Benitec Biopharma(BNTC) - 2023 Q4 - Annual Report

PART I Business Benitec Biopharma is a clinical-stage biotechnology company developing genetic medicines, with lead candidate BB-301 for OPMD, utilizing proprietary ddRNAi and "silence and replace" platforms Company Overview and Technology Benitec Biopharma develops genetic medicines using proprietary DNA-directed RNA interference (ddRNAi) and "silence and replace" platforms for sustained gene silencing and functional gene replacement - The company's core technology is DNA-directed RNA interference (ddRNAi), which combines RNAi with gene therapy for sustained gene silencing from a single administration[27] - Benitec's proprietary "silence and replace" approach is designed to both silence the expression of a disease-causing mutant gene and simultaneously replace it with a normal, wildtype gene to restore function[13][15][34] - The company's lead therapeutic candidate, BB-301, is being developed for Oculopharyngeal Muscular Dystrophy (OPMD) and has received Orphan Drug Designation in the U.S. and European Union[13][27] Our Pipeline and Lead Candidate BB-301 The company's pipeline focuses on BB-301, a first-in-class AAV-based gene therapy for OPMD, which demonstrated restored muscle strength in preclinical models - BB-301 is an AAV9-based gene therapy designed to silence the mutant PABPN1 gene and replace it with a codon-optimized, functional version to treat OPMD[48][73] - In the A17 mouse model of OPMD, a single dose of BB-301 led to full restoration of muscle strength, clearance of intranuclear inclusions (INIs), and a reduction of fibrosis[76] - A pilot dosing study in Beagle dogs using an optimized surgical delivery method demonstrated a 248-fold improvement in transduction of the hypopharyngeal muscle compared to a previous licensee's study[113] Clinical Development and Regulatory Status The FDA cleared BB-301's IND in June 2023, enabling a Phase 1b/2a treatment study following a natural history study with 15 enrolled subjects as of September 2023 - The U.S. FDA cleared the Investigational New Drug (IND) application for BB-301 in June 2023, allowing the Phase 1b/2a treatment study to proceed[115] - The clinical program involves a 6-month Natural History (NH) study to establish a baseline, followed by a 52-week Phase 1b/2a treatment study with a primary endpoint of safety[141][92] - As of September 2023, 15 subjects have been enrolled in the NH study in the U.S., with initial interim safety and efficacy data for treated subjects expected within the next 12 months[92] Intellectual Property, Manufacturing, and Competition Benitec protects its BB-301 and 'silence and replace' technology with five patent families, relies on third-party manufacturing, and faces broad biopharmaceutical competition but no direct OPMD gene therapy competitors - The OPMD patent portfolio consists of five patent families covering the BB-301 construct, specific shRNA target regions, the 'silence and replace' concept for OPMD, and the AAV delivery system[118][94][95] - The company does not own or operate manufacturing facilities and relies on contract manufacturing organizations (CMOs) for the production of its product candidates[122][149] - Benitec is not aware of any other companies developing a gene therapy or gene silencing approach for OPMD, though it faces competition from larger companies in the broader gene therapy space[153][124] Government Regulation The company's gene therapy products are subject to extensive FDA regulation, with BB-301 benefiting from Orphan Drug Designation and potential RMAT pathways for expedited review - Gene therapy products are regulated as biologics by the FDA's Center for Biologics Evaluation and Research (CBER) and require a Biologics License Application (BLA) for marketing approval[134][140] - The FDA's RMAT designation offers an expedited pathway for gene therapies that address unmet medical needs in serious conditions, providing increased access to the FDA during development[158][132] - Orphan Drug Designation, which BB-301 has received in the U.S. and EU, provides seven and ten years of market exclusivity, respectively, upon approval for the designated rare disease[170][183] Risk Factors The company faces substantial risks including financial losses, the unproven nature of its novel technologies, complex regulatory pathways, reliance on third parties, and intellectual property challenges Financial and Operational Risks The company has a history of significant financial losses, with an accumulated deficit of $167.9 million as of June 30, 2023, and relies on future capital raises, including $28.6 million from an August 2023 offering, to fund operations - The company has incurred significant losses since inception, with an accumulated deficit of $167.9 million as of June 30, 2023[224] - Benitec will need to raise additional funding to continue operations; failure to do so may negatively impact its ability to continue as a going concern[223][256] - A public offering in August 2023 raised net proceeds of $28.6 million, which is estimated to be sufficient to fund operations for at least the next twelve