Back on the 3rd of July, Benitec (ASX : BLT) filed a regulatory notice in relation to a change of interest for a substantial holder, namely RA Capital (and related party). No big deal, not a big problem really. Normally in the lead-up to an IPO, there would be no drama in watching a large investor rebalance a position, or even attempt to rebalance a share price if its a little high (can work pretty well with a fairly illiquid stock, such as BLT). Hedge funds also want to know what the market behavior is going to be like when they start offloading stock post-IPO, so it can be a useful “litmus test” with low risk. To be clear, RA Capital is also not a neophyte when it comes to playing down and dirty in the capital markets – it is a hedge fund after all.
Then Benitec made a little follow-up “chirp”. Just a little friendly note, a little clarification, for all their moronic shareholders about what RA’s “trimming” meant and to keep everyone calm. “Nothing to look at here, folks, don’t worry about it!” Or maybe, “They still love us, everything is ok.” It was totally weird and kind of amateur-hour, but despite a lot of egging-on that I received that day, I elected not to say anything about it.
To be honest, it wasn’t THAT interesting. But also it wasn’t atypical of the stupid stuff that BLT does to massage and appease their demanding shareholder base. Since that time, watching all the discussion and speculation on trading forums has been been nothing short of pure entertainment and was almost as fun as watching Prima’s pump-and-dump earlier in the week. I should note however, with no small sense of fondness and pride, that American stockmarket punters have a long way to go in the language department when it comes to sharing opinions about share price movement and speculation about investor behavior.
It’s just not as colourful as “those crazy Aussies”.
The BLT theatre continued yesterday with the announcement that BLT has acquired “full rights” to the Hepatitis B program from Nantong-based Biomics Biotechnologies Co., Ltd., also a leader in siRNA/RNAi technology (so many leaders!). I guess we have known since about 2010/11 that Benitec has been working with York Zhu and, even back as far as 2011, we all got the impression that everything was running swimmingly. In 2012, the company informed us that the Hepbarna program was going to rocket along over the next two years:However, according to the company’s pipeline overview (as of today), the Hep B program in partnership with Biomics is still denoted as pre-clinical, in fact it is not only still pre-clinical but it is still at the in vitro stage. In other words, nothing much has progressed in terms of clinical candidate since 2011/12.
Now that in itself isn’t such a big deal. The company only recently managed to improve its financial firepower. I also respect the fact that the company kept the ball moving by building a bunch of partnerships, even if some of those partnership (like Biomics) didn’t actually yield much for the company in the past few years. But the big surprise for me is the pay-out. I have never heard of a company paying a couple of million bucks up front to take out an in vitro-stage program, let alone one that is notionally encumbered by the company’s own intellectual property (the AAV technology), and that was supposed to be progressed as a JV (and clearly hasn’t).
Benitec may be the eve of an IPO, and may be getting its house in order. It may even have advisers telling it that it should take control of this program to improve the optics of an IPO (Chinese JVs can be notoriously difficult to enforce and the SEC is increasingly onerous about expecting risk management language in S-1s where there are Chinese JVs involved). But if you take a more conservative viewpoint of BLT’s IPO prospects and keep in mind that it is not a slam-dunk by any stretch of the imagination, then spending that amount of cash up-front on a partnership that was notionally already “captured”, seems like a poor use of precious capital at this stage. It also makes me wonder what possible reason there could have been for doing this before the IPO that couldn’t have waited until after the IPO was out of the way.
For me, it’s just one more example of the general “squiffiness” of BLT’s business. I am sure the management team felt there were good reasons for “buying out” the JV, but objectively it just looks like it was another half-baked commercial relationship that needed intervention because it wouldn’t withstand diligence. I’m personally not in favour of spending millions of dollars to improve optics, so I hope that this deal means that BLT’s story is much cleaner going into its offering, otherwise the expense will have been truly wasteful.