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Wednesday, April 20, 2016

RedHill Keeps Pipeline Moving Forward

On April 20, 2016, RedHill Biopharma Ltd. (RDHL) reported financial results for the first quarter ending March 2016. The first several months of 2016 have been rather successful for the company. The late-stage pipeline continues to move forward, with a focus on gastrointestinal and inflammatory-related assets. Management is pursuing a "multiple shots on goal" strategy; and, in this regard, progress has been demonstrated on a number of fronts. Additionally, the balance sheet remains solid, with $53.4 million in the bank and no debt as of March 31, 2016.

I believe RedHill continues to be well-positioned for the future. In my article below, I provide for investors a review of the recent financial results and an overview of some of the recent successes and upcoming catalysts for the company.

Recent Financial Results

RedHill reported no revenues during the first quarter 2016. Net loss for the quarter totaled $5.5 million, driven primarily by $4.7 million in R&D and $1.2 million in G&A expense. Loss equated to $0.04 per share. The company burned approximately $5.0 million in cash from operating activities during the quarter. Cash and equivalents as of March 31, 2016, stood at a healthy $53.4 million, and there is no debt. While I expect the company to continue to ramp-up R&D in 2016 given the three Phase 3 products in development, the current cash balance looks sufficient to fund operations for at least the next two years.

Ongoing & Planned Clinical Programs

As noted above, RedHill management is pursuing a "multiple shots on goal" strategy, with a focus on late-stage, orally available gastrointestinal and inflammatory drugs. The company's goal is to become a fully-integrated and diversified specialty pharmaceutical company; however, over the near-term I expect management to create value for shareholders by opportunistically pursuing partnerships on the research and development side. I see several opportunities for signing potential lucrative joint ventures and co-promotion / co-development agreements with the advancing late-stage pipeline in the coming quarters.

Ongoing clinical programs at RedHill Biopharma include:

RHB-105 for H. pylori Infection (Phase 3): Earlier this week, management provided an update on RHB-105 following a face-to-face (Type B) meeting with the U.S. FDA. RedHill met with the FDA to discuss the successful results of the recently completed first Phase 3 study with RHB-105 called ERADICATE-Hp and the proposed design of the confirmatory Phase 3 study to begin later this year. The first Phase 3 study demonstrated that patients on RHB-105 achieved 89.4% eradication of H. pylori at the end of the study, superior to the 70% benchmark (p<0.001) set for the trial and far exceeding the 63% realized for placebo patients once crossed-over to physician's choice standard-of-care. Full data from this study were made available in March 2016.

The next big step for RHB-105 is confirmatory Phase 3 trial, which management has guided will be a randomized, double-blind, active comparator clinical study comparing RHB-105 to a regimen of high dose amoxicillin plus omeprazole. This was confirmed in the aforementioned Type B meeting earlier this week. Given that RHB-105 has already proven to be superior to "physician's choice" standard of care, which included triple therapy regimens such as PrevPac®, a fixed-dose combination of amoxicillin, clarithromycin, and lansoprazole, I believe RedHill has a very good chance to demonstrate RHB-105 superiority to amoxicillin plus omeprazole in this planned confirmatory Phase 3 study. Successful results of this study and subsequent approval should lead to RedHill's RHB-105 becoming the new standard of care for patients with H. pylori infection. RedHill plans to conduct a supportive pharmacokinetic (PK) study with RHB-105 before initiating the confirmatory Phase 3 trial, but all signs point to the Phase 3 study getting underway during the second half of 2016.

Approximately 100 million Americans and over half of the world's population is infected with H. pylori, and approximately three million patients are treated annually in the U.S. to eradicate H. pylori in individuals with peptic ulcer disease. Resistance to the current standards are growing, and there have been no new therapies approved for this indication in over a decade. RedHill estimates the current global market for eradication is $4.83 billion, with about $1.45 billion coming from the U.S.

RHB-105 is a triple combination therapy of amoxicillin, rifabutin, and omeprazole in a convenient fixed-dose formulation. The leading triple therapy for HP infection, PrevPac®, was approved back in 1997 and generated over $500 million in annual peak sales. HB-105 has been designated a Qualified Infectious Disease Product (QIDP) under the U.S. GAIN Act, and thus RedHill is developing under Fast Track status. The drug will also qualify for Priority Review and a total of eight years of market exclusivity post approval.

RHB-104 for Crohn's DiseaseDuring the second half of 2016, RedHill will release interim results from a DSMB review of the ongoing 270 patient Phase 3 MAP-US study of RHB-104 for the treatment of Crohn's disease. RHB-104 represents a potential new mechanism of action for the treatment of Crohn's disease, a chronic inflammatory bowel disease (IBD) that affects nearly one million Americans. Standard of care for Crohn's disease is high dose corticosteroids, followed by immunomodulators. Despite the use of blockbuster biologic drugs, including J&J's Remicade® and Simponi®, AbbVie's Humira®, UCB's Cimzia®, Biogen's Tysabri®, and Takeda's Entyvio®, the $6 billion global Crohn's market remains vastly underserved. According to the Crohn's and Colitis Foundation of America, approximately 75% of people with Crohn's will eventually require surgery.

