Benitec BioPharma (BLT ASX $1.14)

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1 06/17/ /17/ /17/ /17/ /17/ /17/ /17/ /17/ /17/ /17/ /17/ /17/2014 EQUITY RESEARCH INITIATION Biotechnology June 16, 2014 Closing Price ( ) $ Month Target Price: $ Week Range: $0.28-$2.38 Market Cap (M): $157 Shares O/S (M): 137 Float (M): 124 Avg. Vol. (000) 579 Cash (M) $17 Debt (M) $0.0 Dividend/Yield: $0.00/0.00% Risk Profile: High FYE: June Cal. Year GAAP EPS P/E 2014E ($0.06) nm 2015E ($0.08) nm 2016E ($0.09) nm 2017E ($0.23) nm BLT-AU (BLT-AU) $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 Source: Thomson Reuters as of 06/16/2014 Jason Kolbert (212) Initiation Benitec BioPharma (BLT ASX $1.14) Buy DNA-directed RNAi: Silence is Golden; Knocking Down Bad Genes We are initiating coverage of Benitec BioPharma with a Buy rating and a $4.00 price target. We believe the company s gene-based, DNAdirected, RNA interference silencing platform is an undiscovered gem in the world of RNAi technology, combining the delivery capabilities of gene therapy with RNA interference. Based in Australia, Benitec has multiple therapeutic products in development, including a one-shot cure for hepatitis C, hepatitis B, non-small cell lung cancer (NSCLC), cancerrelated pain, and age-related macular degeneration (AMD). DNA-directed RNAi (ddrnai): a unique approach in the world of double sirna. ddrnai is used to produce double-stranded (ds) RNA inside the cell, which is then cleaved into small interfering (si) RNA. The process is complex, but the end result is to knock down or silence the expression of the target gene, which would have otherwise sent instructions to the cell to manufacture the target protein. This ddrnai technology may hold the ability to permanently silence target genes. As such, it could become possible to cure certain conditions such as hepatitis C or B in a single dose. The promise of such a cure could lead to a new paradigm shift in the space, beyond direct acting anti-virals (DAAV). A rich pipeline. The company s programs include TT-034 for hepatitis C (the first patient has been treated), using a vector that specifically targets the hepatocytes in the liver. A Phase I/IIa trial is enrolling for a similar product, Hepbarna, and plans are underway to target HBV. Tribetarna for non-small cell lung cancer targets the beta III tubulin gene (implicated in the development of chemotherapy resistance); a phase I/IIa trial is being planned for Nervarna for cancer-associated pain involves a single injection targeting spinal enzyme gene (PKCγ) with the goal of achieving opioid-like pain relief. Pabparna is being developed for oculopharyngeal muscular dystrophy (OPMD), a rare form of a muscle disorder caused by a well-known specific gene mutation. Finally, the wet-amd program involves a single shot to quiet inflammatory mediators. Multiple out-licensed programs: 1. Calimmune City of Hope (private) This is HIV therapeutic, 2. Genable Technologies (private): Retinitis Pigmentosa program. 3. UniQure (private) Huntington s Disease 4. Regen Biopharma (private) Breast cancer vaccine. Valuation. We assume that clinical development of any single product into proof-of-concept studies will trigger a valuation increase. For modeling purposes, we assume that commercialization of the first product (HCV/NSCLC/HBV/AMD) begins in We use a risk rate of 30% in our modeling assumptions. Using these metrics, we model the market potential and discount back in our FCF, discounted EPS, and sum-of-the parts models to arrive at a $4.00 price target. Maxim Group LLC 405 Lexington Avenue New York, NY SEE PAGES FOR IMPORTANT DISCLOSURES AND DISCLAIMERS

2 Benitec Biopharma (BLT) F6A/1-15 Barr Street Balmain Sydney NSW 2041 Australia Web site: CORPORATE PROFILE Senior Management: Peter French, MBA, PhD, Managing Director and CEO. Peter French is a cell and molecular biologist who has extensive experience in both basic and clinical medical research and commercialization of biological intellectual property. His research areas of expertise include cell biology, immunology, infectious disease (including HIV/AIDS), neurobiology, and oncology. He obtained his PhD in 1987 for work performed at CSIRO, elucidating the molecular composition of keratin proteins in the development of wool follicle. He carried out postdoctoral research on neuronal development at the Children's Medical Research Foundation, Sydney. He was Principal Scientific Officer and Manager of the Centre for Immunology, St Vincent's Hospital Sydney, from 1987 to Company Background. Benitec Biopharma is a unique company in the world of anti-sense therapy, with its DNA-directed RNA interference programs and the ability to couple tissuespecific longevity of expression with RNA interference. The clinical pipeline is focused on multibillion dollar market opportunities in hepatitis C and B, lung cancer, and cancer-associated neuropathic pain, as well as the orphan genetic disease oculopharyngeal muscular dystrophy. What s even more important, however, is that this platform technology could potentially be applied to over 22,000 human genes and many more in disease-causing microorganisms. ddrnai is one of two major approaches to RNA interference, and it has several advantages over the alternative: Its effects are longer lasting; it requires lower doses (possibly just one molecule); it has lower toxicity; and it offers a wider range of delivery options. Benitec owns or has exclusively licensed almost 50 granted or allowed patents in the field of RNA interference for human therapeutics, with another 50 pending. Investment Risks: Benitec (BLT.AX) Development risk: The majority of the company s products are either pre-clinical or in early stages of clinical development. The products are both new and novel and, as such, have a high risk of failure. Timing of regulatory approval. Indications of efficacy seen in a small trial may not be confirmed in subsequent trials. Financial risk: Benitec may need to raise additional capital prior to profitability. (PLEASE SEE PAGE 29 FOR A MORE DETAILED OUTLINE OF OUR INVESTMENT RISKS ) Institutional Ownership: 25% Inside Ownership: 1% Shares Short: 0 Balance Sheet Summary: $MM (As of May 2014) Cash & Restricted Cash: E: ~$31.5M Long-Term Debt: (M) $0M U.S. Analysts Following the Co.: 0 (Excluding Maxim Group) Maxim Group LLC 2

