Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations.
You should read the following discussion and analysis of financial condition and operating results together with our
consolidated financial statements and the related notes and other financial information included in Item 8 in this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors,
such as those set forth in the section of the Annual Report captioned “Risk Factors” and elsewhere in this Annual Report, our actual results may differ materially from those anticipated in these forward-looking statements.
Overview
We endeavor to become the
leader in discovery, development, and commercialization of therapeutic agents capable of addressing significant unmet medical need via the application of the silence and replace approach to the treatment of genetic disorders.
Benitec Biopharma Inc. (“Benitec” or the “Company” or in the third person, “we” or “our”) is a
development-stage biotechnology company focused on the advancement of novel genetic medicines with headquarters in Hayward, California. The proprietary platform, called DNA-directed RNA interference, or
ddRNAi, combines RNA interference, or RNAi, with gene therapy to create medicines that facilitate sustained silencing of disease-causing genes following a single administration. The Company is developing ddRNAi-based therapeutics for chronic and
life-threatening human conditions including Oculopharyngeal Muscular Dystrophy (OPMD), and Chronic Hepatitis B.
BB-301 is the most advanced ddRNAi-based genetic medicine currently under development by Benitec. BB-301 is an internally optimized,
AAV-based gene therapy agent that is designed to both silence the expression of mutated, disease-causing genes (to slow, or halt, the underlying mechanism of disease progression) and replace the mutant genes
with normal, “wild type” genes (to drive restoration of function in diseased cells). This fundamental approach to disease management is called “silence and replace” and this biological mechanism offers the potential to
restore the underlying physiology of the treated tissues and, in the process, improve treatment outcomes for patients suffering from the chronic and, potentially, fatal effects of Oculopharyngeal Muscular Dystrophy (OPMD). BB-301 has been granted Orphan Drug Designation in the United States and the European Union.
Through the combination of the targeted gene silencing effects of RNAi and the durable transgene expression achievable via the use of modified
viral vectors, the silence and replace approach has the potential to produce long-term silencing of disease-causing genes along with simultaneous replacement of wild type gene function following a single administration of the proprietary genetic
medicine. We believe this novel attribute of the investigational agents under development by Benitec may facilitate the achievement of robust clinical activity while greatly reducing the dosing frequencies traditionally expected for medicines
employed for the management of chronic diseases. Additionally, the establishment of chronic gene silencing and gene replacement may significantly reduce the risk of patient non-compliance during the
course of medical management of potentially fatal clinical disorders.
Unless otherwise indicated, all dollar amounts in this section are
provided in thousands.
Re-domiciliation
On April 15, 2020, or the Implementation Date, the Re-domiciliation of Benitec Limited, a public
company incorporated under the laws of the State of Western Australia, or Benitec Limited, was completed in accordance with the Scheme Implementation Agreement, as amended and restated as of January 30, 2020, between Benitec Limited and us. As
a result of the Re-domiciliation, the jurisdiction of incorporation was changed from Australia to Delaware, and Benitec Limited became our wholly owned subsidiary.
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The Re-domiciliation was effected pursuant to a
statutory scheme of arrangement under Australian law, or the Scheme, whereby on the Implementation Date, all of the issued and outstanding ordinary shares of Benitec Limited were exchanged for newly issued shares of our common stock, on the basis of
one share of our common stock, par value $0.0001 per share, for every 300 ordinary shares of Benitec Limited issued and outstanding. Holders of Benitec Limited’s American Depository Shares, or ADSs (each of which represented 200 ordinary
shares), received two shares of our common stock for every three ADSs held.
COVID-19
In December 2019, an outbreak of a novel strain of coronavirus was identified in Wuhan, China. This virus continues to spread globally, has
been declared a pandemic by the World Health Organization and has spread to nearly every country, including Australia and the United States. The impact of this pandemic has been and will likely continue to be extensive in many aspects of society,
which has resulted in and will likely continue to result in significant disruptions to businesses and capital markets around the world. The extent to which the coronavirus impacts us will depend on future developments, which are highly uncertain and
cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.
Certain of our research and development efforts are conducted globally, including the ongoing development of our silence and replace
therapeutic for the treatment of Oculopharyngeal Muscular Dystrophy (OPMD), and will be dependent upon our ability to initiate preclinical and clinical studies despite the ongoing COVID-19 pandemic.As
we continue to actively advance our preclinical programs, including our ongoing tissue transduction studies for BB-301, we are in close contact with our principal investigators and preclinical trial sites,
which are primarily located in the France, and are assessing the impact of COVID-19 on our studies and the expected development timelines and costs of all of our product candidates, on an ongoing basis. In
light of recent developments relating to the COVID-19 global pandemic, the focus of healthcare providers and hospitals on fighting the virus, and consistent with the FDA’s updated industry guidance for
conducting clinical trials issued on March 18, 2020, we have experienced delays to the original timeline regarding the initiation and anticipated completion of the ongoing BB-301IND-enabling development work. The initiation of the BB-301 tissue transduction study, which represents a key component of the
IND-enabling work, was delayed by several months, however, the study has been recently initiated and the dosing of the initial preclinical cohorts has proceeded without incident. We will continue to evaluate
the impact of the COVID-19 pandemic on our business and expect to reevaluate the timing of our anticipated preclinical and clinical milestones as we learn more and the impact of
COVID-19 on our industry becomes more clear.
