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|Includes: Benitec (BNTC)

Today's ASX announcement by Benitec (NASDAQ:BNTC) leaves me somewhat perplexed. The announcement confirms that Benitec and Nant Capital have executed a research and collaboration agreement, which covers the development of treatments for head and neck cancer. This was not really news as the agreement had been referred to in several other announcements and presentations. However, this was not what perplexed me. What confounded me was the absence of information about the structure of the deal.

Back in October 2016, an announcement was made about a collaboration between Benitec and Nant Ventures in which circa 29M shares would be issued to Nant Capital for a consideration of about $US1.95M. This would give Nant Ventures a 16.6% ownership of the company. The capital was to be spent on:

  1. developing an antisense treatment for head and neck cancer, which had already proved safe in Pl trials,
  2. a ddRNAi treatment for the same indication, and
  3. Benitec's existing programs.

Benitec later announced that a further 60M shares would be issued; 29M of which would also go to Nant (making two lots of 29M each). The remaining shares were unallocated (but could, potentially, also go to Nant). While the price for the 60M shares is yet to be determined, at current prices, Nant's next confirmed tranche is likely to cost them in the region of $US2.6M, for a combined contribution of circa $US4.55M.

How can any company run a phase two trial, Pll, for less than $US5M when the average cost of a Pll trial in the US is between $US7M and $US19.6M and spend money on its other programs? Something does not add up. We are missing some part of the deal. Either that or this agreement is not really a deal at all.

We clearly need more information about the agreement before we can confirm that it is in the best interest of all Benitec's shareholders.

What we do know is that it is in the interest of the Nant conglomerate. I am not sure of all the facts but Nant has licensed to Benitec a program that comes out of the University of Pittsburgh. The basic research for this was fund by the NIH. Presumably, Nant has paid a license fee for the rights to the treatment and is now sub-licensing the IP. If Nant was to take this antisense drug through a Pll clinical trial, it would cost the company at least $US10M. Now, it gets Benitec to run the trial for a contribution of only $US4.55M and Nant gets thirty percent of Benitec to boot. Not bad going.

Can this be right? Surely, Nant is going to put in some more, non-dilutive capital? If not, who else will invest in Benitec and provide the additional capital that is clearly required? Without capital in addition to that currently announced, I cannot see how Benitec will survive in its current form. Does this mean that the ddRNAi IP and the current pipeline will fall into the hands of Nant for a fraction of their worth?

This is speculation but, without more information, I am afraid that I remain perplexed and open to such speculation.

Disclosure: I am/we are long BNTC.

Additional disclosure: This article is the opinion of the author. It is not investment advice. Readers should do their own research. For commercial reasons, there may be details of the Benitec/Nant agreement that are confidential and which, if known, could have changed the content of this article.