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Monday, May 16, 2016

Interview With RedHill Biopharma CEO Sheds Light On Pricing, Strategy and Near-Term Catalysts

RedHill Biopharma Ltd (NASDAQ: RDHL) is a specialty pharmaceutical company with a total of eight drugs in various stages of clinical development, three of which are potential blockbuster drug candidates in Phase III for the treatment of gastrointestinal diseases. In total, RedHill is targeting over a dozen indications, with a core focus on gastrointestinal and inflammatory diseases.

Although relatively still unknown to retail investors, the company's institutional shareholder base includes highly creditable healthcare-focused firms such as Orbimed, Broadfin, Sabby, and Special Situations. The market capitalization is approximately $140 million, and, as of the end of the first quarter of 2016, roughly one-third of that ($53.4 million) is cash.

I believe the low market capitalization may be based on some misconceptions over strategy or the difficult overall specialty pharmaceutical market. To shed some light on the company’s strategy, highlight some near-term catalysts, and touch on what is a hot-button issue in specialty pharma these days, i.e. pricing, I spoke with the company’s CEO, Dror Ben-Asher.

BioNap: Hi Dror, thank you for speaking with me today. Perhaps we can start with a quick overview of RedHill Biopharma and its late-stage pipeline.

Dror Ben-Asher: Thank you, Jason. RedHill is an emerging specialty pharmaceutical company focused on development and commercialization of late clinical-stage, proprietary small molecule drugs for the treatment of gastrointestinal and inflammatory diseases and cancer where there are significant unmet medical needs. We are pursuing a multiple shots-on-goal strategy. We are currently running several flagship Phase III-stage and proprietary programs in the U.S. including RHB-104 for Crohn’s disease, RHB-105 for H. pylori infection, and BEKINDA™ for gastroenteritis and gastritis. We are also conducting several Phase II programs, addressing significant medical needs. Our programs are expected to have future market exclusivity deriving from both FDA regulation and patents.

BN: It certainly has been volatile the past several months in the specialty pharmaceutical industry. Several fellow players have come under significant pressure by the public, by political candidates, and by investors for implementing overly aggressive pricing strategies. Can you talk a little about RedHill’s model and how the company thinks about pricing some of its late-stage assets, if approved?

DBA: As part of our mission, we want to help patients, alleviate their suffering and save lives and we cannot do that if we price our drugs so that it is unaffordable for individuals or for the systems as a whole. But we can still be very profitable even with those constraints. We are not developing “me too” products competing almost entirely only on price, and because our products are clinically differentiated from all other products on the market, we can have both a product that helps patients that does not require enormously high pricing and still being very profitable for the company and investors. Specifically, RedHill’s business model largely preempted and therefore accommodates the current pricing pressure environment in a number of fundamental respects: First, we are focused on late clinical stage, orally-administered, small molecule drugs. Because those are not biologics, nor require a device for administration, etc., these drug candidates typically imply lower cost of goods and lower cost of development. Secondly, because we are mainly focused on candidates we acquired at clinical stage after many years in development by others, our total development costs tend to be lower than, say, big pharma or companies starting from scratch. Therefore, unlike big pharma, we do not need to recoup a huge investment in each successful development program as well as failed development programs. Lastly, our R&D team and supporting operation are lean and very effective, with low fixed costs and based on an outsourcing model, thus dramatically lowering the costs associated with our lead development programs. We maintain a strong cash position with no debt, to support our ongoing Phase III and Phase II programs. To sum up, RedHill’s model allows us and/or our future commercialization partners significant flexibility when it comes to pricing and securing sufficient profit margins without the need for overly aggressive pricing hikes.

BN: What are the key factors that the company looks at when determining how to effectively price its late-stage products?

DBA: We are doing our homework, including conducting various surveys, when it comes to planning a development and commercial strategy. Label will of course play a major role and so are discussions with payers and our future commercialization partners’ strategy. For example, with RHB-105 we already have one successful Phase III behind us suggesting superiority over existing standard-of-care with high statistical significance (P<0.001). A confirmatory Phase III study is planned to commence later this year and, if approved, we are aiming at a unique label for the treatment of H. pylori infection, estimated to affect over half of the world’s population and the main cause for gastric ulcers and gastric cancer. RHB-105 already received a QIDP (qualified infectious disease product) status from FDA under the GAIN Act, thus benefiting from Fast Track development status, Priority Review of the New Drug Application once filed, and a total of eight years market exclusivity (3 years data exclusivity plus 5 years under the GAIN Act). So we are taking all these things into account, including payer feedback, feedback from commercialization partners, the intended label, the FDA, etc., when we think about pricing.

BN: One of the things that has clearly been a hot-button issue of late is specialty pharmaceutical companies taking control of an older, generic molecule, possibly reformulating, and then really jack-up the price. Can you talk about the rest of the pipeline?