We had also implemented work-from-home measures for
the majority of our employees between March 2020 and June 2020, resulting in a reduction of laboratory work and a halt of non-essential business travel. As we transition our employees back to our premises,
there is a risk that COVID-19 infections occur at our offices or laboratory facilities and significantly affect our operations. Additionally, if any of our critical vendors are impacted, our business could be
affected if we become unable to timely procure essential equipment, supplies or services in adequate quantities and at acceptable prices.
Axovant
Termination
Benitec’s License and Collaboration Agreement, dated July 9, 2018, with Axovant Sciences GmbH, or Axovant, was
terminated as of September 3, 2019. As a result, all rights and licenses which Benitec had granted to Axovant to develop and commercialize BB-301 and related gene therapy product candidates terminated.
Prior to such termination, the Benitec team endeavored to conduct several additional exploratory nonclinical analyses in order
to potentially improve the biological efficacy of BB-301 via further optimization of the route of administration employed to dose the target muscle tissues.
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Nonclinical data derived from in vivo evaluations of
BB-301 in two distinct large animal species suggested the existence of an opportunity to further improve the biological efficacy of the compound via additional optimization of the proprietary delivery method
employed to dose key target tissues that underlie the morbidity and mortality associated with the natural history of OPMD. The initial biological efficacy profile observed for BB-301 following in
vivo testing in the A17 mouse model of OPMD, including full correction of the disease phenotype, remained unchanged. However, the Benitec management team desired to complete a series of exploratory analyses prior to the formal IND filing
and the subsequent initiation of clinical testing.
Completion of the experimental work noted above would have delayed the initiation of
the BB-301 clinical study beyond the timelines that were initially outlined by Axovant following the execution of the License and Collaboration Agreement between Benitec and Axovant. As such, Axovant
elected to terminate the License and Collaboration Agreement between Benitec and Axovant, and all rights and licenses granted to Axovant terminated, including the rights to BB-301, which was in
preclinical development for the treatment of OPMD, and all other early stage research collaboration programs that were governed by the agreement.
Nonclinical Programs
Nonclinical
research efforts supporting the development of ddRNAi-based therapeutic agents and silence and replace-based therapeutic agents targeting the treatment of Chronic Hepatitis B Virus Infection (“HBV”) and
Age-Related Macular Degeneration (“AMD”) have concluded and are no longer being continued by the Company.
Workforce Reduction
On July 31,
2019, Benitec announced the completion of a workforce reduction of approximately 50%. Through this streamlining of operations, the Company retained staff members who are key to the achievement of the core research and development goals. The
rationalization of resources was deemed to be supportive of an extended financial runway for the Company while allowing Benitec to continue to advance the BB-301 program.
Royalties, milestone payments and other license fees
We are required to pay royalties, milestone payments and other license fees in connection with our licensing of intellectual property from
third parties, including as discussed below.
In December 2016, we entered into an exclusive sublicense agreement with NantWorks, LLC,
pursuant to which we agreed to make certain milestone and royalty payments, as well as periodic payments for so long as the agreement remained in effect. In December of 2018, the Company accrued a milestone payment of USD 300,000 (AUD 425,411),
which was anticipated to be paid to NantWorks, LLC under the sublicense agreement. It was later determined that the milestone was not required to be paid and, therefore, the accrual was reversed in December of 2019. We terminated the exclusive
sublicense agreement for convenience, with the termination effective as of June 2020.
We have collaborated with Biomics Biotechnologies
Co., Ltd., or Biomics, pursuant to several collaboration agreements in relation to single-stranded RNA and shRNA sequences for treatment of hepatitis B. In July 2015, we entered into an earn-out agreement with
Biomics which confirmed Benitec’s ownership of certain patents resulting from the collaboration in exchange for an upfront payment and equity issuance to Biomics and a share of certain future licensing revenue received by Benitec.
Foreign Currency Translation and Other Comprehensive Income (Loss)
The Company’s functional currency and reporting currency is the United States dollar . BBL’s functional currency is the Australian
dollar (AUD). Assets and liabilities are translated at the exchange rate in effect at the
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balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Equity transactions are translated at each historical transaction
date spot rate. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity as “Accumulated other comprehensive income (loss).” Gains and losses
resulting from foreign currency transactions are included in the statements of operations and comprehensive income (loss) as other comprehensive income (loss).
Other Comprehensive Income (Loss) for all periods presented includes only foreign currency translation gains (losses).
Results of Operations
Revenues
In the past Benitec Limited has generated revenue from its operations through two activities: revenue from customers and revenue from
government research and development grants. In the fiscal year ended June 30, 2020, the Company generated funds primarily from capital raising activities. The Company has not generated any revenues from the sales of products. Revenues from
licensing fees and interest income are included in the revenue from customers line item on our statements of operations and comprehensive income (loss). The Research and Development Tax Incentive is recognized as Government research and development
grants.
