BLT : Pure Theatre

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:

Source : Benitec "Chief Investigator's Newsletter" 2012

Source : Benitec “Chief Investigator’s Newsletter” 2012

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.

21 thoughts on “BLT : Pure Theatre

  1. Totally agree with the disingenuous reporting of this company. On no data at all it is now assumed to be a scientific success story by its punters. Why? Because the reporting of the company perpetuates and reinforces this myth. While an army of psychophants[sic] patrol the internet running down anyone who says anything to the contrary.

    What will happen if the data doesn’t show efficacy? They have already reported that no knock down was observed.

    Could it be the end of the IPO? Facilitate a cheap buyout perhaps. Don’t know. Will wait and see and hope for the best.

    Meanwhile, during the wait we have had this slip in under the radar. See below.

    What people don’t get is this is the crux of the TPP negotiations in US legislative form. It may even be what facilitates a fast track to market for some drug in development at the moment. Somehow, I just don’t see BLT being at the forefront of this development.

    There will be tears before bedtime for some who are involved too deep with this one.

    http://www.reuters.com/article/2015/07/10/us-usa-health-bill-vote-idUSKCN0PK1U920150710

    The U.S. House of Representatives on Friday passed a sweeping bill to speed new drugs to the market after lawmakers defeated last-minute amendments that threatened to derail it.

    The House voted 344 to 77 in favor of the 21st Century Cures Act, which would require the FDA to streamline its drug approval process, consider more flexible forms of clinical trials and incorporate patient experience into its decision-making process.

    The program would be paid for with the sale of 80 million barrels of crude oil from the Strategic Petroleum Reserve (SPR) over eight years.

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  2. chris, i believe peter may be quite right questioning your mental state. you seem to project a notion of grandeur within your writings. i for one am sure glad you have not reached a larger audience with your half baked analysis. perhaps if you didn’t spread yourself so thin across so many topics you would have a better understanding of what is shaping up for benitec. though i would encourage you to keep going with your musings on blt, as entertainment it is quite enjoyable. just please promise me you will continue to post on them as they blast through your expectations. keep it real chris.

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    • Dear Mr. Grimshaw,

      Thank you for your enlightening and constructive feedback, as always. I’ve missed it since I was briefly on Hotcopper. I particularly appreciated the depth of commentary and the insightful views that you provided in your above response.

      So, I guess being a ~0.5% shareholder of Benitec through your SMSF (I haven’t checked the registry recently but that is my guess factoring some of the recent share ownership movement) I can rely on the combination of your objective opinion and tremendous personal experience in biotechnology (it’s not so different than the flooring industry, I suppose). Given your important shareholding positioning in the company, I am sure you talk to Peter regularly and so also many thanks for the feedback on Peter’s opinion about my mental health.

      To be clear, since it’s possible that you didn’t glean it from my “half-baked” writing, I don’t have a fundamental problem with Benitec. The technology is simply old and is never going to win the gene silencing race. The company also does not conduct itself in a way that is redolent of a NASDAQ-aspiring company. I choose to comment on this company because I want other people, thinking about buying into Benitec, to have an alternative opinion to the glowing waffle out there (including from punters like you). The fact that my opinion bothers you to such an extent is not reflect of my views, it’s reflective of your vulnerability as a shareholder.

      Mr. Grimshaw, you will have an interesting journey going forward. If Benitec does complete its NASDAQ debut, I expect it will land up somewhere around $160-180m market cap when the dust settles. You will have undergone a roughly 50% dilution to get there. If Benitec does pull off the US listing it will be in a far better position to continue to raise capital and be a success. Unfortunately, it will also be at the mercy of US analysts who voices are far stronger than mine, and care even less about the defensive rants of a shareholder in Queensland.

      Thanks for reading

      Chris
      PS: If you don’t have anything more useful to say than to criticise me personally, please feel free to keep your abuse restricted to HotCopper where your target audience actually cares. Thanks.

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  3. Hi Chris,

    Love your work. By God does this sector of the ASX need the kind of scrutiny and critique which you finally are bringing to it!

    Too right that the nature and size of this ‘deal’ is squiffy. But I think it suffers from an even bigger problem: it’s a Hep B program. And Hep B has been ‘solved’ (hasn’t it?). We have perfectly fine vaccines that mean no meaningful future market for this treatment.

    Then again, I guess it fits perfectly with Peter French’s great vision on Hep C- something else where the market will be gone when (if) the main BLT program makes it to market.

    What next from these guys? Perhaps a cure for smallpox or polio? Ideally based on a highly expensive not yet proven technology….

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    • Hi “HJ”,

      Hepatitis B is still a major problem, particularly in Asia. But there are plenty of other issues with HepB that Benitec is ill-equipped to address with its technology. Not least of all that they are still screwing around with cell lines in a 96 well plate.

      And yes… There will be no market for BLT’s technology by the time they make it to the end… IF they make it to the end.

      Thanks for reading…

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  4. I don’t understand the big ooh aah about RA Capital. They are also shareholders in VLA but nobody ever mentions that. Their price has gone plus 150% in recent times. I don’t think RA Capital are selling out there. They are also shareholders in TKMR. The supposed HBV bomb.

    Chris, do you think there might be a link between TKMR and BLT? Or BLT and VLA. Either or on the delivery front is what I am thinking. But then that would also put MSB, SPL, CYP, ACW, BDM, PVA, PYC and a few others on the map as well if delivery of the oligo is the name of the game.

    I’m not sure it is. I think the name of the game is the oligo and its target.

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  5. all good mate. my apologies too if you read hc (tongue in cheek). interesting road ahead either way. you know where my money lies.

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  6. sorry to hear that chris. definitely not cool by any means. i’m sure you do ruffle quite a few feathers but nothing deserving of that.. take care mate.

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  7. Chris, are aware of Daisy the cow and her GE milk? Although it is ag. and vet. of which BLT has no exposure, the role of BLT’s patent estate did play its part. Albeit the CSIRO owned part. It was a secondary bit part but a part nonetheless. Ergo, there is value in BLT. But nothing like what people think….unless, they have gained access to the IP that dictates the role of mRNA and miRNA.

    ddRNAi and BLT to me seems to be where ISIS and antisense were approximately 25 years ago. It is the next big thing. But then why did Obama declare the brain as the next frontier of medicine and science? Because they have learned how to get across the BBB?

    If so, then BLT is still way out of the game.

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    • Indeed… actually BLT’s technology has been much more extensively used in plant/agricultural sciences. Unfortunately, I don’t believe BLT benefits from that IP exposure.

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  8. Pingback: The Bioshares 2015 : “Long Tail” Awards | The Long Tail

  9. The sozzled story listened to last night above the din of Friday night happy hour went along the lines of Dirk giving up his blog and role at Voyager to come and work for or with BLT in the lead up to the IPO. Vector issues or something like that. Options meted out last night now belong to him.

    Whether this is true or not I have no idea.

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