3 INVESTMENT SUMMARY AND CONCLUSION Benitec Biopharma: Single-Shot Cures We are initiating coverage of Benitec with a Buy rating and a price target of $4.00. INVESTMENT THESIS AND CONCLUSION The bull case. Benitec is an undiscovered gem in the sirna space with a unique platform DNA-directed RNA interference. The technology has the potential to be a one-shot cure for a number of target indications, silencing genes and arresting disease progression. The company has an impressive patent estate that may position it to control elements of the DNA-directed RNA (ddrnai) landscape. While the HCV space has seen multiple paradigm shifts, TT-034, the company s ddrnai therapeutic, could represent the first single injection cure. The potential of a therapeutic approach like this is significant. Extending hepatitis C to hepatitis B, bulls believe that the approach is an ideal way to treat a disease with such a large prevalence. The bear case. sirna represents a new paradigm, as does ddrnai. While the promise of this technology is robust, it is still largely unproven. The company s products are still in early stages of development, and clinical failure rates are statically high. As such, the probability of success is uncertain. Our take. We are impressed with both the technology platform and the pipeline of assets. We believe coupling the company s ddrnai approach with the utilization of gene therapy vectors represents a cutting-edge application of the sirna technology. We believe that clinical success can drive multiple valuation inflection points. We also see the value of sirna in the overall sector (biotechnology) landscape. As such, we believe a small amount of success can translate into a significant value driver for shareholders. FINANCIAL HIGHLIGHTS Benitec closed a $31.5 million placement in April The funding enables the company to advance its programs through upcoming milestones. Benitec plans to advance its lead program in hepatitis C and the lung cancer program through Phase I/IIa clinical trials. The hepatitis B and age-related macular degeneration (ARMD) programs will be advanced through the proof-ofconcept stage. Exhibit 1. Financial plan for Benitec; both tranches are now funded Source: Benitec Biopharma Maxim Group LLC 3

4 COMPANY OVERVIEW Benitec Biopharma was founded in 1997 and publicly listed in Australia (ASX) in Benitec Biopharma is developing therapeutic agents in blockbuster markets like chronic pain related to cancer, drug-resistant non-small cell lung cancer, and hepatitis B and C. In addition, the company has multiple out-licensed programs in non-core therapeutic areas. The company is considered to dominate IP in the RNA interference landscape. Exhibit 2. Upcoming catalysts for Benitec Biopharma Product Geography Indication Event Timeline Impact TT-034 U.S. Hepatitis C Complete enrollment first-in-man Phase I/IIa clinical trials 2H14 ++ Tribetarna U.S. NSCLC Start first-in-man Phase I clinical trials 2H TT-034 U.S. Hepatitis C Complete Phase I/IIa clinical trials 1H15 ++ Hepatitis B Global Hepatitis B Proof of concept, select clinical candidate 1H15 ++ Age-related macular degeneration Global Age-related macular degeneration Proof of concept, select clinical candidate 1H15 ++ Tribetarna U.S. NSCLC Complete Phase I/IIa clinical trials 1H TT-034 U.S. Hepatitis C Data Phase I/Iia clinical trials 2H Tribetarna U.S. NSCLC Data Phase I/IIa clinical trials 2H TT-034 U.S. Hepatitis C Begin Phase IIb clinical trials 2H Hepatitis B Hepatitis B Complete preclinical studies 2H15 + Age-related macular degeneration Age-related macular degeneration Complete preclinical studies 2H15 + Pain and OPMD Pain Optimze ddrnai construct 2H15 + ddrna technology Platform Platform Expand and extend ddrna platform 2H Pain and OPMD Pain Complete precllinical studies 2H15 + Stock Significance Scale: + of moderate importance; ++ higher level; +++ highly Source: Maxim Forecasts and Company reports. Exhibit 3. Benitec Biopharma in-house pipeline Source: Benitec Biopharma Exhibit 4. Benitec Biopharma sub-licensed programs Source: Benitec Biopharma Maxim Group LLC 4

5 Exhibit 5. Benitec Biopharma partners: A solid list and growing Source: Benitec Biopharma PIPELINE & CLINICAL DEVELOPMENT PROGRAM Benitec s pipeline includes proprietary, partnered, and out-licensed programs involving antiviral, ophthalmologic, cancer, and pain targets, with product candidates currently undergoing phase I/IIa clinical trials. We believe the pipeline s structure offers the potential to validate Benitec s technology across multiple disease types and delivery requirements. The programs are discussed below and have been adapted from the company s website. Exhibit 6. Benitec s platform technology: This means the company can pursue multiple therapeutic areas and an unlimited number of gene-based targets. The following section reviews the company s multiple pipeline programs and their clinical status. Source: Benitec Maxim Group LLC 5