Our licensing fees have been generated through the licensing of our ddRNAi technology to biopharmaceutical companies, and in the
fiscal year-ended June 30, 2019, revenue was generated through a License and Collaboration Agreement with Axovant Sciences (the “Axovant Agreement”).
The following table sets forth a summary of our revenues for each of the periods set forth below:
Year Ended June 30,
Revenues:
Revenues from customers $ 97 $ 11,551
Government research and development grants 5 648
Revenues from customers
On July 9, 2018, the Company entered into the Axovant Agreement. The Axovant Agreement granted Axovant Sciences an exclusive worldwide
license to develop, manufacture, and commercialize products containing the Company’s product known as BB-301, which was designed for the potential treatment of Oculopharyngeal Muscular Dystrophy. Service
revenue consists of payments for services provided to Axovant Sciences pursuant to the Axovant Agreement. On June 6, 2019, the termination of the Axovant Agreement was announced. The termination of the Axovant Agreement was effective as of
September 3, 2019. The termination discharges all future performance obligations under the contract at the termination date.
During
the year ended June 30, 2020, the Company recognized $97 in customer revenues, as compared to $11,551 for the comparable year ended June 30, 2019. The decrease in revenues from customers is due to the termination of the Axovant Agreement.
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Government research and development grants
The Company has historically received, but is currently not receiving, grants through the Australian federal government’s Research and
Development Tax Incentive program, under which the government provides a cash refund for the 43.5% of eligible research and development expenditures by small Australian entities, which are defined as Australian entities with less than
A$20 million in revenue, having a tax loss. The Research and Development Tax Incentive grant is made by the Australian federal government for eligible research and development purposes based on the filing of an annual application. Prior to the Re-domiciliation, this grant was available for our research and development activities in Australia, as well as activities in the United States to the extent such U.S.-based expenses relate to our activities in
Australia, did not exceed half the expenses for the relevant activities and were approved by the Australian government. Grants are recorded when a reliable estimate can be made.
During the year ended June 30, 2020, we recognized $5 in government research and development grants, as compared $648 for the comparable
year ended June 30, 2019. The decrease in grant revenue is due to excluding the OPMD program from the R&D claim of the grant from the Australian government. Further, the Company no longer continued the nonclinical research efforts targeting
the treatment of Chronic Hepatitis B Virus Infection (HBV) and AMD in the fiscal year ended June 30, 2020. The decrease in grant revenue is a result of Benitec no longer claiming the grant from the Australian government due to the Re-domiciliation of Benitec to the United States of America.
Research and Development Expenses
Research and development expenses relate primarily to the cost of conducting clinical and pre-clinical
trials. Clinical development costs are a significant component of research and development expenses. Estimates have been used in determining the expense liability under certain clinical trial contracts where services have been performed but not yet
invoiced. Generally, the costs, and therefore estimates, associated with clinical trial contracts are based on the number of patients, drug administration cycles, the type of treatment and the outcome being the length of time before actual amounts
can be determined will vary depending on length of the patient cycles and the timing of the invoices by the clinical trial partners.
General and
Administrative Expenses
General and administrative expenses consist primarily of salaries, related benefits, travel, and
equity-based compensation expense. General and administrative expenses also include facility expenses, professional fees for legal, consulting, accounting and audit services and other related costs.
We anticipate that our general and administrative expenses may increase as the Company focuses on the continued development of the pre-clinical OPMD program. The Company also anticipates an increase in expenses relating to accounting, legal and regulatory-related services associated with maintaining compliance with the exchange listing and the
SEC requirements, director and officer insurance premiums and other costs associated with being a domestic public company after the Re-domiciliation and no longer a “foreign private issuer” under SEC
rules.
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Expenses
The following table sets forth a summary of our expenses for each of the periods set forth below:
Year Ended June 30,
Expenses:
Royalties and license fees $ (185 ) $ 435
During the year ended June 30, 2020, we incurred ($185) in royalties and license fees, as compared to
$435 for the comparable year ended June 30, 2019. The decrease in royalties and license fees for the year is primarily due to the Company determining that there was no longer a requirement to pay a previously anticipated milestone of $300.
During the year ended June 30, 2020, we incurred $3,001 in research and development expenses, as compared $4,567 for the comparable year
ended June 30, 2019. The decrease in research and development expenses is primarily due to the Company being reimbursed $606by Axovant Sciences for costs relating to the OPMD program in fiscal year 2020 and the termination of the AMD
program.
General and administrative expense was $5,567 and $4,614 for the years ended June 30, 2020 and 2019, respectively. The
increase was due to increases in corporate costs offset by decreases in payroll, travel, and consultant costs.
