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Benitec CEO Resigns; Will Management Shake-Up Change Firm s Litigious Ways?

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Benitec announced this week that Chairman and CEO John McKinley has stepped down as head of the company.

According to the Australian RNAi-based drugs developer, COO Sara Cunningham — a co-founder of Avocel, which Benitec acquired for $5 million in stock last May — has become acting CEO. Meanwhile, Raymond Whitten, a Benitec director, has been appointed chairman. McKinley will continue to serve as a non-executive director.

The resignation of McKinley, who joined Benitec in 2002 and oversaw the company’s transition from an opal-mining operation to a biotechnology firm, tops off a tumultuous 12 months for the company. Benitec has been at the center of the RNAi industry’s first real intellectual property war and continues to struggle in the courtroom to end an exclusive licensing arrangement with its one-time US partner Promega.

Cunningham told RNAi News this week that with the management change, Benitec is engaged in a “wholesale re-examination” of decisions that were made on the former chairman and CEO’s watch, as well as its plans for the future.

“I think for the next week or two, certainly, we will be taking a moment to assess where we are and where we need to be,” she said.

The reasons behind McKinley’s abrupt departure from Benitec’s helm remain unclear, but they may stem from his past as a UK solicitor specializing in corporate and intellectual property law.

In January 2004, McKinley told RNAi News that Benitec planned to initiate a series of lawsuits against alleged infringers of its RNAi IP if licensing deals for the technology could not be struck (see RNAi News, 1/30/2004). He also said that Benitec had secured IP insurance from Lloyd’s of London.

A few months later, McKinley made good on his promise and Benitec sued Nucleonics, GenScript, and Ambion for allegedly infringing a US patent covering its so-called DNA-directed RNAi technology (see RNAi News, 4/2/2004). The IP covers the knocking down of gene expression 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.

Although GenScript and Ambion settled the lawsuit by licensing the ddRNAi technology, Nucleonics chose to fight. The company has asked US and Australian patent officials to re-examine Benitec’s ddRNAi patents (see RNAi News, 9/10/2004 and 10/8/2004), and submitted to the European Patent Office examples of prior art that it claims prove Benitec’s technology is unpatentable (see RNAi News, 1/14/2005).

At the same time, Benitec’s litigiousness sparked a legal battle with Promega over the rights to ddRNAi in the research products market. In April 2003, Benitec signed a deal that gave Promega the exclusive rights to develop, sell, and distribute ddRNAi-based research products, as well as the exclusive right to sublicense the technology in areas outside of human therapeutics.

Four months later, McKinley had told RNAi News that this arrangement would give Benitec’s technology a foothold in the US while at the same time provide his company with a revenue stream — all of which would help with Benitec’s planned transformation itself into a publicly traded US-based firm.

The relationship, however, began to break down less than a year after McKinley made these comments. As first reported in RNAi News, Benitec sued Promega in July 2004, claiming that the company failed to make the required payments under the companies’ arrangement (see RNAi News, 7/30/2004). Benitec said in its suit that with this failure Promega had forfeited its exclusive license to the ddRNAi technology.

For its part, Promega maintains that it did not make the required payments because it had been covering taxes owed by Benitec and that its ddRNAi license is still exclusive.

Despite Benitec’s IP insurance, its legal wrangling appears to have taken a significant bite out of the company’s cash reserves. For the quarter ended Sept. 30, 2004, Benitec had about AU$2.7 million (roughly $2 million) in cash and recorded costs of AU$1.97 million ($1.5 million).

Additionally, the company’s stock, traded on the Australian Stock Exchange, has taken a hit, falling from more than AU$1 per share at the beginning of 2004 to close at AU$0.52 per share on Wednesday.

New Leadership

With all of this as a backdrop to her promotion, Cunningham — who conceded that she is a “relatively unknown entity to the board” — has her work cut out for her.

Cunningham said that it remains the company’s goal to become a public concern in the US, the heart of the biotechnology world. But while McKinley had told RNAi News last January that Benitec would make this move by acquiring a firm that trades on the NASDAQ, details of the move have become murky.

“There are only so many ways to move into the NASDAQ — it’s either a reverse acquisition, Benitec being acquired, [or] self listing,” Cunningham said. Despite McKinley’s expressed preference for the first option, she noted that “we are re-examining all of our options this week.”

Benitec’s going private, however, “is not an option for the current shareholders,” she added.

Cunningham declined to comment specifically on how the change in management might impact Benitec’s legal battles.

“It’s litigation; you have to be careful about what you say,” she said. “But you will see statements coming out and, hopefully, some major changes.”

As for Benitec’s financial situation, Cunningham said it would be a major focus for her. “We have previously and continue to engage the Cappello Capital Corp. as investment bankers, and they are continuing to advise us on funding opportunities in the US and from the existing shareholder base,” she added.

She also said that it would be “imperative” for the company to “relate accurately to the market what we are doing from a drug development standpoint.

“Obviously the share price has suffered for the last year and a half, [and] one of our first efforts this week or next week will be to do a teleconference with shareholders,” she said. “I would certainly hope to see that investor confidence will grow as [company information] is communicated.”

Cunningham declined to provide details about McKinley’s resignation.

McKinley did not return an e-mail request for comment.

— DM

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