6 Hepatitis C: The ddrnai single-shot cure for hepatitis C. The market opportunity is substantial. Hepatitis C virus (HCV) infects over 170 million people worldwide, and it is the main cause of cirrhosis and hepatocellular carcinoma, often requiring liver transplant. There are seven HCV genotypes, though genotype 1 accounts for 75% of cases. The virus persists in the liver of ~85% of those infected. Prior to July 2011, the standard of care (SoC) for genotype 1 was pegylated-interferon (PEG-interferon) and ribavirin administered over 48 weeks. The SoC had a cure rate of 50-55% yet was associated with significant side effects including hematological, flulike symptoms, and cognitive impairment. Since July 2011, cure rates of up to 75% (in clinical trials) have been achieved by combining Specifically Targeted Antiviral Therapy (STAT-C) with PEG-interferon and ribavirin, also administered over long periods. However, a significant percentage of patients have either withdrawn due to side effects or not responded. The latest jump in HCV efficacy has recently occurred with the next generation of direct acting anti-virals. These targeted therapies are showing cure rates north of 90%. Still, they are expensive, have side effects, and require long drug regimens (weeks/months). Development rationale for Benitec. Benitec has designed a ddrnai-based multi-cassette vector called TT-034, which targets three parts of the HCV genome in a single intravenous dose. Following an IV dose, more than 90% of the vector goes to the liver, the primary site of viral replication. TT-034 has achieved nearly 100% transduction of liver cells in-vivo and, by targeting three separate, well-conserved regions of HCV simultaneously, it prevents generation of drugresistant mutants, a major problem in the treatment of hepatitis C. The targeted regions of HCV are also conserved across all genotypes, so TT-034 likely has application to all HCV-caused conditions. Exhibit 7. Benitec s HCV therapy targets three conserved regions of the HCV genome. The figure illustrates the composition of TT-034, with dotted arrows pointing to the regions of the hepatitis C virus genome that are targeted by the drug. Three independently transcribed RNAi elements target three separate, well-conserved regions of the HCV genome (which helps prevent the generation of escape mutants). Source: Benitec Maxim Group LLC 6

7 Exhibit 8. Mechanism of action of TT-034 against HCV Source: Benitec Exhibit 9. TT-034 activity against genotypes 1a and 1b Source: Benitec Maxim Group LLC 7

8 Exhibit 10. TT-034 preclinical efficacy and safety: Clinically relevant doses produce sustained levels of HCV inhibition without toxicity Source: Benitec Current clinical status: Benitec is advancing TT-034 into the clinic via these important steps: 1. Submission of the clinical trial protocol to the NIH s Recombinant DNA Advisory Committee (RAC) in June 2013, for which it gained favorable feedback (completed). 2. Application for an Investigational New Drug (IND) with the FDA in December 2013 (completed). 3. Dosing of the first patient (completed May 2014) at Duke University. We expect additional patients to be enrolled, and additional sites (University of California, San Diego) will be opening soon. 4. Trial endpoints: Safety and sustained reduction in HCV viral load in the blood, as well as the assessment of TT-034 levels in a liver biopsy, assessment of shrna expression in a liver biopsy, and shrna expression levels in serum (exosomes). Exhibit 11. TT-034 trial design: Phase I/IIa dose cohorts. The DSMB will review after each patient in each cohort and between cohorts. Source: Benitec Hepatitis B: Benitec is developing a curative therapy for chronic hepatitis B virus (HBV) infection. It is believed that, globally, more than 2 billion people have been infected with HBV at some point in their lives, and about 350 million of them are chronically infected carriers. In the U.S. alone, there are over 1.25 million people living with chronic active HBV, with over 60,000 new cases per year. In most chronic infections, current therapies have limited impact on viral Maxim Group LLC 8

9 gene expression and replication. The aim of the program is to silence key HBV genes using longlasting treatments conferred by the application of ddrnai. The goal is to stop the virus from being able to proliferate, with minimal off-target effects on human genes, thereby enabling a revolutionary and potentially curative approach to HBV treatment. Development rationale. Although there is a prophylactic vaccine available, there is no treatment available for acute HBV infection. Treatment of chronic HBV is aimed at eliminating infectivity to prevent transmission and spread of HBV, minimizing the overall progression of liver disease. There are two main classes of treatment: 1.) antiviral drugs aimed at suppressing or eliminating HBV by interfering with viral replication; and 2.) immune modulators aimed at helping the human immune system mount a defense against the virus. We believe RNAi can achieve both. Complete elimination of the virus is rarely achieved. EPIVIR-HBV (lamivudine) is a nucleoside that was introduced in 1998 and was the first FDAapproved oral antiviral for the treatment of chronic hepatitis B in adults with evidence of hepatitis B viral replication and active liver inflammation. Lamivudine is a 2',3'-dideoxy cytosine analogue that has strong inhibitory effects on the hepatitis B virus polymerase and therefore on HBV replication in vitro and in vivo. Lamivudine suppresses HBV replication in carriers, but the effect is reversible if therapy is stopped. A major limitation of chronic lamivudine therapy, however, is the development of viral resistance. Resistance to lamivudine typically develops after 6 months of treatment and is associated with mutations in the highly conserved catalytic region of the HBV polymerase gene. The polymerase gene is the target of Benitec s ddrnai approach, with the development of a multi-cassette linking three shrnas targeting different regions of the polymerase gene, thus providing a high barrier to viral resistance. Furthermore, by knocking down the polymerase gene, the s-antigen expression will also be eliminated. Owing to the structure of the open reading frame of the HBV genome (see exhibit 14). Thus, Benitec s approach inhibits viral replication through targeting the polymerase gene dna overcomes the s-antigen blocking of the body s immune response to HBV. Multiple gene products overlap the HBV genome, meaning that shrna may also be effective at silencing other target proteins as well. Exhibit 12. The rationale for RNAi HBV therapy: ddrnai offers a durable approach. Source: Benitec Maxim Group LLC 9

10 Exhibit 13. The target gene for a ddrnai-based HBV therapeutic Source: Benitec Exhibit 14. The rationale for RNAi targeting HBV genome Clinical status. In September 2009, Benitec initiated a program to develop a ddrnai-based therapeutic for the treatment and long-term elimination of chronic HBV infection. The studies are being carried out in collaboration with China-based Biomics Biotechnologies Co. Ltd (private). After screening 642 genomes, 14 highly effective RNAi sequences were identified as potent inhibitors against HBV targets in the first stage of the collaboration. In February 2011, Benitec and Biomics agreed to extend the program aimed at designing, manufacturing, and testing ddrnai-based constructs in a preclinical model of HBV infection. Ultimately, the therapeutic will be tested in a clinical trial of HBV-infected patients. Maxim Group LLC 10