Other Income (Loss)
The following table sets forth a summary of our other income (loss) for each of the periods set forth below:
Year Ended June 30,
Other Income (Loss):
Foreign currency transaction loss (88 ) (75 )
Interest income, net 62 122
Other income, net 34 —
Unrealized loss on investment (1 ) (21 )
Total other income (expense) 7 26
The other income, net during the year ended June 30, 2020 totaled $7, which consists of foreign currency
transaction loss, interest income, other income, unrealized loss on investment. During the year ended June 30, 2019, other income, net totaled $26. Foreign currency transaction loss has increased due to a change in foreign exchange rates.
Interest income decreased due to fewer transactions with interest. Other income, net increased due to COVID-19 stimulus incentives from the Australian government. Unrealized loss on investment decreased due to
the change in fair market value of the investments.
Liquidity and Capital Resources
The Company has incurred cumulative losses and negative cash flows from operations since our predecessor’s inception in 1995, except for
the year ended June 30, 2019 where we had a net income of $2,609 and generated positive cash flows of $4,790 from operating activities. The Company had accumulated losses of $116.6 million as of June 30, 2020. We expect that our
research and development expenses may increase due to the continued development of the OPMD program. It is also likely that there will be an increase in the general
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and administrative expenses due to the obligations of being a domestic public company in the United States as a result of the Re-domiciliation and no
longer a “foreign private issuer” under SEC Rules.
We had no borrowings for the years ended June 30, 2020 and 2019 and do
not currently have a credit facility.
As of June 30, 2020, we had cash and cash equivalents of $9.8 million. Cash in excess of
immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Currently, our cash and cash equivalents are held in bank accounts. Our short-term investments consist of term
deposits with maturity within 180 days.
The following table sets forth a summary of the net cash flow activity for each of the periods
set forth below:
Year Ended June 30,
Net cash provided by (used in):
Investing activities (94 ) (400 )
Financing activities 1,770 —
Net increase (decrease) in cash $ (5,859 ) $ 4,390
Operating activities
Net cash used in operating activities for the year ended June 30, 2020 was $7,535. Net cash provided by operating activities for the year
ended June 30, 2019 was $4,790. Net cash used in operating activities was
primarily the result of our net loss and change in working capital,
partially offset by equity-based compensation expense and the lease liability.
Investing activities
Net cash used in investing activities for the year ended June 30, 2020 and 2019 was $94 and $400, respectively, and primarily related to
purchases of equipment in 2020 and 2019.
Financing activities
Net cash provided by financing activities was $1,770 and $0 for the years ended June 30, 2020 and 2019, respectively. Cash from financing
activities related to the issuance of ordinary shares, including $2,250 in gross proceeds from a private placement and entitlement offer for the year ended June 30, 2020, partially offset by $480 in share issue transaction costs. There were no
private placements for the year ended June 30, 2019.
The future of the Company as an operating business will depend on its ability
to generate revenues mostly from licensing, strategic alliances and collaboration arrangements with pharmaceutical companies. While we continue to progress discussions and advance opportunities to engage with pharmaceutical companies and continue to
seek licensing partners for ddRNAi in disease areas that are not our focus, there can be no assurance as to whether we will enter into such arrangements or what the terms of any such arrangement could be.
While we have established some licensing arrangements, we do not have any products approved for sale and have not generated any revenue from
product sales. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize one of our current or
future product candidates.
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Unless and until we establish significant revenues from licensing programs, strategic
alliances or collaboration arrangements with pharmaceutical companies, or from product sales, we anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of
product candidates and begin to prepare to commercialize any product that receives regulatory approval. We are subject to the risks inherent in the development of new gene therapy products, and we may encounter unforeseen expenses, difficulties,
complications, delays and other unknown factors that may adversely affect our business.
We estimate that our cash and cash equivalents
together with the net proceeds of a planned public offering of common stock will be sufficient to fund the Company’s operations at least for the next twelve months. In connection with the Company’s planned public offering, on
August 14, 2020, the Company filed a registration statement on Form S-1 with the SEC.
We
have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with
research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
• the number and characteristics of product candidates that we pursue;
• the outcome, timing and costs of seeking regulatory approvals;
Contractual Obligations and Commercial Commitments
On July 9, 2018, the Company entered into an Agreement with Axovant Sciences. The Agreement granted Axovant Sciences an exclusive
worldwide license to develop, manufacture, and commercialize products containing the Company’s product known as BB-301, which was designed for the potential treatment of Oculopharyngeal Muscular
Dystrophy. On June 6, 2019, the termination of the Agreement with Axovant Sciences was announced. The termination of the Agreement was effective as of September 3, 2019. The termination discharges all future performance obligations at
termination date under the contract.
Off-Balance Sheet Arrangements
The Company had no material off-balance sheet arrangements as of June 30, 2020.
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Critical Accounting Policies and Significant Accounting Estimates
The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States
of America requires management to make judgments, assumptions and estimates that affect the amounts reported. Note 2 of Notes to the consolidated financial statements included in Item 8 in this Annual Report describes the significant accounting
policies used in the preparation of the consolidated financial statements. Certain of these significant accounting policies are considered to be critical accounting policies.
