RedHill Biopharma Ltd. (RDHL) Q3 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the RedHill Biopharma's third quarter 2017 financial results and business highlights conference call. For your information, there will be a question-and-answer session taking place after the presentation. [Operator Instructions]. At this time, I would like to introduce to the conference RedHill's CEO, Mr. Dror Ben-Asher; Mr. Micha Ben Chorin, RedHill's CFO; Mr. Gilead Raday, RedHill's Chief Operating Officer; and Mr. Guy Goldberg, RedHill's Chief Business Officer. Before we begin, we will read from RedHill's Safe Harbor statement.

This conference call may contain projections or other forward-looking statements regarding future events or the future performance of RedHill, including statements with respect to RedHill's expectations regarding the initiation, timing, progress and results of its research, manufacturing, preclinical studies, clinical trials, marketing applications or approvals, if any, and other therapeutic candidate development efforts, as well as business promotion and other efforts related to RedHill's US commercialization activities. These statements are only predictions and RedHill cannot guarantee that they will in fact occur. RedHill does not assume any obligation to update that information. Actual events, results or achievements may differ materially from what RedHill projects today. Additional information concerning factors that could cause actual events, results or achievements to materially differ from those contained in the forward-looking statements can be found in the company's annual report on Form 20-F in the company's prospectus supplement filed with the Securities and Exchange Commission in connection with its public offerings of ADS earlier this month and in its other filings with the Securities and Exchange Commission.

Thank you, Alexandra. And to those of you who are on the call live, thank you for your interest in Redhill and for joining us. We will briefly discuss upcoming milestones and leave time to answer your questions. First, Micha will discuss our third quarter financial results announced earlier today.

Thank you, Dror. Good morning and good afternoon everybody. I will provide a short overview of our financial results for the period ended September 30, 2017 and we'll touch upon additional significant events and activities since quarter-end. Net revenues for the third quarter of 2017 were $1.5 million compared to $0.5 million in the second quarter of 2017. The increase was due to promotional activities of Donnatal and the sale of EnteraGam and the initial promotion of Esomeprazole Strontium 49.3 milligrams that began in mid-September. Cost of revenues for the third quarter of 2017 was $900,000 compared to $300,000 in the second quarter of 2017 and are related to the sale of EnteraGam. Research and development expenses for the third quarter of 2017 were $8.1 million, an increase of $1.1 million or 15% as compared to the third quarter of 2016, and are mainly due to the ongoing confirmatory Phase III study with TALICIA H. pylori infection and the studies with BEKINDA for gastroenteritis and IBSD. Research and development expenses for the third quarter of 2017 decreased by $300,000 or 4% compared to the second quarter of 2017. General and administrative expenses for the third quarter of 2017 were $2.3 million, an increase of $1.2 million as compared to the third quarter of 2016. General and administrative expenses for the third quarter of 2017 increased by $300,000 as compared to the second quarter of 2017. The increase for the comparable periods were mainly due to the establishment and advancement of the company's US commercial operations in the first quarter of 2017. Selling and marketing and business development expenses for the third quarter of 2017 was $4.2 million, an increase of $800,000 or 24% as compared to the second quarter of 2017. The increase from the comparable periods was mainly due to the establishment and advancement of the company's US commercial operations. The company recognized selling and marketing expenses for the first time in 2017. Operating loss for the third quarter of 2017 was $14 million, an increase of $400,000 or 3% as compared to the second quarter of 2017 and was due to an increase in selling, marketing and business development expenses, and research and development expenses and in general and administrative expenses. Financial expenses for the third quarter of 2017 was $1.5 million due to variation in fair value of warrants, which was affected by share price variations and do not have cash impact. Net cash used in operating activities for the third quarter of 2017 was $10.6 million, an increase of $3.2 million or 43% as compared to the third quarter of 2016 and was mainly due to the increase in operating loss. Net cash used in operating activities for the third quarter of 2017 increased by $800,000 or 8% as compared to the second quarter of 2017. Cash balance as of September 30, 2017 was $39.6 million, a decrease of $11.6 million as compared to June 30, 2017, which was in line with our expectations. There are several additional considerations that expect to positively impact our cash flow and cash position, including net proceeds of approximately $21 million from our recently announced underwritten public offering, continued sales growth and measures we have already begun to put in place. I will now turn the discussion back to Dror and we will be happy to take questions later on. Thank you.