11 Drug-resistant lung cancer: Cancer is a complex disease that often results from the dysregulation of many genetic factors. Because the genes are dysregulated widely between patients, the effectiveness of therapy can vary greatly too. Benitec Biopharma is developing a treatment to resensitize chemotherapy-resistant non-small cell lung cancer with chemotherapy agents. In terms of incidence and mortality, lung cancer is the highest-ranked cancer, and nonsmall cell lung cancer accounts for more than 80% of lung cancers. First-line chemotherapy for NSCLC includes both tubulin-binding and DNA-damaging agents. However, many tumors become quickly resistant to these drugs, leading to high mortality and dismal prognoses for patients with advanced cases. Exhibit 15. Drug-resistant lung cancer: Target βiii-tubulin gene Source: Benitec Development rationale: Benitec is designing ddrnai therapeutics to target and silence the gene for beta III-tubulin, which is known to be associated with clinical resistance of these drugs, and to be up-regulated in many cancers including non-small cell lung cancer, as noted in Cancer Research in May The aim of the program is to deliver a highly effective ddrnai construct to lung tumors, thereby silencing the beta III tubulin gene in those cancers and increasing the effectiveness (i.e. resensitizing) of chemotherapeutic drugs to kill the cancer cells. Maxim Group LLC 11

12 Exhibit 16. Tribetarna for drug-resistant lung cancer: Jet-PEI does not appear to cause an immune response, allowing repeat administrations as needed 70% Reduction Source: Benitec Clinical status: Benitec Biopharma s scientific collaborators at the CCIA at UNSW have produced in vitro data showing that their multi-cassette shrna construct (with three independent shrnas to target the βiii tubulin gene) is highly effective at knocking down the target gene, and initial in vivo data shows safety and efficacy. Preliminary in vivo data demonstrates encouraging results in systemic delivery of the construct to an orthotopic lung cancer model, resulting in silencing of the target gene and a doubling of survival in chemotherapy-treated animals. Maxim Group LLC 12

13 Exhibit 17. Clinical plan for Tribetarna: Phase I/IIa trial with cisplatin is planned in NSCLC patients. Proof of concept in NSCLC could lead to other cancer-related indications. Source: Benitec Oculopharyngeal muscular dystrophy (OPMD): Benitec is developing a treatment and potential cure for a genetic disorder. The market opportunity for OPMD is orphan. It is a rare disease affecting one in 100,000 people in Europe, yet it has worldwide dissemination and is the most common muscular dystrophy in Quebec (1 in 1,000) due to a founder effect (loss of genetic variation due to isolation of a small population). It is an autosomal dominant-inherited (needing only one gene from one parent) degenerative muscle disorder that is slow progressing, late onset, and usually starts in the fifth or sixth decade of life. In all patients, the disease is mainly characterized by progressive eyelid drooping (ptosis) and swallowing difficulties (dysphagia). The pharyngeal and cricopharyngeal muscles are specific targets in OPMD. Exhibit 18. OPMD program Source: Benitec Clinical status: OPMD. In January 2012, Benitec Biopharma commenced the development of a ddrnai-based treatment/cure for OPMD with researchers at the Royal Holloway University of London and the Paris-based Institut de Myologie. shrna constructs have been designed and will be tested in vitro and in preclinical in vivo models until they are optimized, followed by in-vivo proof-of-concept testing. Maxim Group LLC 13

14 Exhibit 19. OPM: A range of constructs have been prepared in AAV, and lentiviral gene therapy vectors and transformed OPMD cells are currently being tested. Source: Benitec Age-related macular degeneration (AMD): Benitec is developing a single-dose formulation for wet and dry AMD. The market for AMD is currently dominated by anti-vegf therapies, such as Lucentis. These therapies represent a blockbuster market. However, the bi-monthly injections are burdensome to patients. AMD is an acquired degeneration of the retina that causes significant central visual impairment. AMD affects 10% of the population between the ages of 60 and 75, increasing to 25% of people over 75 years. It is the leading cause of irreversible vision loss in the U.S. and afflicts an estimated 1.75 million people. There are two forms of AMD, wet and dry. The wet form accounts for 10% of all cases and is the more severe of the two. Exhibit 20. Loss of central vision with progression of macular degeneration Source: National Eye Institute Maxim Group LLC 14

15 Exhibit 21. An anatomical comparison of dry versus wet AMD Source: Benitec At present, wet AMD is largely treated by antibody therapies, such as Lucentis and Avastin, which bind to and inhibit the biological activity of human vascular endothelial growth factor A (VEGF-A). These treatments stabilize vision in 95% of patients, and they marginally improve vision in 29% to 40% of patients. However, they have a half-life of just 9 days. As a result, injections are needed monthly or bi-monthly, which is inconvenient, expensive, and burdensome especially given the size of the patient population. Development rationale. With its subsidiary Tacere Therapeutics, Benitec is developing a treatment based on ddrnai technology, delivering a DNA construct to target cells via AAV vectors. It has the potential to confer years of benefit from a single administration of the drug. Exhibit 22. AMD therapeutics in development. Two shots on goal: Top construct is for wet AMD; bottom is both wet and dry AMD. Source: Benitec Clinical status. The endogenous mrna that will be targeted by the therapeutic has been well validated and is druggable (susceptible to this approach). The expressed RNAi approach (direct delivery of the DNA construct to the nucleus, directing the cell to produce specific shrna and hence sirna to bind to the mrna) avoids activation of toll-like receptors (TLRs), which are linked to inflammation and immune response. The AMD program is in the preclinical phase. Cancer-associated chronic pain. Benitec is developing a breakthrough single treatment to overcome currently untreatable and intractable chronic pain. Market pain is one of the most Maxim Group LLC 15