A critical accounting policy is defined as one that is both material to the presentation of the Company’s consolidated financial statements and requires
management to make difficult, subjective or complex judgments that could have a material effect on the Company’s financial condition or results of operations. Specifically, these policies have the following attributes: (1) the Company is
required to make assumptions about matters that are highly uncertain at the time of the estimate; and (2) different estimates the Company could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a
material effect on the Company’s financial condition or results of operations.
Estimates and assumptions about future events and their effects
cannot be determined with certainty. The Company bases its estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as
additional information is obtained and as the Company’s operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known. In addition,
management is periodically faced with uncertainties, the outcomes of which are not within its control and will not be known for prolonged periods of time. These uncertainties are discussed in the section above entitled “Risk Factors.”
Based on a critical assessment of its accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that the Company’s consolidated financial statements are fairly stated in
accordance with accounting principles generally accepted in the United States of America, and provide a meaningful presentation of the Company’s financial condition and results of operations.
Management believes that the following are critical accounting policies:
Revenue Recognition
The Company
adopted and implemented on July 1, 2018, ASC 606—“Revenue from Contracts with Customers” (“ASC 606”). ASC 606 did not have a material impact on the consolidated financial statements.
Upon implementation of ASC 606, the Company recognizes revenue in accordance with that core principle by applying the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The Company applies judgement in determining whether contracts entered into fall within the scope of ASC 606. In doing so, management
considers the commercial substance of the transaction and how risks and benefits of the contract accrue to the various parties to the contract. In determining the accounting treatment of the contract with Axovant, management assessed that the
contract was within the scope of ASC 606.
Management has also made the judgement that the grant of the license and transfer of associated know-how and materials are accounted for as one performance obligation as they are not considered to be distinct; they are
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highly interrelated and could not provide benefits to the customer independently from each other. Judgements were made in relation to the transfer of the license and know-how and whether this should be recognized over time or a point in time. The point in time has been determined with regard to the point at which the transfer of know-how
has substantially been completed and the customer has control of the asset and the ability to direct the use of and receive substantially all of the remaining benefits.
Licensing revenues
Revenue from
licensees of the Company’s intellectual property reflects the transfer of a right to use the intellectual property as it exists at the point in time in which the license is transferred to the customer. Consideration can be variable and is
estimated using the most likely amount method. Subsequently, the estimate is constrained until it is highly probable that a significant revenue reversal will not occur when the uncertainty is resolved. Revenue is recognized as or when the
performance obligations are satisfied.
The Company recognizes contract liabilities for consideration received in respect of unsatisfied performance
obligations and reports these amounts as other liabilities in the statement of financial position. Similarly, if the Company satisfies a performance obligation before it receives the consideration, the Company recognizes either a contract asset or a
receivable in its statement of financial position, depending on whether something other than the passage of time is required before the consideration is due.
Royalties
Revenue from licensees of the
Company’s intellectual property reflect a right to use the intellectual property as it exists at the point in time in which the license is granted. Where consideration is based on sales of product by the licensee, revenue is recognized when the
customer’s subsequent sales of product occurs.
Services revenue
Revenue is earned (constrained by variable considerations) from the provision of research and development services to customers. Services
revenue is recognized when performance obligations are either satisfied over time or at a point in time. Generally, the provision of research and development services under a contract with a customer will represent satisfaction of a performance
obligation over time where the Company retains the right to payment for services performed but not yet completed.
Share-Based Compensation
The Company records share-based compensation in accordance with ASC 718, “Stock Compensation”. ASC 718
requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the shorter of the service period or the vesting period. The Company values employee and
non-employee share-based compensation at fair value using the Black-Scholes Option Pricing Model.
The Company adopted ASU 2018-07 and accounts for non-employee
share-based awards in accordance with the measurement and recognition criteria of ASC 718 and recognizes the fair value of such awards over the service period. There was no cumulative effect of adoption on July 1, 2019.
Recent Accounting Pronouncements
Accounting
Standards recently adopted
ASU 2016-02—In February 2016, the FASB issued ASU No. 2016-02: “Leases (Topic 842)” whereby lessees will need to recognize most leases on their balance sheet as a right of use asset and a lease liability. This guidance is effective for interim
and annual reporting periods beginning after December 15, 2018. The Company adopted this ASU effective July 1, 2019.
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The determination of whether an arrangement is or contains a lease is based on the substance
of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.
The Company has undertaken a detailed review and has concluded that it will have a material impact on its financial position on the
transactions and balances recognized in the consolidated financial statements when it is first adopted for the year ending June 30, 2020 due to the material size of lease entered into by the Company. The Company’s only lease is the
lease on its research and development facilities.
ASU 2018-07—In June 2018, the
Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2018-07 “Compensation—Stock Compensation (Topic 718)”. This update is
intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to non-employees (for example, service providers, external legal counsel, suppliers, etc.). The ASU
expands the scope of Topic 718, Compensation—Stock Compensation, which currently only includes share-based payments issued to employees, to also include share-based payments issued to non-employees for
goods and services. Consequently, the accounting for share-based payments to non-employees and employees will be substantially aligned. The Company adopted this ASU, effective July 1, 2019.
