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 Reports and Commentary from the Investment World

Reports and commentaries are posted here on a regular basis.




Benitec Limited (BLT:ASX)

One of the biggest scientific advances of the last decade has been RNA interference: a natural process used by organisms from poppies to people to turn off the expression of certain genes. American researchers, Andrew Fire and Craig Mello,received the Nobel Prize for their groundbreaking work in RNAi. This has focussed the spotlight on to RNAI this year.

The technology is clearly advancing rapidly.  We may see the first products in a few years time.
In fact, several early-stage clinical trials are now ongoing. The technology has already been proven in plant cells and demonstrated in mammalian cells.
The ability to shut down specific disease-causing genes could be a powerful weapon against cancer and infections such as HIV. RNA interference, in which precisely designed, short bits of RNA selectively interfere with cells' ability to make specific proteins, promises to do just that.

Benitec Limited is a micro - cap biotechnology company specialising in gene silencing technology.
This company is interesting because, rather than operate its own R&D group, it issues licenses to other companies that want to use their technology for both commercial research and therapeutic development. The goal is to become a leader in development of RNAi therapeutics through identifying third parties with advanced RNAi capabilities and therapeutic disease programs and combining its patent position to build a partnership.  The company plans to extend its intellectual property  platform in RNAi and co-develop a separate RNAi contract research business with a strategic partner.  In the foreseeable  future, Benitec will focus its resources on exploiting its Gene Silencing intellectual property portfolio through licensing and collaborations.

This has been a challenging but significant year for Benitec. It has seen its share price drop from a high of 0.22 cents to a low of 0.03cent.  This is where we see the possibility of a major rebound.  In April 2006, the Board was restructured and immediately commenced a strategic review to refocus the business and put  together a turn around plan to deliver improved shareholder value in 2007 and beyond. This plan is now being implemented.

The new business and technical strategy will result in a significantly lower cost model of value creation which should increase shareholder value.  Benitec will move to a model of co-investment and /or licensing to bring in additional revenues. This will spread technology risk across projects and further expand opportunities beyond the Company’s already impressive portfolio of R&D collaborators and licensees.

One consequence of this change in strategy has been the closure of Benitec’s USA operations. The restructure will effectively eliminate costs of over $7,000,000 incurred during the financial year.
This decision has not affected Benitec’s collaboration with the City of Hope center in California where a HIV AIDS drug candidate is due to enter Phase I human trials this year.  Benitec recently announced that it had out licensed the HCV project to a California based company Tacere Therapeutics Inc.
In parallel Benitec has been able to re-negotiate its key alliance with CSIRO and now enjoys a more equitable and collaborative relationship with one of the world’s largest government R&D agencies.

The first phase of this process of change and re-direction has been completed with the recruitment of Sue MacLeman as the Company’s new CEO. Sue is a very experienced and proven biotechnology executive and will add critical momentum to Benitec’s recovery. Sue brings to Benitec extensive management and leadership skills in product development and commercialization in the biotechnology and pharmaceutical sectors.  Sue has worked with local and international companies including Agenix Ltd, EQiTX Limited, Bristol-Myers Squibb Pharmaceuticals, Amgen Inc and Schering-Plough.   Benitec reported a net loss of $7.5m for the year ended 30 June 2006.  This compares with the net loss of $14.2mm reported last year. Revenues from ordinary activities were $2.3m, up 290% from last year.  The increases in  revenue were due primarily to the grant of an exclusive license of the Benitec’s ddRNAi technology for use in the research reagent field to Sigma-Aldrich and the inclusion of $1,376,444 relating to the settlement of litigation. Diluted EPS was -4.4 cents compared to -14.3 cents last year. Operating expenses relating to continuing operations for the financial year were $4,289,294 down from $8,316,575 in the corresponding period last year.  The reduction was due to the settlement of litigation ending legal costs and cost reduction measures put in place during the financial year.  The net operating cash outflow was significantly improved too.

Benitec’s was able to leverage its research reagent rights, which were peripheral to the central mission of development of human therapeutics, into a significant strategic partnership with Sigma-Aldrich Corporation. Sigma is a major force in the RNAi field worldwide and this partnership will allow Benitec to expand the use of its technology in basic and applied life sciences.  The license agreement with Sigma validates Benitec’s IP estate as one of the major portfolios in the field, while the significant equity investment made by Sigma demonstrates their recognition of Benitec’s long-term value.  During the last year, Benitec has raised $3.4 million to provide funding for the ongoing operations, further development of both the in-house Hepatitis C project and the HIV lymphoma project at the City of Hope and to support the evaluation of other project opportunities.

These are all signs of a turnaround in the making.  This company's shares could easily triple in the next year. However; this is a micro cap stock, so do not invest more than 5% of your portfolio . The shares are guaranteed to be volatile.

Buy Benitec (BLT:ASX) up to AU$0.090



Disclaimer: All the information above is provided as a service for individuals and institutions. It should in no way be construed as a recommendation as an investment. Investment decisions should be based on the risk tolerance and planning horizon of the investor. Market participants must understand that past performance is also not a guarantee or predictor of future results.