RHB-104 is a patented combination of three active pharmaceutical ingredients, clarithromycin, rifabutin, and clofazimine, in a single oral capsule. RHB-104 is designed to treat what many believe to be the root cause of Crohn's disease, infection by Mycobacterium avium paratuberculosis (MAP). The "MAP Hypothesis" with respect to the etiology of Crohn's disease is something I explored in great detail for investors in October 2015. Beyond several peer-review publications concluding that a link exists between MAP infection and Crohn's (1234), both the American Academy of Microbiology (5) and the European Directorate General for Health and Consumer Protection (6) have published detailed independent analyses citing MAP as a causative agent in Crohn's pathophysiology.

Beyond Crohn's, RedHill just recently presented positive top-line data from a Phase 2a proof-of-concept study testing RHB-104 in the treatment of relapsing-remitting multiple sclerosis (rrMS). The small trial, called CEASE-MS, was a single-arm, open-label study designed with a series of exploratory endpoints to evaluate the safety and potential efficacy of fixed oral dose RHB-104 as add-on therapy to interferon beta-1a.

I covered this data in a short article published earlier in the month. Key findings from the study include a reduction in the annualized relapse rate (ARR) as well as impressive increases in the percent of patients being relapse free at 24 weeks for the mITT population compared to historical interferon beta-1a data from the Avonex® and Rebif® clinical trials. The next step in rrMS is likely a Phase 2b study, looking to further demonstrating proof-of-concept with RHB-104.

With positive interim Phase 3 data in CD and demonstrated proof-of-concept in MS, I believe RedHill will have an excellent chance at signing a lucrative development and commercialization agreement around RHB-104 in 2017. If successful, RHB-104 could represent a paradigm shift in how physicians treat Crohn's disease around the world. However, management's goal right now is to generate as much data as possible with RHB-104 (note: management may also initiate proof-of-concept work with the drug in rheumatoid arthritis) to attract as much partnering interest as possible ahead of potential regulatory filings in 2017 or 2018.

Bekinda for Gastroenteritis and IBS-D: I expect top-line results from the Phase 3 GUARD Study in the second half of 2016. GUARD is a randomized, placebo-controlled, registration study designed to compare 24 mg Bekinda™ to placebo in 320 patients age 12 to 85 years old with acute gastroenteritis or gastritis. I'm confident in the outcome of GUARD based on the proven mechanism of ondansetron in this market, along with the superior pharmacokinetics of RedHill's formulation that should lead to higher compliance and better outcomes for patients. In my article from November 2015, I showed statistical modeling predicting over 95% power for success. GUARD is only the first Phase 3 trial with Bekinda™, but based on management conversations with the U.S. FDA, it may be all the company needs to gain approval.

The opportunity for Bekinda™ is attractive in my view. Gastroenteritis affects an enormous number of Americans each year. In 2013, the U.S. CDC estimated 21 million people in the U.S. got infected with norovirus and develop acute gastroenteritis. The norovirus alone accounted for 14,000 hospitalizations, 281,000 ER visits, and 627,000 outpatient visits between 2009 and 2010. And although the norovirus is the number one cause of acute gastroenteritis in the U.S., it still only accounts for 21% of the cases (7). Doing the math, one can back-calculate that there is likely over 100 million episodes of acute gastroenteritis due to viral infections in the U.S. each year. They are likely another 100 million due to other causes. With modest pricing and good formulary coverage, Bekinda™ looks like a $250 million opportunity in the U.S., with another $200 million for Europe once approved.

Beyond gastroenteritis, RedHill just recently initiated a Phase 2 trial with a lower dose of Bekinda™ for the treatment of irritable bowel syndrome with diarrhea. The Phase 2 study is a randomized, double-blind, 2-arm parallel group study is designed to evaluate the safety and efficacy of 12 mg Bekinda™ in 120 patients suffering from IBS-D over a period of eight weeks. The primary endpoint for the study is the proportion of patients in each treatment group with response in stool consistency as compared to baseline, per FDA guidance definition. Secondary endpoints include the proportion of patients in each treatment group who are pain responders and the proportion of patients in each treatment group who are responders to the combined endpoints of stool consistency and pain, per FDA guidance definition.

The opportunity in IBS-D looks equally, if not more attractive than gastroenteritis. Some 30 million Americans are suffering from IBS, with at least half having diarrhea as the predominant symptom. The recent success of IBS drugs, including Ironwood's Linzess® for IBS-C and Allergan's Viberzi™ for IBS-D validate the market for Bekinda™, as well as present some interesting potential partnering opportunities for RedHill. Physician acceptance of Bekinda™ in IBS-D is a market that RedHill or its commercialization partner will need to develop, but it is clear that awareness of the mechanism and familiarity with Zofran® is high amongst gastroenterologist. I see the potential for Bekinda™ to generate $500 million in peak sales in IBS-D.