New Accounting Standards and Interpretations not yet mandatory or early adopted
ASU 2016-13—In June 2016, the FASB issued ASU
No. 2016-13: “Financial Instruments—Credit Losses (Topic 326)”. This ASU represents a significant change in the accounting for credit losses model by requiring immediate recognition
of management’s estimates of current expected credit losses (CECL). Under the prior model, losses were recognized only as they were incurred, which FASB has noted delayed recognition of expected losses that might not yet have met the threshold
of being probable. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019. The Company has determined that it has met the criteria of a smaller reporting company (“SRC”) as of
November 15, 2019. As such, ASU 2019-10: “Financial Instruments-Credit Losses, Derivatives and Hedging, and Leases: Effective Dates” amended the effective date for the Company to be for
reporting periods beginning after December 15, 2022. The Company will adopt this ASU effective July 1, 2023.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
We are a smaller reporting company and not required to provide this information.
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Item 8. Financial Statements and Supplementary Data.
BENITEC BIOPHARMA INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm – Squar Milner LLP F-2
Consolidated Balance Sheets F-4
Consolidated Statements of Operations and Comprehensive Income (Loss) F-5
Consolidated Statements of Stockholders’ Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Benitec Biopharma Inc.
Opinion on the Financial Statements
We have audited the
accompanying consolidated balance sheet of Benitec Biopharma Inc. and its subsidiaries (the “Company”) as of June 30, 2020, the related consolidated statements of operations and other comprehensive income (loss), stockholders’
equity and cash flows for the year then ended, and the related notes to the consolidated financial statements (collectively, the “financial statements”). In our opinion, the financial statements present fairly, in all material respects,
the financial position of the Company as of June 30, 2020, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ SQUAR MILNER LLP
We have served as the Company’s
auditor since 2020.
Campbell, California
September 23,
2020
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Report of independent registered public accounting firm
Board of Directors and Shareholders
Benitec Biopharma
Limited
Opinion on the financial statements
We
have audited the accompanying consolidated balance sheets of Benitec Biopharma Limited and subsidiaries (the “Company”) as of June 30, 2019, the related consolidated statement of comprehensive income, changes in shareholders’ equity,
and cash flow for the year ended June 30, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of
the Company as of June 30, 2019, and the results of its operations and its cash flow for the year ended June 30, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for opinion
These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ GRANT THORNTON AUDIT PTY LTD
We have served as the
Company’s auditor from 2010 to 2020.
Sydney, Australia
August 14, 2020
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BENITEC BIOPHARMA INC.
Consolidated Balance Sheets
(in thousands, except par value and share amounts)
Assets
Current assets:
Trade and other receivables 59 2,536
Property and equipment, net 374 470
Deposits 9 9
Right-of-use assets 395 —
Liabilities and Stockholders’ Equity
Current liabilities:
Trade and other payables $ 741 $ 2,494
Accrued employee benefits 203 147
Lease liabilities, current portion 192 —
Lease liabilities, less current portion 213 —
Commitments and contingencies (Note 13)
Stockholders’ equity:
Accumulated other comprehensive loss (1,953 ) (1,864 )
Total liabilities and stockholders’ equity $ 11,587 $ 19,235
The accompanying notes are an integral part of these consolidated financial statements.
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BENITEC BIOPHARMA INC.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands, except share and per share amounts)
Year Ended June 30,
Revenue:
Revenues from customers $ 97 $ 11,551
Government research and development grants 5 648
Operating expenses
Royalties and license fees (185 ) 435
Income (loss) from operations (8,281 ) 2,583
Other income (loss):
Foreign currency transaction loss (88 ) (75 )
Interest income, net 62 122
Other income, net 34 —
Unrealized loss on investment (1 ) (21 )
Total other income, net 7 26
Other comprehensive loss:
Unrealized foreign currency translation loss (89 ) (531 )
Total other comprehensive loss (89 ) (531 )
Total comprehensive income (loss) $ (8,363 ) $ 2,078
Net income (loss) per share:
Basic and diluted $ (8.10 ) $ 3.05
Weighted-average shares outstanding:
The accompanying notes are an integral part of these consolidated financial statements.
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BENITEC BIOPHARMA INC.
Consolidated Statements of Stockholders’ Equity
(in thousands, except share amounts)
Shares Amount
Share-based compensation — — 672 — 672
Forfeiture of share-based payments — — (1,060 ) 1,060 —
Foreign currency translation loss — — — — (531 ) (531 )
Cashless exercise of purchase warrants 37,417 — — — — —
Share-based compensation — — 237 — — 237
Forfeitures of share-based payments — — (508 ) 508 — —
Foreign currency translation loss — — — — (89 ) (89 )
The accompanying notes are an integral part of these consolidated financial statements.
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BENITEC BIOPHARMA INC.