16 common symptoms of cancer, with chronic neuropathic pain suffered by 65% of all cancer patients and 80% of those in terminal phases. As neuropathic and chronic pain is resistant to conventional opioid therapies, pain is both undertreated in cancer patients and increasing. The development of novel treatments for this class of pain, characterized by central sensitization, is a significant unmet medical need, and one that Benitec s ddrnai shrna technology is uniquely positioned to fulfill. Development rational. Benitec is designing ddrnai therapeutics to target a specific gene that encodes a spinal enzyme, PKC gamma, which has been implicated in the development of central sensitization-mediated neuropathic pain. The aim of the program is to develop a single intrathecal injection of a ddrnai construct that can achieve significant silencing of the spinal enzyme, leading to pain relief equivalent to that of opioid infusion. The initial target clinical group is terminally ill cancer patients. Published research has demonstrated the feasibility of the ddrnai approach targeting the PKC-gamma gene in vivo. Exhibit 23. Cancer-related pain: ddrnai neuropathic pain program based on the PKCγ target Exhibit 24. Cancer-related pain: Proof-of-concept studies Maxim Group LLC 16

17 Exhibit 25. Cancer-related pain: Proof-of-concept studies Clinical status: Specific sequences on the target gene that are effective at silencing the gene in vitro have been identified, and patent applications have been filed. The pain program is at the preclinical stage in collaboration with Stanford University, and a clinical trial is planned once the construct is optimized for efficacy in vitro and in vivo. Why Are RNA-Targeted Therapeutics Key Next-Generation Approaches? What is RNAi? RNA interference (RNAi) has been one of the most important discoveries in biology in the last couple of decades. Initially discovered in plants in the 1990s, it was not discovered in mammals until In 2006, Andrew Fire and Craig C. Mello won the Nobel Prize for their work on RNAi. RNAi is a biologic process by which a small RNA molecule can inhibit the gene expression by binding and destroying messenger RNA (mrna). This discovery represented a novel mechanism of gene control. The RNAi field is still a relatively new field, and the key challenge of harnessing this pathway to develop therapeutics, either using antisense or sirna, was delivery how to achieve the bioavailability required for therapeutic action at a specific tissue site. Exhibit 26. Timeline of RNA-focused therapeutics development Source: Chemical & Engineering News, Volume 87, Issue 36, September 7, 2009, Delivering the Promise To understand RNAi, we first need to understand how a protein is made in the cell. DNA encodes for the protein. Before the protein can be made, the DNA code is first translated to an RNA code, Maxim Group LLC 17

18 known as a messenger RNA (mrna). The mrna encodes for the complementary sequence of the target DNA. The mrna is transported from the nucleus into the cytoplasm. In the cytoplasm, multiple ribosomes (protein factories) bind and translate the mrna sequence into amino acid polymers, a protein. One mrna can produce multiple copies of the protein. The stability of the mrna determines how much protein can be produced in the cell. Therefore, by controlling the mrna levels, a cell can alter protein concentration to match its need. Exhibit 27. mrna conveys genetic code from DNA to ribosome for protein synthesis Source: Addison Wesley Longman, Inc Protein levels in the cell can be controlled by mrna degradation. mrna is degraded (destroyed) by multiple pathways one such pathway is RNAi. The RNAi pathway is initiated upon generation of base pair fragments (known as small interfering RNA, or sirna) by Dicer from endogenous double-stranded RNA (dsrna). The sirna are separated into singlestranded RNAs and loaded into an RNAiinduced silencing complex (RISC). RISC binds to a target mrna, which has the complementary sequence to the loaded sirna, resulting in destruction of the mrna. Thus, RNAi controls production and concentration of the protein present in the cell. Exhibit 28. RNAi controls production and concentration of a protein in the cell Source: Wikipedia Antisense and sirna offers advantages over small molecules. Once human genome sequence was completed, it became possible to look for genetic signature and protein markers up-regulated or down-regulated in a myriad of diseases, such as oncology. These problematic genes can then be targeted and suppressed. The current strategy in oncology (or other indication) is to identify a specific target protein and inhibit it with a small molecule to selectively kill the tumor cells. Small molecules have certain drawbacks: They only block certain functions of the proteins (not all), and they can bind to other proteins with similar structures. This off-target binding is associated with toxicity of the small molecules. Maxim Group LLC 18

19 Unlike small molecule inhibition, it is possible with RNAi to achieve degradation of the protein in the cells. In absence of the protein, all downstream signals associated with the protein are blocked in the cell. The design of antisense and sirna is simpler compared to the small molecules; RNAi only requires a validated protein target. Since a 20 to 25 base pair is all that s needed for optimal specificity, these targets can be easily generated from a known genome sequence. This drives down the cost and time of discovery of antisense and sirna for validated targets compared to small molecules. As a result, the potential for RNAi therapeutics is immense, and the risk shifts to delivery. RNAi delivery is the key. The biggest drawback to RNAi therapy is delivery. RNA molecules are unstable, degraded easily in the blood, and are unable to gain entry into the cell cytoplasm (where they carry out their function). According to a 2009 review of drug delivery (Rao, Vorhies, Senzer, et al), sirna has a number of limitations: It's rapidly degraded so, without modification, keeping it stable during delivery is problematic Such modification has the potential to alter key performance characteristics. sirna needs to be delivered to specific cells or tissues or its effective concentration will be diluted. sirna's loading efficiency into cells is generally low, so higher doses are usually needed. High dosage can potentially cause higher toxicity and off-target effects. ddrnai DNA technology. Benitec Biopharma has developed a unique approach to gene silencing, which appears to overcomes most of the challenges of sirna-based methods because it utilizes a DNA-based approach called DNA-directed RNAi (ddrnai) and couples ddrnai with gene therapy vectors to achieve therapeutically relevant concentrations of sirna in the appropriate target tissues. The difference lies in the method of introducing sirna into the cell: ddrnai causes the cell to produce sirna itself, rather than introducing synthetic sirna. It does this by producing a precursor molecule called short hairpin RNA (shrna) in the nucleus, which enters the cytoplasm and is processed to sirna by the cell s own machinery. The specific shrna is coded for the nucleus as a result of transfecting the cell with a DNA-based construct hence the concept of RNAi directed by DNA. Exhibit 29. Comparison of Benitec s technologies See the graphic, note in the graphic, numbers and 3. Which refer to steps in the sequence cascade. #1. The ddrnai construct is delivered to the target cell by a gene therapy vector, where it is transported to the nucleus. 2. The construct now delivered continuously produces short hairpin RNAs (shrnas), which move into the cytoplasm and are processed into sirnas 3. The sirnas are processed via the RISC complex with one strand binding the matching sequence on the target mrna activating its degradation and silencing the target gene. Source: Benitec Biopharma Maxim Group LLC 19

