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A researcher into gene silencing as a technology for improving the lives of those suffering from incurable diseases. Benitec Biopharma is my primary investment in this technology as ddRNAi offers one-time treatments for a broad range of these diseases.
  • Benitec: Where To Venture Next? 6 comments
    Apr 7, 2014 9:19 AM | about stocks: BNIKF

    On April 10 2014 Benitec Biopharma (OTCPK:BNIKF) shareholders will vote to ratify the issue of 14,717,995 ordinary shares and 6,623,099 options to new investors. Shareholders will also vote on issuing a further 14,717,999 shares and 6,623,105 options to the same investors. The issue price for the shares is AU$1.07. The options are free and have an exercise price of AU$1.26.

    The Board is unanimously supporting these two resolutions and so I feel there is little doubt that the result will be in the affirmative for both resolutions. If this is the case, the company will raise a total of AU$31.5M from the issue of these shares. As the options are already in the money, a further AU$16.7M could be raised through this capital raising process.

    The company has outlined its plan for the use of this capital. In this plan the extension of the current clinical trial for its Hepatitis C drug, TT-034, to a Phase llb trial and the commencement of a trial for a treatment for Non-Small Cell Lung Cancer (NSCLC) has grabbed the headlines. What many investors may not have noticed is that the company is intending to use some of the proceeds to acquire another company in an effort to diversify its pipeline.

    So what other companies could be a possible acquisition target for Benitec?

    Before discussing this question it is worthwhile reflecting on the acquisition of Tacere, which yielded the TT-034 program and the Age-Related Macular Degeneration (NASDAQ:AMD) program. Tacere was acquired for a non-cash offer of 102,321,345 pre-consolidation shares, worth US$1.5M, plus royalties. This Tacere deal could turn out to be the deal of the century and demonstrates that management is willing to look at non-cash or part cash, part script deals in order to extend the company pipeline.

    So where would Benitec get the best bang for its buck?

    Would the company consider buying another ddRNAi developer or should it look elsewhere for an acquisition?

    There are some non-licensee companies, such as Nanocor Therapeutics and Gradalis, which are progressing ddRNAi technology. In the case of Nanocor, they are developing a shRNA treatment for chronic heart failure as well as other AAV treatments. According to Gene Silencing News, the company is on the lookout for a source of funding for this program. As Nanocor has a ddRNAi/shRNA delivery platform and a small pipeline of products, they could well be an ideal target for Benitec to set their sights on.

    In the case of Gradalis, their current extensive portfolio of clinical trials for various cancers would put their value well outside of Benitec's purchasing power. Gradalis is a private company and so it is difficult to put a value on it but it is arguably the most advanced RNAi company in the world and is dealing with areas of major disease, such as ovarian cancer. This would put its value at least on par with Alnylam (NASDAQ:ALNY).

    Given the limited options open to Benitec in the pure field of ddRNAi, perhaps management may think of branching out into regenerative medicine through the acquisition of a stem cell company? Peter French, Benitec's Managing Director, has already collaborated with Medistem on a paper detailing a proposed treatment for arthritis. This would have to be an option given that Medistem's current market capitalization is only US$6.3M.

    Personally, I would like to see the capital leveraged through the establishment of a joint venture (JV). A JV would see capital being provided by both parties which would increase the scope of what could be achieved with the limited funds available to Benitec. A JV would also open up the options available to management. For example, a JV with Gradalis could see Benitec extend the application of its cancer program. Another JV partner could be Voyager Therapeutics. This company is going to use AAV/ddRNAi technology to develop treatments for diseases of the Central Nervous System (NYSE:CNS). The company has just raised US$45M to pursue this technology. A JV formed by Benitec and Voyager could be the perfect platform to address the problem of Alzheimer's Disease and any cure for that would reap billions of dollars in revenue.

    While the exact nature of Benitec's acquisition plan is unknown, one thing is clear and that is there are many good opportunities to be had if management is prepared to the think outside the box. The Tacere deal shows that management is prepared to think outside the box and so, a little of the capital raised from the current round being diverted into a JV or acquisition, is a very good alternate strategy to the company doing everything by itself. It is a strategy that is well worth pursuing.

    Disclosure: I am long BNIKF.

    Additional disclosure: This article is not intended to be investment advice. Readers must do their own research.

    Stocks: BNIKF
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Comments (6)
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  • SmokeyNYY
    , contributor
    Comments (95) | Send Message
    Question. Would Gradalis eventually have to become licensed to use ddRNAi from Benitec after that grace period or whatever you call it?
    8 Apr 2014, 01:50 AM Reply Like
  • Pannobhaso
    , contributor
    Comments (242) | Send Message
    Author’s reply » Safe Harbour lasts until either a product is commercialized, or the patent expires. The purpose of the Safe Harbour provision is to allow poor researchers to progress their work without having to pay royalties.