DBA: On top of the three Phase III programs mentioned above, RedHill has several Phase 2-stage new chemical entities (NCEs), including YELIVA™ and Mesupron® for the treatment of various types of cancer. Both are novel and potentially first in class drugs. Moreover, RedHill’s flagship drug candidates RHB-105 and RHB-104, currently in Phase III, are proprietary and novel combinations of known actives that are effectively equivalent to NCEs in various respects. In fact, as mentioned above, RHB-105, if approved in the U.S., will have a total market exclusivity of eight years demonstrating the importance attributed by the regulators to RHB-105 and the strength of the unmet medical need in terms of overall public health policy.

BN: Give us a sense of the novelty and IP protection within the RedHill pipeline.

DBA: RedHill’s products are proprietary and our patent estate includes hundreds of patents granted and pending globally. RHB-104 (ongoing Phase III study for Crohn’s), RHB-105 (ongoing Phase III study for H. pylori infection), BEKINDA™ (ongoing Phase III study for gastroenteritis and gastritis) and YELIVA™ (Phase II in multiple indications) are all well-protected drug candidates with broad and strong global patent protection and many years to expiration, as well as other significant barriers to competition.

BN: Let’s stay with RHB-105. It is very likely that with success of the confirmatory Phase III study, the drug may become a physician’s first choice for treating HP infection. In fact, it sounds like the potential is there to target all patients with H. pylori infection, not just ones at high risk for gastric or peptic ulcers. Can you talk a little about the potential pricing for RHB-105 in terms of how you would price a new standard-of-care, knowing there are generic formulations available and older combination products like PrevPac®, etc.?

DAB: We are aiming for a unique label (first-line treatment regardless of ulcer status) which existing drugs do not have, we have shown highly statistically significant superiority over standard-of-care in our first Phase III study and we will have eight years of market exclusivity in addition to patents covering RHB-105 beyond 2030. Existing standard-of-care therapies are selling at up to $1,000 per treatment and there are roughly 3 million treatments in the U.S. every year. The key point to drive home is that efficacy drives market penetration and market share. If we are right, as demonstrated in our first Phase III study, RHB-105 is markedly superior to current standard of care treatments. Therefore, if approved, RHB-105 should do very well against standard of care generics. While it is premature to discuss pricing range, if RHB-105 is eventually approved and proven to be superior efficacy over standard-of-care, there is significant room for adequate pricing in all respects. Our current market size estimates are $1.5 billion in the US and $4.5 billion worldwide. Those estimates are based on pro forma pricing which is comparable to branded standard-of-care therapies, so our pricing projections may be conservative and take into consideration the target market price sensitivities and dynamics. Coupled with potentially being best in class, if approved, this pricing strategy is designed to allow capturing very high market share and also significantly expand the existing market.

BN: RedHill clearly has some novel, potentially first-in-class and best-in-class candidates. With RHB-105, there is the potential there for a new standard-of-care, and that is obviously very exciting. But let’s talk for a minute about BEKINDA™. It’s an improved, extended release, once-daily formulation of ondansetron. How do you think about pricing for a drug like BEKINDA™ vs. generic ondansetron? Are you concerned about generic substitution or pricing pressure once BEKINDA™ is approved?

DBA: The gastroenteritis market is a large scale one with estimated 80-300 million of cases every year in the U.S. alone. If BEKINDA™ 24mg is successful in its ongoing Phase III study, and it gets approved for gastroenteritis and gastritis, it will be the only FDA-approved once-daily oral ondansetron on the market and the only 5-HT3 antagonist approved for gastroenteritis. Ondansetron is considered one of the safest and most effective antiemetic and therefore a very popular medication among prescribers in oncology support, for which it is approved with different regimens. Needless to say, BEKINDA™ is a proprietary product and, on top, 3 years data exclusivity from FDA is expected, if approved. Some off-label use is always a risk, but we think the risk is minimal to the overall product because doctors do not like to prescribe off-label, especially when the pharmacokinetic profile of the on-label product is so different than the substitution. To sum up, as potentially the only 5-HT3 antagonist approved for gastroenteritis, with a unique label, value proposition as the only once-daily orally administered drug of its kind, patent protection and low cost of goods, BEKINDA™, if approved, should do very well.

BN: BEKINDA™ 12mg just started a Phase II trial for irritable bowel syndrome with diarrhea (IBS-D). IBS is a market where two new products are being advertised on TV to consumers, Linzess® (linaclotide) for IBS-C and Viberzi™ (eluxadoline) for IBS-D. Are you looking at Allergan’s success with these two products? How much is RedHill paying attention to competitors in this market?

DBA: BEKINDA 12mg is currently in a Phase II study for IBS-D which is a different market than IBS-C. The right time to discuss other existing treatments will be once we have Phase II safety and efficacy data from the ongoing Phase II IBS-D study we initiated recently. The IBS-D market is very large with room for several players. Safety and efficacy product attributes will drive market share.

