was able to do so by preventing the resistance of the genomes through the use of the three shRNA sequences described above. As mentioned above the ability to block this resistance of the hepatitis C virus to adapt to treatment can possibly lead to the single dose cure Benitec is aiming to achieve. These positive pre-clinical results were published in a medical journal known as "Nature Molecular Therapy Nucleic Acids" under the title "Deep Sequencing Insights in Therapeutic shRNA Processing and siRNA Target Cleavage Precision". These results are outstanding and we think that phase I/IIa should expand upon these positive efficacy results already achieved.

Financials

According to the Appendix 4-C quarterly cash flow filing in Australia, Benitec had $5.17 million dollars in cash as of December 31, 2013. This compares to 3 months prior in September 31, 2013 where it had at least $6.2 million dollars. Even with the $5.17 million dollars in cash it was inevitable for Benitec to raise more cash somehow to operate the clinical pipeline. This occurred just recently on February 24, 2014 where Benitec made a private placement agreement that gave the company $31.5 million dollars of additional cash. One good thing to note is that the ddRNAi technology was validated in this offering. This ddRNAi technology was validated because private placement money was given by big institutions. These institutions are: Sabby Management, RA Capital Management, Perceptive Advisors, Special Situations funds, along with some Australian money managers, all of whom put down their own private money to fund the company. This proves in a way that these big funds are confident in pouring millions of dollars because they too believe in the ddRNAi technology. The funds will be used to advance the lead compound TT-034 as a "one shot" cure for the hepatitis C virus. Other clinical programs to be advanced will be indications for hepatitis B, macular degeneration, and a lung cancer drug.

Risks

There are some risks that are associated with a small-cap biotechnology stock that is only in clinical trials they are:

  1. The technology of the ddRNAi platform may be able to achieve a one shot cure for the Hepatitis C virus but there is no guarantee.
  2. The ddRNAi platform has been validated in pre-clinical studies, but substantial efficacy results in humans will be seen during the phase I/II clinical trial of TT-034.
  3. Benitec trades on the OTC under BNIKF, and the OTC stock is known for more liquidity and faster short term swings. One should consider the risk of holding for long term gains.
  4. Even upon approval Benitec may face a lot of competition from big pharmaceutical companies, and other small-cap biotech companies who are also targeting the hepatitis C virus.
  5. A failure on the ddRNAi technology would put a big red mark on the rest of the pipeline.
  6. Thus far safety issues are null, but this is the first time a ddRNai tech is being used in humans. So adverse effects should be watched closely by investors.
  7. Once put up for approval there is no telling whether the FDA will approve the compound in its current form.
  8. RNAi research is still fairly new so investing in this new area of research carries substantial risks to be invested in this new area of research.

Catalysts in Pipeline For 2014

  1. Hepatitis C Trial to begin Dosing early to mid March 2014.
  2. Advancement of Lung Cancer program Tribetarna Toxicology studies early 2014.
  3. Begin Phase 1 trial of drug resistant lung cancer program late 2014.
  4. Progress on Calimmune's HIV/AIDS preclinical program sometime in 2014 which has been out-licensed to the company.

Conclusion

We think that by Benitec being able to target all 3 genomes at the same time, and blocking the ability for the hepatitis C virus to resist should allow for positive efficacy results. We think that Benitec has something going for itself if they are able to cure the hepatitis C virus from patients with a single injection. Such ability would be great for patients, and a breakthrough in RNAi research that could be established further in other disease areas with unmet medical needs. The current share price is around $1.98 per share and has just about doubled from its old share price of $0.78 per share. This increase in share price is due to the huge demand in the RNAi space because a lot of these technologies are starting to show positive results. Whereas in the past a lot of them failed to produce substantial efficacy results because of the inability to create proper delivery vehicles for the drug compounds. Even with the doubling of the share price to around $1.98 per share the market cap for Benitec is only at $83.9 million. We believe that Benitec is still an excellent long term buy at this level.

Source: Benitec: An Undiscovered Biotechnology With A Twist

Additional disclosure: no position in other stocks mentioned