    In the case of Gradalis there are a number of things to consider: First, they have not commercialized (put on the market) any of their treatments; second, they were considering seeking Breakthrough Therapy status from the FDA which would fast-track one of their treatments to commercialisation; third, it is not clear how many of Benitec's patents cover the work done by Gradalis; fourth, the core patent for ddRNAi (sometimes referred to as the Graham Patent, after its inventor) expires in April 2018 and is unlikely to be extendible.


    All this means that if Gradalis commercializes a treatment before 2018 then they will almost certainly require a licence. Gradalis may disagree, in which case the courts would have to decide. After 2018, Gradalis would only require a licence if one of the many other patents owned by the CSIRO/Benitec also covered their work.


    My guess is that Gradalis will apply for Breakthrough status and the FDA will grant it. This will allow Gradalis to charge for Plll treatments. At this stage, Benitec will be knocking on their door, asking for fair remuneration.


    Royalties for this Breakthrough Therapy would expire in 2018. The size of the royalties will depend on whether or not the two parties can come to an arrangement. If the court has to decide and Gradalis loses (in the same way Nucleonics did), then royalties will be at the high end.
    8 Apr 2014, 03:53 AM Reply Like
  • Kevin Murphy
    , contributor
    Comments (108) | Send Message
    Any chance that Benitec approaches Gradalis with a JV deal where Gradalis gets to use all Benitec patents for free? The alternative being that Benitec aggressively enforces patents, thus soaking up Gradalis funds in legal work.
    8 Apr 2014, 11:00 AM Reply Like
  • Pannobhaso
    , contributor
    Comments (242) | Send Message
    Author’s reply » Despite Gradalis's possible value the fact is they are a private company and still have to raise funds through private investors and donations. Benitec does not have a lot of spare money either so a drawn out legal battle would be a lose/lose situation. I would hope that some arrangement could be made to avoid this but giving away all royalties would not be in Benitec's best interest.


    The key to this situation is the plan Gradalis has for commercialization. If they expect to commercialize before the Graham patent runs out, then could they really afford the risk of extended legal action? There is nothing more off-putting to investors than a company burning through capital in a legal battle where the company has a good chance of losing. Before Nucleonics took on Benitec it was reported that they had investors lined up to provide $12M in new capital. When the company took action against Benitec's patents, the investors withdrew. Nucleonics eventually went bankrupt.


    Gradalis is doing some brilliant work and it would be a crying shame if that work had to slow down because they got bogged down in a legal tussle with Benitec. I hope that common-sense will prevail and that the two parties will start a joint venture on terms that are mutually beneficial. This would be a great outcome for both companies, medicine and cancer patients.
    8 Apr 2014, 11:34 AM Reply Like
  • User 4710331
    , contributor
    Comments (2) | Send Message
    Recently Novartis stated that they will scale down their RNAi R&D due to difficulties with delivery system and a poor outlook in terms of cost/benefit analysis given their presumed difficulties, cost, timespan before any foreseeable product. What are your thoughts on RNAi as a platform in general? Is it a viable approach? Does this recent white flag from Novartis indicate a lower probability of success for the remaining companies or is this a good thing for companies like Benitec, meaning one less big fish to compete against.
    15 Apr 2014, 04:37 AM Reply Like
  • Pannobhaso
    , contributor
    Comments (242) | Send Message
    Author’s reply » 331, I covered this slightly in my latest Instablog but to be more comprehensive I will say the following.


    I think the Novartis decision will ultimately prove beneficial for Benitec, not because of the reduced competition but because Novartis can get a NSCLC program after Benitec takes the risk and does the heavy lifting. See previous Instablog for more details. Good NSCLC results could therefore see Novartis making an offer to Benitec for this program.


    The other point that I would make is that ddRNAi is cross between gene therapy and RNAi and should be looked at in a different way to synthetic siRNA based technology. Until recently, RNAi using synthetic siRNA has struggled to deliver enough therapeutic to the target cells, while gene therapy suffered from previous poor outcomes. Both of these problems seem to have been overcome (or are being overcome). As I see it, the fate of ddRNAi is more closely linked with gene therapy than it is to RNAi. The FDA has just approved the first Breakthrough Therapy status for a gene therapy. This is great news for Benitec as it shows that regulatory requirements can be overcome.


    Several companies such as uniQure and Voyager Therapeutics are developing improved delivery vehicles for gene therapy and many universities are doing the same. This is all good news for ddRNAi as is the move for Benitec to start its own lab.


    It has taken a long time but I think RNAi and gene therapy will both have a place in treating major health problems. When the biotech's have done the work, the big pharmas will get back into the technologies by taking over the various programs that make the grade.


    So, I don't see RNAi or gene therapy being a problem but I do see big pharma only wanting to cherry-pick successful programs rather than trying to develop their own.
    15 Apr 2014, 06:17 AM Reply Like
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