months[257] Product Development and Regulatory Risks Product development faces risks from novel, unapproved technologies, lengthy and uncertain regulatory processes for gene therapies, potential AAV vector issues, and challenges in patient enrollment for rare diseases - The company's core technologies, ddRNAi and silence and replace, are novel and have not yet resulted in an approved commercial product, making their development inherently risky[289][235] - The regulatory approval process for gene therapies is complex and lengthy, and regulatory agencies have limited experience with ddRNAi-based therapeutics, creating uncertainty in development timelines and costs[294] - Potential issues with AAV delivery vectors, such as pre-existing patient immunity or adverse immunological side effects, could delay or halt clinical development[278][268] - Difficulty enrolling a sufficient number of patients for clinical trials, a common challenge for rare diseases, could delay or prevent the completion of studies[270] Risks Related to Reliance on Third Parties The company's operations are highly dependent on third-party contract research organizations, manufacturers, collaborators, and licensors, introducing risks related to performance, quality, and control - The company relies on third-party collaborators for research, development, and potential commercialization, and has no control over the resources they may devote to its programs[318] - Benitec is dependent on CROs to conduct its clinical trials and is responsible for ensuring their compliance with GCP and other regulatory requirements[321][322] - The company relies on third-party partners for the manufacturing and supply of all materials for research and clinical studies and has not yet secured commercial-scale manufacturing capabilities[349][328] Risks Related to Intellectual Property The company's success relies on uncertain and costly intellectual property protection, facing risks of patent challenges, infringement claims, and limited control over in-licensed IP - The company's ability to obtain and maintain patent protection is uncertain, and its patents may be challenged, narrowed, or invalidated[419][421] - Benitec relies on license agreements with third parties for key technology and may not have control over the prosecution and enforcement of the in-licensed patents[452][426] - The company may face claims of infringing third-party patents, which could lead to costly litigation, substantial damages, or the inability to commercialize its products[430][456] - Changes in U.S. patent law, such as the Leahy-Smith Act, and recent Supreme Court rulings have created uncertainty regarding the scope and enforceability of biotechnology patents[466][496] Properties The company leases approximately 7,295 square feet of office and lab space in Hayward, California, for its headquarters and R&D, with the lease expiring in June 2025 - The company leases approximately 7,295 square feet of office and laboratory space in Hayward, California, with the lease expiring in June 2025[481] Legal Proceedings The company is not currently a party to any material legal proceedings - The company is not currently a party to any material legal proceedings[523] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Benitec's common stock trades on Nasdaq under the symbol "BNTC", and the company has never paid or plans to pay cash dividends, retaining earnings for operations - The company's common stock trades on Nasdaq under the symbol "BNTC"[525] - Benitec has never paid cash dividends and does not plan to in the foreseeable future, retaining earnings for operations[511][538] Management's Discussion and Analysis of Financial Condition and Results of Operations The company's net loss increased to $19.6 million in FY2023 due to higher R&D expenses, with $2.5 million in cash as of June 30, 2023, supplemented by a $28.6 million August 2023 offering to fund operations Results of Operations The net loss for FY2023 increased to $19.6 million from $18.2 million in FY2022, primarily driven by a $1.5 million rise in research and development expenses for the OPMD program Fiscal Year 2023 vs 2022 Operating Results (in thousands) | Metric | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Revenues from customers | $75 | $73 | | Research and development expenses | $12,774 | $11,272 | | General and administrative expenses | $6,382 | $6,646 | | Loss from operations | ($19,081) | ($17,854) | | Net loss | ($19,562) | ($18,208) | - The increase in research and development expenses in FY2023 was primarily related to the advancement of the OPMD project[846] - The decrease in general and administrative expenses in FY2023 was mainly due to lower listing and filing fees and reduced stock-based compensation[868] Liquidity and Capital Resources The company reported $2.5 million in cash as of June 30, 2023, with $18.0 million used in operations for FY2023, and subsequently raised $28.6 million in August 2023 to fund operations for at least the next twelve months - As of June 30, 2023, the company had cash and cash equivalents of $2.5 million[871] - Net cash used in operating