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Benitec Hopes to Raise $5M to Continue Reorg, Fend Off Nucleonics' IP Challenges

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Benitec announced this week a stock rights issue plan designed to raise as much as Aus$6.5 million ($5.1 million), which it would use to support the beleaguered RNAi drug firm’s efforts to fend off ongoing litigation and continue a corporate reorganization.
 
Cash raised would also more than compensate for a share-purchase plan that would have brought in Aus$500,000 but failed to its meet minimum investment level last year.
 
“We have previously indicated to shareholders that we would need to undertake a recapitalization of Benitec to fund ongoing operations and current and future projects,” Peter Francis, Benitec’s chairman, said in a letter to company stockowners.
 
The rights issue gives stockholders the right to participate in a non-transferable rights issue of one new share for every 4.4 shares held at an issue price of Aus$0.10, and one new option for every new share subscribed for at an exercise price of Aus$0.15, he said.
 
According to Benitec, if all options are exercised, the maximum amount raised through the rights issue will be Aus$6.5 million. If no options are exercised, the issue will raise a maximum of Aus$5.3 million.
 
The company noted that it currently has already issued roughly 233.5 million shares and about 55.3 options. Should all options be exercised under the rights issue, Benitec said it will issue about 65 million new shares, bringing the total number of shares issued to about 351.3 million.
 
“Shareholders who take up all of their rights pursuant to the rights issue will not have their percentage shareholding in Benitec diluted,” the firm noted.
 
The rights issue is scheduled to close on March 26.
 
Crunch Time
 
Benitec’s plan comes at a critical time for the company as it struggles to rebuild after a series of setbacks that forced the once-promising expressed RNAi drugs developer to shutter its US operations, lay off essentially its entire staff, and return to its native Australia.
 
Key to the company’s potential was its intellectual property portfolio — especially US patent No. 6,573,099, which was one of the RNAi field’s earliest issued patents. But the company floundered under a series of patent-infringement suits filed at the order of one-time Chairman and CEO (and former IP lawyer) John McKinley (see RNAi News, 4/1/2004).
 
Though Benitec had some success with the litigation, signing IP licensing deals with defendants Ambion and GenScript, the legal wrangling was costly and damaging to the company’s reputation. More importantly, one of the companies targeted by Benitec, Nucleonics, opted to fight back.

As part of its defense, Nucleonics has opposed or requested re-examinations of certain Benitec patents in several nations, including the US, where an initial review by the US Patent and Trademark Office found Benitec’s ‘099 patent to be invalid (see RNAi News, 9/9/2005).
 
Nucleonics’ attempts to invalidate Benitec’s IP and reinstate the patent-infringement suit, which was dismissed at Benitec’s request last year (see RNAi News, 10/7/2005), are still ongoing.
 
Benitec eventually collapsed under the weight of its litigation costs and notoriety in the RNAi field. Last June, the company shut down its California-based facilities and cut its staff (see RNAi News, 6/29/2006).
 
Re-grouping in Australia, Benitec appointed a new senior management team and adopted a business model of collaborations and IP out-licensing. As part of this set-up, it sold the rights to its hepatitis C drug candidate to start-up Tacere Therapeutics, which was founded by former Benitec execs (see RNAi News, 10/12/2006), and re-structured its royalty obligations to Australia’s Commonwealth Scientific and Industrial Research Organization under an IP agreement (see RNAi News, 9/14/2006).
 

“We have previously indicated to shareholders that we would need to undertake a recapitalization of Benitec to fund ongoing operations and current and future projects.”

Still, Benitec was hungry for cash and last year pitched to investors a share-purchase plan to keep the company afloat. Investors didn’t bite, however, and the plan was abandoned (see RNAi News, 9/14/2006).
 
According to the company, a Aus$1 million loan from an existing investor allowed operations to continue after the terminated stock-purchase effort. Through the rights issue announced this week, Benitec said it will receive the cash necessary to stay on course with its turnaround plan, including making the required contributions to its HIV therapy partnership with the City of Hope (see RNAi News, 9/3/2004), which is set to enter the clinic this year.
 
Importantly, some of the cash would also give Benitec the ability to continue defending itself against Nucleonics.
 
Benitec said it continues to review the rejected claims in the ‘099 patent and expects to respond to the patent office on or before the March 24 deadline. Benitec also said it and the CSIRO are scheduled to appear before European patent officials on April 24 to appeal the 2005 rejection of one of the company’s patent applications (see RNAi News, 8/5/2005).
 
Like the USPTO, the EPO also weighed prior art submitted by Nucleonics when it made its decision.
 
As for the patent-infringement litigation, Benitec said a Federal Court heard oral arguments on Nucleonics’ appeal of the dismissal in early December, but that the court has asked the companies for information on whether a recent Supreme Court decision might affect the appeal.
 
In that case, MedImmune vs. Genentech, the Supreme Court found that a patent licensee is not required to terminate its license before seeking a declaratory judgment that the patent is invalid, unenforceable, or not infringed (see related article, this issue).
 
The case centers on “whether a license holder could file a suit against a licensor without breaching the license first,” Benitec said, adding that it does not believe the Court’s ruling impacts the decision to dismiss its patent-infringement suit against Nucleonics.

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