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To Reassure Investors, Benitec Works to Shift Focus From Litigation to Drug Development

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Following the abrupt resignation of its Chairman and CEO John McKinley, Benitec held this week a pre-recorded conference call to break out the company’s goals and clinical programs in an effort to boost investor confidence.

Yet while the call did provide an overview of Benitec’s research and development work, it failed to provide significant insight into how the company is dealing with its biggest issues: ongoing intellectual property litigation, its dwindling cash position, the management shake-up, and its planned transformation into a Nasdaq exchange-listed US-based company.

Earlier this month, Benitec said that McKinley had stepped down to a non-executive director position, clearing the way for COO Sara Cunningham - who co-founded RNAi firm Avocel, which was acquired by Benitec for $5 million in stock - to take over as acting CEO (see RNAi News, 1/21/2005). Raymond Whitten, a Benitec director, was appointed chairman.

As reported by RNAi News, at the time of the announcement Cunningham said she would hold the conference call in order to provide clarity on Benitec’s drug-development efforts and give a shot in the arm to the company’s stock, which has lost nearly half its market value in the last year.

Cunningham’s presentation, which featured no question-and-answer session, was largely geared to those unfamiliar with the basics of RNAi. During her talk, Cunningham warned that “the presentation will get a bit technical at times,” and reiterated for listeners “the central dogma of molecular biology: DNA is transcribed into RNA, which is translated into protein.”

According to Cunningham, it was important to give shareholders an explicit explanation of the company’s activities and the science of RNAi simply because many of them lacked this information.

“The week after John [McKinley] left, I was fielding all these calls from investors, some of which didn’t even know we had operations - they thought we were still a kind of IP company,” Cunningham told RNAi News this week after her presentation.

And so, after providing a basic overview of RNAi, Cunningham broke out the details of Benitec’s two drug programs, hepatitis C and HIV, and provided clinical timelines.

“We are very close to moving our lead [HCV drug] candidate ahead into preclinical studies with the intent of being in GMP manufacturing in the second half of 2005,” she said during the presentation. A phase I trial is expected to begin in the second half of 2006.

As for HIV, Cunningham said that the company expects to begin a phase I clinical trial evaluating Benitec’s DNA-directed RNAi technology as a treatment for AIDS lymphoma in the first half of 2006, adding that GMP materials for that trial, which will take place at the City of Hope (see RNAi News, 9/3/2004), are currently being manufactured.

Cunningham also noted during her presentation that Benitec plans on announcing in the first half of this year “a third development program, which will broaden [the company’s] pipeline without significantly losing focus.”

When asked to explain what she meant by not losing focus, she told RNAi News that “our expertise lies around … infectious diseases and multi-genic disease targets. That is the forte of Benitec … so we’ll focus around that area.”

Concluding her presentation, Cunningham said that during 2005 and 2006 Benitec will “adhere to the clinical timelines we have set forth,” and will “finalize [the company’s] ongoing discussions for strategic alliances in the areas of viral and non-viral delivery.”

But despite Benitec’s desire “to strengthen and further build shareholder support around the world,” as Cunningham put it during the conference call, her presentation failed to address in detail the key problems that appear to be in no small way responsible for the company’s falling share price. As of Jan. 31, shares of Benitec were trading at around AU$0.52 per share, down from more than AU$1 per share a year ago.

IP

Cunningham touched on Benitec’s manifold legal battles by noting that in the next two years the company “will … resolve our intellectual property disputes and allow ourselves and others to focus on drug development.” She did not, however, comment further on the matter.

After the conference call, Cunningham told RNAi News that she did not talk more about IP issues because it has been too much of what people have focused on about the company recently. “We certainly feel that the majority of press that Benitec has received over the last year … has been about litigation, and we’re a biotech [company]. … We want to maintain the focus on drug development … [and] allow … others the ability to focus on drug development.”

That said, she also noted that the company is not going to “do anything that damages our patent estate or compromises shareholders’ return on their investment - we’re not going to settle [lawsuits] simply to settle.”

Money, Management, and Moving

Additionally, Cunningham made no mention during her presentation of Benitec’s current financial status, even though its most recent financial report came out less than a week before. According to a filing with the Australian Stock Exchange, Benitec recorded costs of about AU$3.7 million (roughly $2.9 million) during the quarter ended Dec. 31, 2004, and finished the period with about AU$3.7 million in cash.

Cunningham told RNAi News that “we are actively fund raising, but the key for us is to strengthen [our] shareholder support. … Again, because the focus has been so predominantly on the litigation for the last year, it’s going to take a little time to get people aware of what Benitec actually does.” Once this happens, she added, the stock will move up and “the fundraising is going to be much easier, not only in Australia but in the US.”

Cunningham’s presentation also did not discuss Benitec’s recent management changes or give any information on the reasons behind the resignation of McKinley, who has been overseeing the company since it dropped its mining operations as Queensland Opal and refocused on biotechnology as Benitec.

“I had a relatively small amount of time to convey what we [are] doing, and what I was trying to focus on was the onwards and upwards - this is what Benitec is and this is Benitec moving forward,” she told RNAi News. “We can spend a lot of time rehashing the past and recent changes, but I feel that the only thing that is going to help us … is performance.”

Finally, although Cunningham told RNAi News recently that Benitec still intended on becoming a publicly traded US concern, the topic was not raised during her presentation.

This week, Cunningham said that “the goal of becoming a US-listed entity still remains. But our immediate concern is to strengthen and reinforce our predominantly Australian shareholder base,” she said. With 85 percent of the company’s shareholders based in Australia, and the remainder mostly in Europe, “we can’t put out this attitude of, ‘Come hell or high water we’re going to the US.’”

- DM

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