20 Benitec believes that with the right viral and non-viral delivery agents, ddrnai can introduce a DNA sequence directly into the cell s nucleus to have the cell produce its own therapeutic shrna (in terms of specific delivery methods, Benitec is agnostic, instead choosing the appropriate delivery method such as a range of well-characterized gene therapy vectors, viral, or non-viral like lentivirus, adenovirus, AAV, or modified polyethylenimines). This can be used to achieve the desired outcome. The DNA sequence codes for specific shrnas, which are processed to sirnas and complete the RNAi cycle in the cytoplasm. Herein lies another major difference: because of the delivery mechanism and site, only a minute dose (perhaps as few as 1 copy per cell) of the DNA construct is needed, yet the genetic change is long-lasting, as the shrna continues to be expressed for long periods potentially up to years from the integrated DNA construct. Due to the low dose (potentially as low as one dose) and short-term administration, many of the drawbacks of sirna methods, such as toxicity, immune activation, and unwanted gene effects, (off-target effects) are overcome. Thus, ddrnai could deliver long-lasting, relatively safe treatments or cures for of many human genetic conditions. ddrnai can also be used to target multiple genes or multiple parts of one gene from a single construct, so more complex conditions can be treated with tiny doses, without the side effects of high-dose, long-term administration. A major benefit for researchers and biopharma companies worldwide is that ddrnai is a globally patented platform technology, rather than a proprietary gene specific technology or delivery mechanism. This means that partners that may be seeking to use DNA-directed methods for therapeutic gene silencing for a range of disease-associated genes will likely need to seek out a license deal with Benitec for the target program. Exhibit 30. Comparison of Benitec Biopharma s technologies Source: Benitec Biopharma and Rao, Vorhies, Senzer et al and DiGusto, Krishnan, Li et al Maxim Group LLC 20

21 Benitec s ddrnai DNA intellectual property freedom-to-operate (FTO). Additional patent claims are expected that should continue to expand the company s intellectual property portfolio. Exhibit 31. Benitec s intellectual property portfolio Graham Patents/Technology Jurisdiction Number Expiration Genetic Constructs for Delaying or Repressing the Expression of a Target Gene Granted or Re-issued U.S. 6,573,099 2/16/2011 Synthetic Genes and Genetic Consructs Comprising the Same U.S. 8,067,383 11/1/2011 Synthetic Genes and Genetic Consructs Comprising the Same U.S. 7,754,697 Synthetic Genes and Genetic Consructs Comprising the Same U.S ,670 Synthetic Genes and Genetic Consructs Comprising the Same U.S. 8,053,419 Control of Gene Expression WO99/49029 AU Control of Gene Expression WO99/49029 AU Control of Gene Expression WO99/49029 AU Control of Gene Expression WO99/49029 CA Control of Gene Expression WO99/49029 CZ Control of Gene Expression WO99/49029 EP Jan-12 Control of Gene Expression WO99/49029 EP Control of Gene Expression WO99/49029 HK Control of Gene Expression WO99/49029 IN 3901/DELNP/200 5 Control of Gene Expression WO99/49029 IN 2000/00169/DEL Control of Gene Expression WO99/49029 JP Control of Gene Expression WO99/49029 JP Control of Gene Expression WO99/49029 KR Control of Gene Expression WO99/49029 Control of Gene Expression WO99/49029 NZ SG and , and Control of Gene Expression WO99/49029 SK Control of Gene Expression WO99/49029* UK GB Control of Gene Expression WO99/49029 US Source: Benitec Biopharma Maxim Group LLC 21

22 Exhibit 32. Benitec s intellectual property portfolio Waterhouse Patents/Technology Jurisdiction Number Expiration Granted or Re-issued Methods and Means for Obtaining Modified Phenotypes AU 760,041 Methods and Means for Obtaining Modified Phenotypes CN ZL (CN C) Methods and Means for Obtaining Modified Phenotypes** EP EP Methods and Means for Obtaining Modified Phenotypes NZ Benitec Biopharma Patents/Technology Jurisdiction Number Expiration Multiple Promoter Expression Cassettes for Simultaneous Delivery of RNAi Agents Multiple Promoter Expression Cassettes for Simultaneous Delivery of RNAi Agents Multiple Promoter Expression Cassettes for Simultaneous Delivery of RNAi Agents Multiple Promoter Expression Cassettes for Simultaneous Delivery of RNAi Agents Multiple Promoter Expression Cassettes for Simultaneous Delivery of RNAi Agents NZ AU EP JP US Granted or Re-issued Genetic Silencing (106) UK GB Genetic Silencing (106) SG Genetic Silencing (106) ZA 2002/07428 Double-Stranded Nucleic Acid (107) AU Double-Stranded Nucleic Acid (107) NZ Double-Stranded Nucleic Acid (107) ZA 2005/09813 Double-Stranded Nucleic Acid (107) SG RNAi Expression Constructs (single promoter) (114) US 7,803,661 RNAi Expression Constructs (single promoter) (114) US 8,076,471 RNAi Expression Constructs (single promoter) (114) AU RNAi Expression Constructs (single promoter) (114) NZ RNAi Expression Constructs (single promoter) (114) CN RNAi Expression Constructs with Liver-Specific Enhancer/Promoter US Minigene Expression Cassette US Source: Maxim Group LLC 22

