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When You Are In A Hole, Stop Digging.

|Includes:Benitec Biopharma Ltd (BNIKF)

I know that many retail shareholders are very disappointed at the lack of progress in the HCV clinical trial and would like to see Benitec's (OTCPK:BNIKF) management address this issue.

Recently, management has made two announcements which provided guidance to shareholders on the start of the TT-034, HCV clinical trial. One announcement said the start would be in early to mid March 2014 and, in early March, the second announcement said dosing would begin within weeks. Both of these two announcements proved to be incorrect as dosing is yet to start. Furthermore, there has been no indication that any patients have been successfully recruited for the trial.

Despite many recent news articles and television appearances featuring the company, this misjudgment of the trial start date seems to be the point that is sticking in the minds of shareholders and possibly other industry observers. This is a hole that management has dug for itself. However, having made those previous announcements and gotten them wrong, providing another announcement could end up making the hole deeper.

Other than announcing that dosing has commenced, where should management go from here, especially as there has been a sharp decline in the share price and the biotech market in general?

What is clear is that whatever move management makes they have to get it right.

Management could keep quiet until dosing occurs. This would certainly prevent them from digging the hole deeper, however, this may not satisfy those shareholders who are feeling disappointed about the progress of the current clinical trial. Ordinarily, having disappointed shareholders may not be too much of a problem if management knows that the disappointment will be short-lived. However, keeping silent may also run the risk of drawing comparisons with the cancer pain management program which the company forecast to be in clinical trials in 2012 but then it disappeared from view for reasons that were not made clear to shareholders. Such a comparison could see more significant losses in the share price as investor become more and more nervous. This in turn could trigger our new investors to flex their muscles and start to demand changes at the Board level.

Management could try to go on the offensive by making more announcements about up-and-coming events such as the Non-Small Cell Lung Cancer program, or a possible merger but, in my opinion, this would not be viewed favorably by the market unless there is some real substance to such an announcement. Any general announcement would be seen as more of the same. This strategy, unless supported by solid, positive facts would therefore be counter-productive.

One way of getting it right is to announce only facts and not speculation. This would be my recommendation to management. I believe the immediate way forward for management is to release factual information to the market as a follow-up to their previous statements. The announcement would inform shareholders about the number of patients that have been screened, the number that have been placed into one of the cohorts, the main reasons why volunteers have been screened out and the reason why the San Diego site is yet to open for recruitment.

This final strategy may not be acceptable to all shareholder but it would provide management with a new base upon which it can rebuild the TT-034 clinical trial story.

Disclosure: I am long BNIKF.

Additional disclosure: The article in not intended as investment advice. Readers should do their own research.

Stocks: BNIKF