Benitec US patents challenged, sets up equity arrangement

Benitec (ASX: BLT) has signed a term sheet for a AUD$7.5 million standby facility with Icon Investors, to provide the RNAi company with a flexible source of cash at hand for use as working capital, for expansion of its US operations or for future acquisitions.

Under the proposed agreement, Benitec will be able to require Icon to subscribe for fully paid shares up to an aggregated value of $7.5 million at a price equal to the volume weighted average price during a period of up to 20 trading days preceding the issue date discounted by 10 per cent. The facility is expected to run for three years from the time of execution of the agreement.

According to CEO John McKinley, the standby facility, which was arranged by Benitec's US-based merchant bank Cappello Capital Corporation, is a commonly used mechanism for accessing funding in the US.

"I believe in having funds available for anything we might like to do," said Benitec CEO John McKinley. "We can draw down all of it, some of it or none of it."

The company will also seek shareholder approval at the upcoming AGM to issue shares above the 15 per cent limit that does not require shareholder approval. The approval is not required for issue of shares under the Icon facility, but provides the board with an option to undertake further capital raising at a later date without having to go back to shareholders.

"We like everybody else are looking forward and seeing that we have two disease programs and a third coming on line, plus a facility in the US," McKinley said.

At the end of the 2003-2004 financial year Benitec had $4.65 million in cash, with a burn rate of $1.9 million for the fourth quarter.

Also in the company's sights is a Nasdaq listing. Unlike many other Australian biotech companies, which use ADR programs to access the US capital markets, Benitec plans to list directly on the Nasdaq national market, in order to compete effectively with its US competitors.

"In 9-12 months we could probably do a straight IPO onto Nasdaq but we are more likely to do a reverse takeover of a company or shell, or merge with an existing listed company," McKinley said.

Nucleonics challenges US patents

US competitor Nucleonics, which announced last month that it had filed to challenge to Benitec's Australian patents, has now added a challenge of the company's US patents to its strategy. An announcement from Nucleonics earlier this week stated that a request for re-examination had been filed with the US Patents and Trademark Office for Benitec and the CSIRO's US Patent Number 6,573,099, entitled "Genetic Constructs For Delaying Or Repressing The Expression Of A Target Gene."

Nucleonics claims to have prior art not previously considered by the US patent office, which show that Benitec's claims are invalid.

McKinley said the matter was now in the hands of the two patent offices, with neither company able to do anything further until the validity of the request for re-examination was determined.

"There's nothing we can do except get on [with] our business," he said.