Benitec Biopharma (OTCPK:BNIKF) (ASX:BLT) is an Australian biotech company that is about to start recruiting for a Hepatitis C Phase l/ll clinical trial. It has a patent estate in gene silencing that is arguably as extensive as ISIS (ISIS) and Alnylam (ALNY), so why is its market capitalisation so low when compared to these industry leaders?
The answer is twofold:
First, when the field of gene silencing was taking off, circa 2005-07, ISIS and Alnylam were very successful in concluding multi-million dollar deals with big pharmaceutical companies such as Novartis. The field was further strengthened by companies such as Roche and Merck making significant direct investments in the technology, e.g. Merck's billion dollar purchase of Sirna. This influx of cash and the promise of new therapies to replace patent-bound blockbusters saw investor sentiment swing towards the leaders in this field and their share prices soared. Alnylam went from $6.90 in March 2005 to $16.90 in March 2006 and ISIS went from $4.00 in March 2005 to $9.00 in March 2006.
Unfortunately for Benitec, when this bullish sentiment was in play, it was embroiled in a patent challenge which dragged on through this heyday period. The uncertainty that this challenge caused made it hard value the strength of Benitec's patent estate and even more difficult to establish licensing agreements for its ddRNAi (DNA Directed RNA Interference) technology.
The patent challenge was successfully defended by Benitec and its core patent was reinstated in late 2010, however, by this time the sentiment for gene silencing technology had gone off the boil.
In 2008, Pfizer did enter an agreement with Tacere (then a Benitec licensee and now a wholly owned subsidiary) to develop a ddRNAi treatment for Hepatitis C (HCV). The deal was worth $145M but Pfizer ended its involvement when it closed it Sandwich plant in the UK and withdrew from in-house gene silencing programs.
Second, Benitec is an Australian company and has found it difficult to attract capital. The Australian market is tiny and convincing investors growing rich on a mining boom to part with capital for a biotech has proven to be very hard. The patent challenge and the change in investor sentiment have meant that attracting overseas investors has also proven to be difficult.
In 2013, the company did raise $AU10.7M to continue its in-house pipeline.
The first two points explain why the current market capitalisation is low in comparison to other market leaders but they don't explain the value in the company and therefore why the market capitalisation reflects undervaluation. So the third point is Benitec Biopharma's pipeline of products and its licensees.
The company is about to recruit patients for a clinical trial of its Hepatitis C (HCV) drug, TT-034. This will be a single shot which, if it works, will eliminate HCV with a single shot. The treatment will confer immunity from the disease for the life of the treated liver cells. The pre-clinical work in non-human primates showed very high viral clearance rates with no toxicity.
Later this year, the company will conduct a clinical trial for a Non-Small Cell Lung Cancer (NSCLC) treatment. This treatment will be used in conjunction with chemotherapy and recent published data shows that this too has very good outcomes in animal models of the disease.
Benitec has a number of ddRNAi licensees. Calimmume has been funded by the California Institute of Regenerative Medicine (CIRM) to develop a cure for HIV. This treatment is already in clinical trial in San Francisco and Los Angeles. Genable Technologies is developing a treatment for Retinitis Pigmentosa and the company anticipates being in clinical trials later this year. Regen BioPharma is a subsidiary of Bio-Matrix Scientific Group and they envisage being in the clinic with a treatment for breast cancer early this year.
With such a strong pipeline in or close to clinical trials and a very low market capitalisation compared to its competitors, I maintain that Benitec Biopharma is the dark horse of the biotech, gene silencing market.
Disclosure: I am long BNIKF, .