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Benitec's Share-Purchase Plan Fails to Raise Capital; Firm Restructures Deal with CSIRO

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Benitec said this week that a share-purchase plan designed to raise at least Aus$500,000 ($380,845) did not meet its required minimum investment level.
 
As a result, the expressed RNAi drug developer said it would return to investors the funds it did raise under the plan and that it would explore other opportunities to raise desperately needed cash.
 
Benitec’s failure to raise the capital marks the end to one of its strategies to find the cash needed to keep it afloat as it tries to eke some value out of what is essentially its only remaining asset: its intellectual property portfolio.
 
In a letter sent to investors in early August, Benitec proposed the share-purchase plan under which the company might meet its “urgent need for capital, without which the directors will have no choice but to consider … options which may include … selling off the company’s remaining assets” (see RNAi News, 8/3/2006).
 
The company added in the letter that funds from the plan would allow it to move to “a model of co-investment and/or licensing, and combining [its intellectual property] estate with third-party capital and technology” within Australia, while abandoning its previous goal of establishing itself as a publicly traded, US-based biotech.
 
Benitec noted in the letter that the plan called for a minimum investment of Aus$500,000 by investors.
 
“While well supported by many shareholders, this [financial] condition of the plan was missed,” the company said in a statement issued this week. “The directors of Benitec will now evaluate other opportunities to raise capital to support the [firm’s] operations and development programs.”
 
In the letter, Benitec added that it is confident that it will be able to “secure alternate funds to support the move to a low-cost model of co-investment and out-licensing.”
 
Stormy Past Stateside
 
Benitec began with a promising expressed RNAi technology and an IP portfolio that included one of the earliest issued RNAi-related US patents — US patent No. 6,573,099 — but the company eventually ran aground under the weight of several patent-infringement suits it filed at the order of one-time Chairman and CEO (and former IP lawyer) John McKinley.
 
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 ongoing.
 
Benitec eventually buckled under the weight of the costs associated with its legal fights; in June, the company closed down its US operations and cut almost its entire staff, including CFO Mike Catelani and CEO Sara Cunningham, who took over for McKinley to improve the company’s litigious image (see RNAi News, 6/29/2006). Two Australian-based directors remained on board to handle Benitec’s day-to-day operations.
 
In addition, Benitec indefinitely shelved its in-house drug-development programs, including one in hepatitis C that was scheduled to reach the clinic next year. The company’s HIV/AIDS therapy is still on track to enter human testing before the end of the year as it is being funded and run by partner City of Hope (see RNAi News, 9/3/2004).
 
Bright Future Down Under?
 
Despite the setback with the share-purchase plan, Benitec last month did manage to relieve some financial pressure by restructuring its royalty obligations to Australia’s Commonwealth Scientific and Industrial Research Organization under an IP agreement (see RNAi News, 12/12/2003).
 
In December 2003, Benitec and CSIRO signed a deal ending a dispute over the rights to the ‘099 patent. Under the terms of their deal, Benitec gained the exclusive rights to the expressed RNAi technology covered by the patent for all human applications. CSIRO, meanwhile, acquired the exclusive right to the technology for all applications in animals (other than humans), plants, and insects. 
 
Benitec’s then-CEO McKinley told RNAi News at the time that the agreement called for each party to pay the other a “little bit more than single-digit” percentages of revenues derived from products commercialized using the patented technology.
 
In August, however, Benitec announced that this arrangement had been restructured so that “the applicable royalty is reduced for those therapeutic programs into which Benitec has made significant investment.”
 

“While well supported by many shareholders, this [financial] condition of the plan was missed. The directors of Benitec will now evaluate other opportunities to raise capital to support the [firm’s] operations and development programs.”

According to Benitec, the restructured deal calls for “a set royalty rate on product sales, with provisions for stacking down to accommodate licenses of certain third-party technologies, applicable to therapeutic product sales by Benitec or under licenses granted by Benitec to other companies.”
 
Additionally, the royalty rate Benitec owes CSIRO on licensing revenues from its HCV and HIV/AIDS program has been cut by 75 percent, and Benitec has an option to apply a reduced royalty rate to an additional therapeutic program to be named later by the company.
 
CSIRO will also receive a set royalty on contract services provided by Benitec and “be relieved of its obligation to pay Benitec a share of returns it receives,” the company said.
 
Finally, the new arrangement hands off control of Benitec’s IP estate to CSIRO, which will “meet the up-front patent costs” associated with the portfolio, Benitec said, adding that it would “repay these costs to CSIRO with downstream incomes.”
 
Officials from Benitec did not return requests for comment on the new arrangement with CSIRO. Rob de Feyter, IP manager at CSIRO, told RNAi News in an e-mail last week that the organization “won't be making any official comment on the agreement with Benitec.”
 
However, Benitec Chairman Peter Francis said in a statement that the revised deal with CSIRO “delivers a much lower cost base for Benitec in the short-to-medium term. It does not slow our advance to clinical trials and moved the burden of managing our substantial and complex patent portfolio to CSIRO.”
 
Also as part of its effort to rebuild itself as an Australian company, Benitec said last month that it has named Aussie Sue MacLeman as its new CEO, replacing Cunningham, who lives in California.
 
MacLeman most recently served as CEO of Australian biotech EqiTx, which is currently undergoing a corporate reorganization. Before this she held positions with Schering-Plough, Amgen, and Brisol-Myers Squibb.
 
“Sue’s experience in licensing, sales, and marketing, and medical and business development roles … make her an ideal candidate for Benitec,” Francis said in a statement.

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