activities increased to $18.0 million in FY2023 from $15.9 million in FY2022[872][873] - In August 2023, the company raised approximately $28.6 million in net proceeds from an underwritten public offering, which is expected to fund operations for at least the next twelve months[552][861] Critical Accounting Policies Critical accounting policies, including Research and Development Expenses and Share-Based Compensation, require significant management judgment and estimation, particularly for accruals and valuation models - The company accrues for R&D expenses based on estimates of work completed by third-party service providers, which requires significant judgment[879][907] - Share-based compensation is valued using the Black-Scholes model, an approach that relies on several subjective assumptions[908] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for FY2023 and FY2022, with Baker Tilly US, LLP issuing an unqualified opinion while highlighting accrued R&D costs as a critical audit matter - The independent auditor, Baker Tilly US, LLP, issued an unqualified opinion on the financial statements[913] - The auditor identified Accrued Research and Development Costs as a Critical Audit Matter due to the high degree of judgment and subjectivity involved in management's estimates[916] Key Financial Data (in thousands) | Metric | As of/For the Year Ended June 30, 2023 | | :--- | :--- | | Balance Sheet: | | | Total Assets | $4,464 | | Total Liabilities | $4,262 | | Total Stockholders' Equity | $202 | | Income Statement: | | | Net Loss | ($19,562) | | Net Loss Per Share | ($14.12) | Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2023, and as a non-accelerated filer, the company is exempt from an auditor's attestation on internal controls - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[698] - The company is a non-accelerated filer and therefore is not required to obtain an auditor's attestation on its internal control over financial reporting[666] PART III Directors, Executive Officers and Corporate Governance The company's five-member Board of Directors, with three independent members serving staggered terms, oversees governance through Audit, Compensation, and Nominating committees and a Code of Ethics - The Board of Directors is composed of five members, with three determined to be independent[672][593] - The Board is classified, with directors serving staggered three-year terms[596] - The company has established Audit, Compensation, and Nominating and Corporate Governance committees, each composed of independent directors[711][712] Executive Compensation Named Executive Officers' compensation for FY2023, totaling $645,725 for Dr. Banks and $352,529 for Ms. Boston, comprised base salary, bonuses, and equity awards FY2023 Summary Compensation Table | Named Executive Officer | Position | Total Compensation ($) | | :--- | :--- | :--- | | Dr. Jerel A. Banks | Executive Chairman & CEO | 645,725 | | Megan Boston | Executive Director | 352,529 | - The compensation program for NEOs consists of base salary, discretionary annual bonuses, and equity incentive awards (stock options)[720] - In June 2023, the Compensation Committee granted nonqualified stock options to Dr. Banks (20,994 shares) and Ms. Boston (9,000 shares) under the 2020 Equity and Incentive Compensation Plan[775] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of August 25, 2023, four entities beneficially owned 5% or more of common stock, with Franklin Resources Inc. being the largest at 23.0%, while all executive officers and directors collectively owned less than 1% 5% or Greater Stockholders (as of August 25, 2023) | Name of Beneficial Owner | Percentage of Shares Beneficially Owned | | :--- | :--- | | Entities affiliated with Franklin Resources Inc. | 23.0% | | Entities affiliated with Janus Henderson Group plc | 8.0% | | Entities affiliated with Citadel Securities LLC | 7.0% | | Entities affiliated with Suvretta Capital Management, LLC | 6.5% | - All executive officers and directors as a group beneficially own less than 1% of the company's outstanding common stock[795] Principal Accountant Fees and Services Baker Tilly US, LLP, the independent auditor, billed $345,300 in aggregate fees for FY2023, primarily for audit and audit-related services, all pre-approved by the Audit Committee Accountant Fees (Fiscal Years 2023 & 2022) | Fee Category | 2023 | 2022 | | :--- | :--- | :--- | | Audit Fees | $251,640 | $222,696 | | Audit-Related Fees | $64,800 | $16,200 | | Tax Fees | $28,860 | $65,735 | | Total | $345,300 | $304,631 | - 100% of all audit, audit-related, tax, and other services were pre-approved by the Audit Committee[821] PART IV Exhibits and Financial Statement Schedules This section indexes all exhibits filed with the Annual Report on Form 10-K, including corporate governance documents, securities forms, material contracts, and Sarbanes-Oxley certifications - The report includes a list of exhibits such as the Amended and Restated Certificate of Incorporation, employment agreements with NEOs, the 2020 Equity and Incentive Compensation Plan, and various warrant agreements[682][802][825]