BN: Let’s talk about RHB-104. It’s a proprietary combination of known active ingredients, but potentially a paradigm changer in the treatment of Crohn’s disease (CD) or multiple sclerosis (MS). CD biologics and the new MS drugs are some of the most expensive drugs on the market. How do you balance pricing RHB-104 vs. potential generic alternative and its very expensive competitors?

DBA: Indeed, the CEASE-MS Phase IIa interim results are encouraging. As you rightly stated, existing Crohn’s and MS treatments are expensive and RHB-104 has considerable room for pricing maneuver relative to those treatments. We believe that the current biologic treatments open the market for effective and safer yet less expensive therapies, assuming RHB-104 is proved as such in the ongoing Phase III MAP U.S. study for Crohn’s as well as further studies, and eventually gets approved. Because RHB-104 is not a biologic, achieving competitive price points should be achievable. As with other products discussed above, safety, efficacy and pricing will drive the market share. RHB-104 is a proprietary drug candidate with significant other barriers to generic competition.

BN: And for RHB-104, you have orphan drug designation for pediatric CD. Does that change your pricing strategy?

DBA: Orphan designation adds a layer of protection for pediatric Crohn’s, but is not the main protection and pediatric is not the main indication we are currently pursuing in our Phase III MAP U.S. study, which is adult Crohn’s.

BN: What are the key catalysts or events shareholders should be looking for over the remainder of 2016?

DBA: Because of our multiple shots on goal approach, we have a lot going on at any given time. As such, to mention a few of the many potential catalysts for the remainder of the year, we expect, in the second half of 2016 data points for BEKINDA™ Phase III study for gastroenteritis, interim data, safety and monitoring board (DSMB) analysis for RHB-104 Phase III study for Crohn’s disease, Initiation of the confirmatory Phase III study for H. pylori infection with RHB-105, initiation of additional Phase II studies with YELIVA™ for new indications, as well as potential partnering deals and many other potential catalysts.

BN: Next let’s talk about the commercial strategy for these drugs. What’s the ultimate goal for RedHill? Do you promote these drugs? Co-promote? Target select markets? Does the company have an international strategy?

DBA: As a general guideline, within our therapeutics focus on GI, inflammation and oncology, and for our flagship potential blockbuster Phase III and Phase II drug candidates, we would prefer to keep at least some commercialization rights in the US. Ex-US, we are looking to out-license to suitable pharma partners. The same applies to non-core products for the U.S. market (such as RIZAPORT™ for migraine).

BN: Can you talk a little about your business development activities?

DBA: Our main focus right now as far as business development is concerned is on acquiring attractive FDA-approved products within our therapeutic areas, to ensure we have a well-oiled revenue generating U.S. commercial operation going, sufficiently ahead of the potential FDA approval and launch of our flagship GI products, currently in Phase III.

BN: Where you see the company in the coming years?

DBA: We are building an integrated stand-alone specialty pharma company in the U.S., focused on GI, inflammation and oncology. Our balance sheet is strong and our clinical development pipeline is rich and very advanced, with potential FDA approvals gradually rolling in the coming years. In the interim, we are focused on building a revenue-generating U.S. commercial operation, through U.S. product acquisitions, ahead of the potential FDA approval and launch of our flagship GI products, currently in Phase III, with a second “wave” of products in Phase II.

BN: Thank you for speaking with me Dror. I think that provided investors a very good overview of RedHill, especially with respect to your commercialization strategy.

DBA: Thank you Jason! We are always interested in talking with investors and sharing our vision for the future. If your readers have any follow-up questions or are interested in learning more about RedHill Biopharma, we’d be happy to hear from them at


Some related BioNap articles about RedHill Biopharma:

RHB-105: The Medical Market Perspective

Bekinda™ Development Continues In Phase 3

RedHill Biopharma's RHB-104: A Potential Game Changer for Crohn's Disease?

Novel Phase 2 YELIVA™ Represents Expansion, Upside To The RedHill Biopharma Story


Certain statements contained in this interview may be “forward-looking statements” within the meaning of the Securities Litigation Reform Act of 1995. They are generally identified by words such as “believes,” “may,” “expects,” “anticipates,” “should” and similar expressions. Readers should not place undue reliance on such forward-looking statements, which are based upon the Company’s beliefs and assumptions. The Company’s actual results could differ materially due to risk factors and other items described in more detail in the “Risk Factors” section of the Company’s Annual Reports and MD&A filed with the United States Securities and Exchange Commission. Subsequent events and developments may cause these forward-looking statements to change. The Company specifically disclaims any obligation or intention to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. BioNap is party to a services agreement with the company that is the subject of this report pursuant to which BioNap is paid five thousand dollars per month by the company in exchange for the provision of research reports, investor relations services, and general consulting services. Please see additional information on our Disclaimer.


  1. Thanks, great interview!

  2. Very informative interview. They have a great pipeline of several late stage drugs in clinical trials. It would appear they are highly undervalued. The CEO mentioned their desire to purchase a commercial product to fund the development of their pipeline drugs. Could it be the market is concerned about dilutive financing for this purchase?