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Benitec Acquires Avocel for $5 Million in Stock; Hepatitis C Becomes First In-House Drug Program

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Keeping in line with its strong interest in merger and acquisition possibilities, Benitec said this week that it has acquired RNAi-based drugs newcomer Avocel in an all-stock deal worth about $5.4 million.

Under the terms of the transaction, Benitec picked up Avocel for 7.6 million newly issued shares of its common stock, giving Avocel’s investors a roughly nine percent ownership stake in Benitec.

Key to the deal is Avocel’s core gene-silencing technology, which was developed by Stanford University School of Medicine researcher and company co-founder Mark Kay. Avocel has experimented with inducing RNAi by directly introducing siRNA. The company’s primary approach to gene silencing, however, involves suppressing the expression of a gene by injecting a plasmid coding for shRNA — a technique similar to Benitec’s own RNAi technology, DNA-directed RNAi (ddRNAi).

Given this, it is hardly surprising that Avocel and Benitec have crossed paths. In fact, the acquisition deal grew out of licensing and collaboration discussions between the companies, John McKinley, Benitec’s CEO, told RNAi News.

“When Avocel [was] first involved in ddRNAi, our issued [US] patent hadn’t yet been issued,” he said, making it a point to apply the ddRNAi moniker to Avocel’s technology. This patent, number 6,573,099, covers gene expression knockdown in plants and animals using DNA that transcribes double-stranded RNA, one strand of which has a sequence complementary to that of the target gene.

Avocel “had believed the work they were doing was probably leading edge in terms of the DNA side; there was very little [published] about it,” McKinley said. “Obviously, it came as a bit of a shock when our [patent] … came out in June of last year.”

Benitec’s patent was filed in June 1998 and claims priority from provisional Australian patent applications filed on March 20 that year. Related PCT patents have a filing date of March 19, 1999. Avocel’s two primary pieces of IP — patent applications, numbered 20030153519 and 20030139363, covering inventions by Kay — were filed in 2003 and 2002, respectively, and claim priority to a provisional patent application filed in 2001.

“At that point, they recognized that we had been doing some very much earlier work in relation to ddRNAi,” McKinley said. “So, they got in contact with us and said … ‘We’re working in this field and let’s discuss how we can best work together.’ It wasn’t so much an acquisition at that time — we were just looking at every opportunity,” he noted.

Going to California

For almost a year, McKinley has been saying that Benitec, which is publicly traded in Australia, intends to become a public company in the US with a robust pipeline (See GenomeWeb News, 6/6/2003). In January, he told RNAi News that the company prefers to do so through mergers and acquisitions rather than through an IPO, and that it was hunting down deals to drive its drug development efforts (see RNAi News, 1/30/2004).

By acquiring Sunnyvale, Calif.-based Avocel, Benitec now has an established presence in the US, giving it “the basis for Benitec Inc. as it will be” after the overseas transition is complete, McKinley said. Along with the West Coast operations come four Avocel scientists; as well as Kay, who has joined the company’s scientific advisory board; and Sara Cunningham, Avocel’s co-founder and vice president of intellectual property and business development, who has become Benitec’s COO.

The acquisition also gives Benitec its first in-house drug development program through Avocel’s hepatitis C work.

In an article in Nature Biotechnology in 2003, Kay showed that shRNA expressed off a plasmid could inhibit replication of a hepatitis B plasmid in mice. The year before, in Nature, Kay published data showing that the expression of an HCV gene can be suppressed by injecting siRNA or a plasmid coding for shRNA into the liver of adult mice.

Cunningham recently told RNAi News that her company planned on beginning clinical testing of an RNAi drug against hepatitis C by early 2006 (see RNAi News, 5/14/2004). McKinley, however, painted a more ambitious picture, forecasting that an investigational new drug application for an HCV candidate would be filed before the end of the year, with a phase I study beginning in 2005.

Additional disease targets for in-house development will be identified in the “next few months,” including possible ones in the areas of HIV and oncology, he added.

McKinley indicated that these new drug programs are likely to be the result of partnerships, stating that collaborations are “what we’ll really be looking to try and do because to start from scratch on HIV or certain cancers is just not a part of really any young company’s ambitions — or it shouldn’t be. We obviously know who the leading companies are and who the leading institutes are … and [we’re] looking to finalize discussions in those areas ... in the next quarter,” he said.

But the one thing the Avocel transaction does not give Benitec is a publicly traded status on one of the US’ stock exchanges.

McKinley said that Benitec continues to expect that it will get its shares trading in the US by merging with or acquiring another public company. “I’m still trying to do [this] within 2004,” he said, adding that the company’s efforts to find an investment bank to help with the process remains ongoing.

— DM