By Doug Macron
Australian expressed RNAi firm Benitec last week said that it will need to raise funding in 2010 in order to keep its operations going after a stock placement this summer generated less capital than expected.
Meanwhile, the company, which made the disclosure in its annual report, tried to assuage investor concerns over an ongoing re-examination of its core US patent, stating that its continued efforts to defend the intellectual property's validity reflect its confidence in a successful outcome of the proceedings.
"The global financial crisis hit hardest in late 2008," Benitec Chairman Peter Francis wrote in the annual report, released last week. "This resulted in further delays in the planned capital raising and the need to dramatically reduce costs, including the closure of the head office," as well as the termination of various staffers. As of June 30, 2009, Benitec had two employees, down from five at the same time the year before.
In May 2008, Benitec, long struggling under a cash crunch, announced that it would try to raise roughly A$5.1 million ($4.7 million) through a non-renounceable rights issue. Specifically, the company hoped to sell shares at A$0.10 apiece, and offer a free option for every 5.7 shares held by its investors.
That same month, the company said that it had decided to suspend the offering after determining that interest in the transaction was being hampered by a series of IP-licensing agreements with Australia's Commonwealth Scientific and Industrial Research Organization that were in need of revision. The arrangements were previously amended in 2006 (see RNAi News, 9/14/2006).
After raising A$1 million through a share placement with its major shareholder, Benitec this year reactivated the rights issue, but only pulled in A$1.4 million after it was forced to lower the price per share to A$0.03. In the annual report, Francis blamed the shortfall on scientific delays and the "global economic crisis, although we recognize that many shareholders are concerned about dilution."
Also likely contributing to the lower-than-planned offering price was Benitec's failure to renegotiate its arrangements with CSIRO, which it announced in March. "CSIRO and Benitec are strong partners with aligned interests, and once the financial markets have improved, Benitec will seek to revisit our negotiations with CSIRO," Benitec CEO Sue MacLeman said at the time.
"Whilst the amount raised was less than the amount planned, the ongoing support of our shareholders is greatly appreciated," Francis wrote last week. Still, "due to the shortfall, a future capital raising will be required to support activities in 2010."
For the fiscal year ended June 30, Benitec's net loss narrowed to A$2.4 million from A$2.8 million a year ago. Operating revenue dropped to A$311,476 from A$482,969, while research and development spending surged to A$1.1 million from A$752,622. Overall expenses shrank about 12 percent to A$2.9 million.
At the end of June, the company had cash and cash equivalents totaling roughly A$1.86 million. Additional details about that proposed fundraising effort were not provided in the annual report.
As it deals with money woes, Benitec also continues to wrangle with IP problems inherited from a previous management team.
In 2004, Benitec's then-Chairman and CEO John McKinley filed lawsuits against two RNAi reagent companies, GenScript and Ambion, and one expressed RNAi drug developer, Nucleonics, charging that the three firms infringed its core US patent (see RNAi News, 4/2/2004).
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That patent, No. 6,573,099, covers the knocking down of gene expression in plants, as well as animals, using DNA that transcribes double-stranded RNA, one strand of which has a sequence complementary to that of the target gene.
Although Ambion and GenScript licensed the IP, Nucleonics chose to fight the issue in court. As part of that effort, Nucleonics either opposed the patent or requested re-examinations of Benitec’s IP in several nations, including the US.
After McKinley was ousted, Benitec's new CEO pushed for the dismissal of the infringement suit, which was ultimately granted. In early 2008, the US Supreme Court rejected a request by Nucleonics to re-open the case (see RNAi News, 4/24/2008).
While Nucleonics last year shut its doors due to an internecine dispute with its scientific co-founders (see RNAi News, 11/6/2008), the patent re-examination proceeded, culminating in the USPTO rejecting the patent’s claims based on objections related to the fundamental Fire and Mello patent held by the Carnegie Institute.
In its annual report, Benitec said that during 2009, "various meetings and submissions were made with and to the [USPTO's patent] examiner to better understand this rejection," adding that it believes the patent office's findings "are unsupported by the evidence and the controlling law."
On May 22, a notice of appeal was filed with the USPTO, and an appeal brief was filed in late July. "This detailed appeals brief focused on the obviousness rejections put forward by the examiner and … addressed all outstanding issues."
The patent office will now review the brief, and the examiner has the opportunity to file an answer to Benitec's latest arguments, the company said. "Benitec and [partner on the IP] CSIRO would then file a reply to the examiner's answer and the re-examination will then proceed to an oral hearing before the appeals board. Due to the backlog at the USPTO, this is not expected until [the second quarter of] 2010, with a decision likely the following quarter."
Francis noted in his letter to shareholders that the company "understands [its investors] are concerned about the downward pressure this matter puts on the share price. However, we would not be investing shareholder funds in this matter unless we thought there was the likelihood of a successful outcome."