23 Exhibit 33. Selected RNAi therapeutics deals Source: The Business of RNAi Therapeutics in 2012, Dirk Haussecker, Molecular Therapy, February 2012, 1, e8; doi: /mtna Maxim Group LLC 23

24 Exhibit 34. Selected RNAi therapeutics clinical pipeline programs 2012 Source: The Business of RNAi Therapeutics in 2012, Dirk Haussecker, Molecular Therapy, February 2012, 1, e8; doi: /mtna Maxim Group LLC 24

25 Exhibit 35. RNAi therapeutics tissue delivery Source: The Business of RNAi Therapeutics in 2012, Dirk Haussecker, Molecular Therapy, February 2012, 1, e8; doi: /mtna Exhibit 36. IP landscape changes Source: The Business of RNAi Therapeutics in 2012, Dirk Haussecker, Molecular Therapy, February 2012, 1, e8; doi: /mtna Maxim Group LLC 25

26 Exhibit 37. IP landscape changes Source: Esmond & Chung, The Patent Landscape of sirna Nanoparticle Delivery,11 Nanotechnology Law & Business 15 (Spring 2014) Maxim Group LLC 26

27 VALUATION Determining a precise valuation set of metrics for Benitec is quite difficult, as the pipeline is still in early stages of development (either preclinical or Phase 1). The indications that the company is pursuing are substantial, and we see the potential for multiple inflection points along the way, as proof-of-concept data builds from the numerous programs and/or partnered programs. In our model, we assume the hepatitis C program is successfully developed (we could have just as easily labeled this row technology platform and assumed the NSCLC program takes it place). Regardless, we assume that clinical development of any single product into a proof-of-concept study will trigger a valuation increase. For modeling purposes, we assume commercialization in We use a risk rate of 30% in our modeling assumptions. Using these metrics, we model the market potential and discount back in our FCF, discounted EPS, and sum-of-the parts models to arrive at a $4.00 price target. Exhibit 38. FCF model Average $ 4 Price Target $ 3 Year 2014 DCF Valuation Using FCF (mln): units ('000) 2015E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E EBIT (8,386) (10,500) (13,500) (33,000) (35,000) 140, , , ,000 1,020,000 Tax Rate 0% 0% 0% 0% 0% 8% 15% 22% 29% 30% EBIT(1-t) (8,386) (10,500) (13,500) (33,000) (35,000) 128, , , , ,980 CapEx Depreciation Change in NWC FCF (8,386) (10,500) (13,500) (33,000) (35,000) 128, , , , ,980 PV of FCF (8,386) (8,077) (7,988) (15,020) (12,254) 34,609 51,463 52,953 58,233 66,951 Discount Rate 30% Long Term Growth Rate 1% Terminal Cash Flow 2,472,689 Terminal Value YE ,174 NPV 445,656 NPV-Debt - Shares out (thousands) 132, E NPV Per Share $ 3.37 Source: Maxim estimates Exhibit 39. Discounted EPS model Current Year 2014 Discount Rate and Earnings Multiple Varies, Year is Constant Year of EPS EPS Earnings Multiple % 10% 15% 20% 25% 30% Discount Factor 30% Earnings Multiple 0 $0.00 $0.00 $0.00 $0.00 $0.00 $ - Selected Year EPS $ $15.79 $10.39 $6.96 $4.75 $3.29 $ 2.31 NPV $ $31.59 $20.78 $13.93 $9.50 $6.58 $ 4.62 Source: Maxim estimates 15 $47.38 $31.17 $20.89 $14.25 $9.87 $ $63.17 $41.56 $27.86 $18.99 $13.15 $ $78.97 $51.95 $34.82 $23.74 $16.44 $ $94.76 $62.34 $41.79 $28.49 $19.73 $ $ $72.74 $48.75 $33.24 $23.02 $ Exhibit 40. Sum-of-the-parts model Benitec BioPharma LT Gr Discount Rate Yrs. to Mkt % Success Peak Sales MM's Term Val HCV 1% 30% 6 50% $1,000 $3,448 NPV $2.16 Technology Platform Value 1% 30% 6 50% $1,000 $3,448 $2.16 Net Margin 80% MM Shrs OS (2023E) 132 Total $4.32 Source: Maxim estimates Maxim Group LLC 27

28 FUNDAMENTAL RISKS Developmental risk. The company s products are still in early stages and may never lead to marketable products. There is also an inherent risk in successfully running, managing, and sorting data in clinical trials. The trial designs could change, and the running of the trials could induce errors and delays. Regulatory risk. Benitec Biopharma must be able to obtain the approval of the FDA before commercial sales of the product candidates commence in the United States. The timing of these approvals is uncertain. Commercial risk. Benitec Biopharma lacks a commercial infrastructure to support its product launch and commercialization. Good results will trigger increased spending to create this infrastructure. Competitive landscape. The pharmaceutical market is intensely competitive. Benitec Biopharma must compete with existing and new treatment methods, as well as new technologies for its disease targets. In addition, the company faces intense competition, including large pharma companies, most of which are well financed. Financing risk. Benitec Biopharma is not a profitable company. While the company has a cash balance today, it is likely that it might need to raise additional capital prior to commercialization. The company s ability to do so could be critical to keeping the current programs moving forward and providing a value creation event in the future. Maxim Group LLC 28