Consolidated Statements of Cash Flows
(in thousands)
Fiscal Year EndedJune 30,
Cash flows from operating activities:
Depreciation and amortization 190 158
Amortization of right-of-use assets 184 —
Loss on disposal of fixed assets 1 7
Unrealized loss on investment 1 21
Share-based compensation expense 237 672
Changes in operating assets and liabilities:
Trade and other receivables 2,396 607
Other assets (457 ) (9 )
Trade and other payables (1,696 ) 740
Accrued employee benefit payable 57 (15 )
Lease liability (174 ) —
Net cash provided by (used in) operating activities (7,535 ) 4,790
Cash flows from investing activities:
Purchases of property and equipment (95 ) (404 )
Proceeds from disposal of property and equipment 1 4
Net cash used in investing activities (94 ) (400 )
Cash flows from financing activities:
Proceeds from issues of shares 2,250 —
Share issue transaction costs (480 ) —
Net cash provided by financing activities 1,770 —
Net increase (decrease) in cash and cash equivalents (5,859 ) 4,390
Cash and cash equivalents, beginning of year 15,718 11,879
Effects of exchange rate changes on cash and cash equivalents (58 ) (551 )
Cash and cash equivalents, end of year $ 9,801 $ 15,718
Supplemental disclosure of cash flow information:
The accompanying notes are an integral part of these consolidated financial statements.
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BENITEC BIOPHARMA INC.
Notes to Consolidated Financial Statements
1. Business
Benitec Biopharma Inc. is a
corporation formed under the laws of Delaware, United States, on November 22, 2019. Benitec Biopharma Inc. is the parent entity of a number of subsidiaries including the previous parent entity Benitec Biopharma Limited (“BBL”). BBL
was incorporated under the laws of Australia in 1995 and was listed on the Australian Securities Exchange, or ASX, since 1997. Since then, the Company has focused on the development of novel genetic medicines. The proprietary platform, called DNA-directed RNA interference, or ddRNAi, combines RNA interference, or RNAi, with gene therapy to create medicines that facilitate sustained silencing of disease-causing genes.
On November 27, 2019, BBL announced its intention to re-domicile from Australia to the United
States of America (the “Re-domiciliation”). BBL implemented a Scheme of Arrangement pursuant to which Benitec Biopharma Inc, a newly incorporated company for the purpose of affecting the Re-domiciliation, acquired all of the outstanding BBL shares. BBL shareholders received one Benitec Biopharma Inc. share for every 300 BBL shares in the Re-domiciliation. In
accordance with the U.S. Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin Topic 4C, all issued and outstanding shares of the Company’s common stock have been retroactively adjusted in these consolidated
financial statements to reflect the 300:1 exchange ratio share consolidation in the Re-domiciliation as if it occurred on July 1, 2018.
BBL announced that the transaction to redomicile from Australia to the United States was fully implemented on April 15, 2020. The Re-domiciliation was approved by BBL shareholders at a Scheme Meeting held on March 26, 2020 and confirmed by the Supreme Court of Queensland on March 30, 2020.
The term the “Company” refers to (i), prior to the Re-domiciliation to BBL, an Australian
corporation, and its subsidiaries, and (ii), following the Re-domiciliation, to Benitec Biopharma Inc., a Delaware corporation, and its subsidiaries (including BBL).“
The shares of Benitec Biopharma Inc. common stock issued in connection with the Re-domiciliation trade
on The Nasdaq Capital Market LLC (“Nasdaq”) under the symbol “BNTC”, and Benitec Biopharma Inc. continues to be subject to the reporting requirements of the SEC and applicable corporate governance rules of Nasdaq.
As a result of the Re-domiciliation, BBL became a wholly owned subsidiary of Benitec Biopharma Inc.
and delisted from the ASX on April 15, 2020. On August 14, 2020 BBL had a change of company status and became a Proprietary Limited company.
The Company’s fiscal year end is June 30. References to a particular “fiscal year” are to our fiscal year ended June 30 of
that calendar year.
The consolidated financial statements of the Company are presented in United States dollars and consist of Benitec
Biopharma Inc. and the entities it controls:
Principal place ofbusiness/country ofincorporation 2020 2019
Benitec Biopharma Proprietary Limited (“BBL”) Australia 100 % —
Benitec Australia Proprietary Limited Australia 100 % 100 %
Benitec Limited United Kingdom 100 % 100 %
RNAi Therapeutics, Inc. USA 100 % 100 %
Tacere Therapeutics, Inc. USA 100 % 100 %
Benitec Biopharma Proprietary Limited Australia 100 % —
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BENITEC BIOPHARMA INC.
Notes to Consolidated Financial Statements
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
On
April 15, 2020, the Company implemented the transaction to redomicile from Australia to the United States and became the parent company of BBL and the wholly owned subsidiaries listed in Note 1. The historical financial statements of BBL became
the historical financial statements of the combined company upon consummation of the Re-domiciliation. As a result, the financial statements included in this report reflect (i) the historical operating
results of BBL and subsidiaries prior to the Re-domiciliation; (ii) the combined results of the Company, BBL, and subsidiaries following the completion of the
Re-domiciliation; and (iii) the Company’s equity structure for all periods presented.