Other Important Programs and Recent Events

Yeliva™: One of the most intriguing candidates in RedHill's pipeline is Yeliva™, a proprietary, first-in-class, orally-administered sphingosine kinase-2 (SK2) inhibitor, with anti-inflammatory and anti-cancer activities, targeting multiple oncology and inflammatory-GI diseases. RedHill acquired exclusive worldwide development and commercialization rights to Yeliva™ from privately-held Apogee Biotechnology Corp. of Hershey, Pennsylvania in March 2015.

On March 10th, the company announced the publication of data demonstrating the antitumor effects and therapeutic potential for Yeliva™ for the treatment of cholangiocarcinoma. In October 2015, the company announced positive top-line results from the Phase 1 study in patients with advanced solid tumors. The study successfully met its primary and secondary endpoints, providing key information about the drug’s safety, toxicities, PK, and PD. These data supports the ongoing and planned Phase 2 studies with the drug, which are significant in my view. For instance, in June 2015, management announced the initiation of a Phase 1/2 clinical study in the U.S. to evaluate Yeliva™ in patients with refractory/relapsed diffuse large B-cell lymphoma (DLBCL). The study is being conducted at LSU Health Science Center and is supported primarily by a grant awarded by the National Cancer Institute (NCI) STTR program awarded to Apogee.

RedHill plans a separate Phase 1/2 study for the treatment of refractory or relapsed multiple myeloma during the second quarter of 2016. The study will be conducted at Duke University Medical Center, and is supported by a $2 million grant from the NCI Small Business Innovation Research Program (SBIR) awarded to Apogee in conjunction with Duke University, with additional support from RedHill. A third Phase 2 study is planned to evaluate the drug as a radioprotectant to prevent mucositis in cancer patients undergoing therapeutic radiotherapy. Yeliva™ represents an interesting strategy expansion for RedHill.

Rizaport™: On March 29th, the company, in collaboration with co-development partner, IntelGenx Corp (IGXT) announced they have entered into a binding term sheet with Grupo JUSTE granting an exclusive license to commercialize their acute migraine drug Rizaport™ in Spain. Rizaport™ (RHB-103), an oral thin film formulation of rizatriptan benzoate for the treatment of acute migraines. The quick-dissolving oral thin film formulation is designed to provide convenience, comfort, and rapid onset of action to these migraine sufferers.

Under the term sheet, subject to remaining conditions, a definitive agreement is planned to be entered into within 60 days of the execution of the term sheet. Pursuant to the signing of a definitive agreement, RedHill will grant Grupo JUSTE the exclusive rights to register and commercialize Rizaport™ in Spain and a right of first refusal for the territories of Belize, Carribean, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Middle East and Morocco. Under the term sheet, RedHill and IntelGenx will receive an upfront payment and will be eligible to receive additional milestone payments upon achievement of certain predefined regulatory and commercial targets, as well as tiered royalties. As a reminder, RedHill and IntelGenx announced the first European marketing approval of Rizaport™ in Germany back in November 2015.

RHB-106: In March 2014, RedHill licensed the exclusive worldwide rights to RHB-106 to Salix Pharmaceuticals, now part of Valeant Pharmaceuticals. RHB-106 is an encapsulated formulation intended for the preparation and cleansing of the gastrointestinal tract before the performance of abdominal procedures, including diagnostic tests, such as colonoscopy, barium enema or virtual colonoscopy, as well as surgical interventions, such as a laparotomy. The RHB-106 preparation is a tasteless solid oral dosage potentially allowing an unobstructed procedure with reduced side-effects and improved compliance. It avoids patient exposure to the often unacceptable taste of current products. RedHill reports working with Valeant in efforts to move RHB-106 into late-stage trials shortly.

Final Thoughts

RedHill clearly has a lot going on with its pipeline. The company boasts a total of eight drugs in various stages of development for over a dozen indications. The market capitalization is $175 million, and roughly one-third of that is cash. Accordingly, I think we will see RedHill active on the business development front as both a licensee and licensor through the remainder of 2016 and on into 2017. That being said, the company's institutional shareholder base includes highly creditable healthcare-focused firms such as Orbimed, Broadfin, Special Situations, Visium, Longwood, Sabby, Rosalind, and Fred Alger, so I do not think management is under any pressure to enter into unnecessary transactions. The company can afford to be patient and astute, two good combinations given the volatility in the market and recent struggle of some larger specialty pharmaceutical names.

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2 comments:

  1. I think this company has a great pipeline but are you concerned over pricing issues for their "generic" drugs? Seems like this business model is not working right now... VRX, HZNP.

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    1. Very good question! From what I can tell, based on my conversations with management, I think they have a very rational pricing strategy. They are far from HZNP or VRX. For example, I think with RHB-105, you will see them price the drug similar to PrevPac. With RHB-104, I think you will see the drug cheaper than IBD biologic drugs like Remicade or Cimzia. I do not know what they plan with Bekinda, but gut feeling (haha, pun intended) is that it will be similar to Linzess or Viberzi. That being said, I think what drives the stock higher over the next 12-18 months is clinical data and the potential for BD transactions that bring in cash or revenue-generating products.

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