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Benitec Cuts US Staff in Half, Considers M&A, Divestiture Amid Rising Legal and R&D Costs


Facing dwindling cash reserves, Australian RNAi drug firm Benitec this week said that it has cut half of its US workforce and begun moving to a less-expensive facility as part of a cost-reduction effort expected to save about $4 million a year.

The company also said it has begun exploring possible merger, acquisition, or divestiture options for its US operations.

"The directors [of the company] recognize that Benitec does not currently have the required levels of capital to continue funding a US drug-development business at the rate of expenditure to date," Peter Francis, chairman of Benitec, said in a statement. "However, we believe that Benitec has two primary value drivers: its robust intellectual property portfolio and its drug development programs."

However, it appears that Benitec's IP portfolio may not be as robust as Francis claims. Just days before Benitec announced its cost-cutting strategy, the US Patent and Trademark Office rejected for the second time all of the claims in the company's key US patent, No. 6,573,099, although the ruling is not yet final.

"The directors [of the company] recognize that Benitec does not currently have the required levels of capital to continue funding a US drug-development business at the rate of expenditure to date."

While once a promising player in the RNAi drugs sector, Benitec has faced a number of setbacks that began with three patent-infringement lawsuits initiated by former Chairman and CEO John McKinley against Nucleonics, Ambion, and GenScript (see RNAi News, 4/2/2004). While Ambion and GenScript took licenses to Benitec's technology in order to settle the matter, Nucleonics chose to fight, arguing that it does not require a license to Benitec's technology (see RNAi News, 8/5/2005 and 3/16/2006).

As part of its battle against Benitec, Nucleonics has sought a court ruling to invalidate Benitec's IP. It has also opposed or requested reexaminations of certain Benitec patents in several nations, including the US (see RNAi News, 8/5/2005).

Amid this turmoil, Benitec hit a major roadblock earlier this year when a problem was discovered with materials being manufactured for a phase I trial of an RNAi-based HIV/AIDS therapy — the company's most advanced product candidate (see RNAi News, 2/2/2006). The problem caused Benitec to indefinitely delay the filing of an investigational new drug application for the treatment.

Cost Cutting

Under the weight of legal costs, efforts to uphold its IP, and drug-development expenses, Benitec has seen both its prestige and bankroll shrink. In its most recent financial filing with the Australian Stock Exchange, Benitec said it had roughly $3.2 million in cash as of Dec. 31, 2005, with expenses of about $5.6 million for the previous six-month period.

The cost-cutting program is expected to trim monthly expenses and give Benitec a little more breathing room. Specifically, Benitec said it has cut its US staff in half, to eight employees, which is expected to save $100,000 a month. Benitec CEO Sara Cunningham told RNAi News this week that the layoffs occurred across the board, but that the company's "core R&D and preclinical staff" remains in place.

Separately this week, Benitec said that one of its directors, Alexander Cappello, has resigned. Cunningham declined to say why.

Benitec also said it has "implemented further expense reductions associated with its drug development programs as well as significantly reducing its facilities costs, resulting in an additional $250,000 monthly savings."

"The main cost saving for us has been that we've moved from the building we were in before," Cunningham said. "From a facility standpoint, that was the single greatest reduction in our outlay." The company will complete the move in May, she added.

In terms of drug development, she said that Benitec "has pretty much resolved the manufacturing issue" associated with its HIV/AIDS therapy, and that the company expects to file an investigational new drug application for this drug candidate this year.

Before the cutbacks, Benitec had expected its other main pipeline candidate, a hepatitis C treatment, to enter the clinic in 2007. However, "we're pushing out some of the more costly preclinical work … until we're more comfortable about what direction we're going."

One of these directions could be toward a merger or acquisition deal, or a straight out divestiture of its US operations, Cunningham said. He statement echoed Francis' remarks this week that the company is seeking to "develop [its IP portfolio and drug-development programs] … separately or together."

"There are opportunities we are definitely exploring, but we needed to take the [cost-cutting] steps to make sure we've given ourselves the longest time period to do the best deal possible, whether it's an M&A or a spinout of the US [operations]."

"Nothing is entirely off the table," she said. "There are opportunities we are definitely exploring, but we needed to take the [cost-cutting] steps to make sure we've given ourselves the longest time period to do the best deal possible, whether it's an M&A or a spinout of the US [operations]. We want to make sure we have enough negotiating room from a cash perspective."

Patent Protecting

In its fight against Benitec, Nucleonics asked the USPTO to reexamine Benitec's '099 patent, citing prior art — which can be scientific or technical literature, or other patents — that the patent office had not considered when it first examined Benitec's patent application (see RNAi News, 10/8/2004).

Last September, after conducting its reexamination, the patent office rejected all claims within the'099 patent because of multiple examples of prior art (see RNAi News, 9/9/2005). At the time, Sally Brashears, vice president of intellectual property for Benitec, told RNAi News that the USPTO decision was "not unexpected," and that the company intended to respond to the decision.

Based on the USPTO's most recent decision, it appears any amendments Benitec made to the claims in its patent following the first rejection were insufficient to establish the validity of the IP.

According to the patent office, Benitec has canceled outright three claims within the patent. The rest of the claims were amended but have been rejected, largely in light of the fundamental Fire patent, No. 6,506,559. This patent, covering technology developed by RNAi pioneers Andrew Fire of the Stanford University School of Medicine and the University of Massachusetts' Craig Mello, claims a process of introducing an RNA with a double-stranded region into a cell to trigger gene silencing. It is widely available for licensing.

Although this is the second time the USPTO has rejected the claims in the '099 patent, the ruling isn't final, apparently because different art was cited in the rejection of Benitec's amended claims. Benitec has the option to further amend its claims to maintain the patent.

Robert Towarnicki, president and CEO of Nucleonics, told RNAi News in an e-mail this week that his company "has always believed the Benitec IP is invalid, and this most recent rejection citing the work of Fire et al. reaffirms our position."

Cunningham stressed that the USPTO "is continuing the reexamination in light of other material," adding that "the rejection based on the prior art cited by Nucleonics has been withdrawn."

She said that Benitec plans to respond to the USPTO's latest action.

— Doug Macron ([email protected])

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