The Company’s consolidated financial statements included in this report have been prepared in accordance with accounting principles
generally accepted in the United States of America (“US GAAP”) and pursuant to the rules and regulations of the SEC. In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and
reclassifications and non-recurring adjustments) necessary to present fairly our financial position, results of operations, and cash flows for the fiscal years ended June 30, 2020 and 2019 have been made.
Reference is frequently made herein to the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification
(“ASC”). This is the source of authoritative US GAAP recognized by the FASB to be applied to non-governmental entities.
Principles of Consolidation
The
consolidated financial statements include the Company’s accounts and the accounts of its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated.
Segment Reporting
Operating
segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance.
The Company views its operations and manages its business in one operating segment.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from these estimates. Significant estimates in the accompanying consolidated financial statements include the estimates of useful lives for depreciation, valuation of the operating lease liability and related right-of-use asset, allowance for uncollectable receivables, valuation of equity based instruments issued for other than cash, the valuation allowance on deferred tax assets and foreign currency translation
due to certain average exchange rates applied in lieu of spot rates on transaction dates.
Foreign Currency Translation and Other Comprehensive
Income (Loss)
BBL’s functional currency is the Australian dollar (AUD). For financial reporting purposes, the Australian
dollar has been translated into United States dollar “$” and/or “USD” as the reporting currency. Assets and
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BENITEC BIOPHARMA INC.
Notes to Consolidated Financial Statements
liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period.
Equity transactions are translated at each historical transaction date spot rate. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity as
“Accumulated other comprehensive income (loss).” Gains and losses resulting from foreign currency transactions are included in the statements of operations and comprehensive income (loss) as other comprehensive income (loss).
Other Comprehensive Income (Loss) for all periods presented includes only foreign currency translation gains (losses).
As of June 30, 2020, and 2019, the exchange rates used to translate amounts in Australian dollars into USD for the purposes of preparing
the consolidated financial statements were as follows:
Exchange rate on balance sheet dates
Average exchange rate for the period
The exchange rate used to translate amounts in AUD into USD for the year ended June 30, 2018 is 0.7385 as of the balance
sheet date.
Fair Value Measurements
The Company measures its financial assets and liabilities in accordance with US GAAP using ASC 820, Fair Value Measurements. For
certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, the carrying amounts approximate fair value due to their short maturities.
The Company follows accounting guidance for financial assets and liabilities. ASC 820 defines fair value, provides guidance for measuring fair
value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance discusses valuation
techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost).
The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad
levels. The following is a brief description of those three levels:
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BENITEC BIOPHARMA INC.
Notes to Consolidated Financial Statements
The carrying amounts of the Company’s cash and cash equivalents, trade and other
receivables, and trade and other payables are considered to be representative of their respective fair values because of the short-term nature of those instruments. As of June 30, 2020, and 2019, the Company had no financial assets or
liabilities measured at fair value on a recurring basis.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and at banks, short-term deposits with an original maturity of three months or less with
financial institutions, and bank overdrafts. Bank overdrafts are reflected as a current liability on the consolidated balance sheets.
Concentrations of Risk
Financial
instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash. The Company maintains deposits at federally insured financial institutions in excess of federally insured limits. The Company has
not experienced any losses in such accounts, and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.
Trade and Other Receivables
As
amounts become uncollectible, they will be charged to an allowance and operations in the period when a determination of collectability is made. Any estimates of potentially uncollectible customer accounts receivable will be made based on an analysis
of individual customer and historical write-off experience. The Company’s analysis includes the age of the receivable account, creditworthiness of the customer and general economic conditions.
Property and Equipment
Property
and equipment are stated at cost, net of accumulated depreciation and amortization. Expenditures for maintenance and repairs are expensed as incurred; additions, renewals, and improvements are capitalized. When property and equipment are retired or
otherwise disposed of, the related cost and accumulated depreciation and amortization are removed from the respective accounts, and any gain or loss is included in operations.
Depreciation and amortization of property and equipment is calculated using the straight-line basis over the following estimated useful lives:
Software 3-4 years
Lab equipment 3-7 years
Furniture and fixtures 3-7 years
Computer hardware 3-5 years
Leasehold improvements shorter of the lease term or estimated useful lives
Impairment of Long-Lived Assets
Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated
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BENITEC BIOPHARMA INC.
Notes to Consolidated Financial Statements
undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined
using the asset’s expected future discounted cash flows or market value, if readily determinable.
Trade and other payables
These amounts represent liabilities for goods and services provided to the Company prior to the end of the period and which are unpaid. Due to
their short-term nature, they are measured at amortized cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition.
Australian Goods and Services Tax (“GST”) and other similar taxes
Revenues, expenses, and balance sheet items are recognized net of the amount of GST, except payable and receivable balances which are shown
inclusive of GST. The GST incurred is payable on revenues to, and recoverable on purchases from, the Australian Taxation Office.
Cash
flows are presented in the statements of cash flow on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority.
Leases
At lease commencement, the
Company records a lease liability based on the present value of lease payments over the expected lease term. The Company calculates the present value of lease payments using the discount rate implicit in the lease, unless that rate cannot be readily