29 Exhibit 41. Benitec Biopharma Income Statement Income Statement ($000 ) Year End - June June 2013 Dec Dec Dec Benitec BioPharma 1H13A 2H13A 2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Revenue ($000) ddrnai Platform (HCV/NSCLC/HBV/AMD) 200, , , ,000 1,200,000 xxxx Total Product Sales 200, , , ,000 1,200,000 % Chg Lincense, Grant Revenue 1, ,516 Total Revenues 1, , , , , ,000 1,200,000 Expenses Cost of Goods Sold ,000 37,500 52,800 80, ,000 COGs % of revenue 2% 3% 6% 10% 10% 10% 10% 10% General and administrative expenses 5,166 2, ,501 5,000 6,000 8,000 10,000 15,000 20,000 25,000 30,000 35,000 Research & Development 1,280 1, ,885 5,500 7,500 25,000 25,000 25,000 25,000 25,000 25,000 25,000 Total expenses 6,476 4,062 10,538 8,386 10,500 13,500 33,000 35,000 60,000 82, , , ,000 Oper. Inc. (Loss) (5,131) (3,891) (9,022) (8,386) (10,500) (13,500) (33,000) (35,000) 140, , , ,000 1,020,000 Finance Income Other Expense (Fx) & Other 1, ,541 Pretax Income (3,488) (3,813) (7,301) (8,386) (10,500) (13,500) (33,000) (35,000) 140, , , ,000 1,020,000 Pretax Margin Income Tax Benefit (Provision) ,500 44,100 92, , ,020 Tax Rate 8% 15% 22% 29% 30% GAAP Net Income (loss) (3,488) (3,359) (6,847) (8,386) (10,500) (13,500) (33,000) (35,000) 128, , , , ,980 Non-GAAP, Adj. 1,314 1, ,020 4,046 4,054 4,062 4,070 4,079 4,087 4,095 4,103 4,111 GAAP-EPS (0.04) (0.04) (0.08) (0.07) (0.09) (0.11) (0.26) (0.24) Non GAAP EPS (dil) (0.06) (0.03) (0.09) (0.09) (0.11) (0.12) (0.26) (0.26) Wgtd Avg Shrs (Bas) - '000s 80,000 99,903 99, , , , , , , , , , ,335 Wgtd Avg Shrs (Dil) - '000s 80,000 99,903 99, , , , , , , , , , ,918 Source: Company reports and Maxim Maxim Group LLC 29

30 Exhibit 42. Benitec Biopharma Balance Sheet Benitec BioPharma Assets 2013A 1H14 2H E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Cash and Cash Equivilents $5,184 $16,085 $12,013 $12,013 $1,773 $12,647 $13,842 $22,896 $153,877 $405,017 $740,315 $1,218,685 $1,932,360 Trade and other receivables Other current Assets (& prepaid clinical trials) 2,766 2,766 2,500 2, Total current assets $8,071 $18,972 $14,635 $14,635 $2,395 $13,019 $14,213 $23,268 $154,249 $405,389 $740,687 $1,219,057 $1,932,732 Plant Property & Equipment Total assets $8,096 $18,997 $14,659 $14,659 $2,419 $13,044 $14,238 $23,292 $154,273 $405,414 $740,712 $1,219,081 $1,932,756 Liabilities: Trade & Other Payables Provisions Total current liabilities $405 $405 $405 $405 $405 $405 $405 $405 $405 $405 $405 $405 $405 Long Term Debt Other long-term liabilities Total liabilities $405 $405 $405 $405 $405 $405 $405 $405 $405 $405 $405 $405 $405 Stockholders' equity: Contributed Equity 99, , , , , , , , , , , , ,023 Reserves Accumulated loses (92,616) (96,808) (101,001) (101,001) (113,501) (127,251) (160,251) (195,251) (66,751) 181, , ,944 1,698,924 Total Equity 7,691 18,592 14,254 14,254 2,014 12,638 13,833 22, , , ,306 1,218,676 1,932,351 Total Liab & Equity $8,096 $18,997 $14,659 $14,659 $2,419 $13,043 $14,238 $23,292 $154,273 $405,413 $740,711 $1,219,081 $1,932,756 Shares Iss'd (000) 99, , , , , , , , , , , , ,335 Shares Out (000) 99, , , , , , , , , , , , ,918 Source: Company reports and Maxim Maxim Group LLC 30

31 Exhibit 43. Benitec Biopharma Cash Flow Statement Benitec BioPharma : Cash Flow Statement ('000) 2013A 1H14 2H E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Cash flows from operating activities: Net income (loss) (6,847) (4,193) (4,193) (8,386) (10,500) (13,500) (33,000) (35,000) 128, , , , ,980 Receipts from Customers 737 Research & Development grants 824 Interest received 133 Payments to Suppliers and employees (10,586) Net Cash Used in Operating Activities (8,891) (4,193) (4,193) (8,386) (10,500) (13,500) (33,000) (35,000) 128, , , , ,980 Cash flows from investing activities: Interest Received 53 Business Acquisition 144 Plant & Equipment (10) Net cash provided by investing activities Cash flows from financing activities: Net proceeds from sale of common stock 10,790 15, , ,375 34,194 44,054 2,481 2,741 3,028 3,345 3,695 Net Cash Financing Activities 10,790 15, , ,375 34,194 44,054 2,481 2,741 3,028 3,345 3,695 Net cash provided by financing activities Net Increase (decrease) in cash and cash equivilents 10,901 (4,072) 6,829 (10,240) 10,875 1,194 9, , , , , ,675 Exchange differences on cash 0 0 Cash and equivalents, beginning of period 3,076 5,184 16,085 5,184 12,013 1,773 12,647 13,842 22, , , ,315 1,218,685 Cash and equivalents, end of period 5,184 16,085 12,013 12,013 1,773 12,647 13,842 22, , , ,315 1,218,685 1,932,360 Source: Company reports and Maxim Maxim Group LLC 31