Thank you, Micha. RedHill is a revenue generating gastrointestinal, GI-focused specialty pharma company, focused on the United States. Our commercial operation headquartered in Raleigh, North Carolina is setting the stage for the launch of RedHill's late clinical stage potential GI products, who are making their way and getting closer to the market if approved. Net revenue in the third quarter were approximately $1.5 million from the promotion of three GI specialty products, including Donnatal, EnteraGam, which were launched in June, and Esomeprazole Strontium Delayed Release Capsules 49.3 milligrams launched in mid-September. We expect decreased 2018 quarterly cash balance as well as continued revenues throughout and increased out-licensing activities. Positioned with a strengthened balance sheet, the coming months are a homestretch for two of RedHill's flagship Phase III GI development programs. Starting in May 2018, two major data point milestones, which our team is currently laser-focused on achieving and relentlessly pursuing for the last seven years, our plan. The first is top line results from the first Phase III study with RHB-104 for Crohn's disease, the MAP US study, expected in mid-2018. Patient enrollment has been completed and announced last week. Importantly, following recent development in the race for a new treatment for Crohn's disease, RedHill's RHB-104 with topline results, Phase III results around the corner is clearly positioned as a potential front-runner. The second potential milestone is top line results from our confirmatory Phase III study with TALICIA, also called RHB-105. The confirmatory Phase III study is called ERADICATE HP2 study. The study is for the treatment of H. pylori infection and is expected that, in the second half of 2018, we will have topline results. As far as the recruitment is concerned, with over 100 subjects already enrolled, we are very pleased with our recruitment pace and hope to complete enrollment by the summer of 2018. If successful, we plan to file the new drug application by the end of 2018 or early 2019. Moreover, given the QIDP's fast track status of TALICIA, potential FDA approval and US commercial launch of this potential blockbuster in 2019, it's doable. In addition, subject to additional FDA feedback, we plan to initiate a pivotal Phase III study with RHB-104 for first-line treatment for non-tuberculous mycobacteria infections or NTM. We expect to commence a study in early 2019. We expect enrollment to take about one year, to be followed by a rolling NDA submission based on six-month treatment data. As some of you already know, these men have done a great job recently at educating the financial market about unmet medical need in and resulting potential of the second line NTM treatment market. RedHill's RHB-104 is potentially a front-runner in the development of a first-line treatment – I repeat, a first-line treatment – for this important indication. To highlight and further elaborate on the upcoming potential milestones, starting in mid-2018, with RHB-104 and TALICIA, we expect to conduct an analyst R&D day in early 2019. It will be solely focused on our Phase III Crohn's disease, our H. pylori Phase III study and NTM program. Please stay tuned. We will pause it here and take any questions you may have.

Thank you. [Operator Instructions]. And we'll take the first question from Sean Lee of H.C. Wainwright. Please go ahead.

Good morning, guys. Good results so far. Thank you for taking my question. The first question I have is on the commercial structure. How is the buildout going in the US? Are you happy with what you have right now or do you expect to continue to expand in anticipation of the product launches that could come next year?

Hi, Sean. I will defer this to Guy, our Chief Business Officer.

Thank you very much. Yeah, we're very happy with what we've built out. We have a sales force that is now fully staffed. We expect it to continue at this level into 2018.

Great. Regarding the sales of Donnatal, I think it was off the market for a little bit. So, what kind of response have you been getting so far from customers?

Thanks again, Sean. It's a great question. Yes, Donnatal has not been off the market, but has not been promoted since Concordia let go of their [indiscernible] sales force in the second half of 2016. We are very happy with what we are seeing. We'll be happy to elaborate when we learn more over the coming one or two quarters. So far, we're very happy with what we see.

That's great to hear. My final question is on the BEKINDA program, how are the discussions with the FDA so far? Do you have an idea of the type of study you're going to do or maybe have a timeline on when you can release more details on the study? And also, would you be pursuing an STA [ph] with the FDA for this?

Thank you, Sean. I will defer this to Gilead Raday, our Chief Operating Officer, responsible for the studies.

Thank you. We're in the process of preparing for meeting FDA following the successful results we announced for both the gastroenteritis and gastritis indication and where we have the Phase III study and the IBSD Phase II study, both of which met the primary endpoint. So, we're finalizing the reports, the study reports, for these two programs and we plan to meet FDA early in 2018 to agree on the next stage. We already met the FDA for the gastroenteritis and gastritis indication and we are planning a second meeting in order to clarify the root – or the design of the next study. And for the IBSD indication, it would be the first meeting following the results of the study and we would propose a Phase III study to go straight to NDA following the next studies.

Okay, thank you. Thank you for answering my questions.

We will take the next question from Vernon Bernardino from Seaport Global. Please go ahead.

Hi. Good afternoon, guys. And thanks for taking my question. Congrats on the progress, especially with the launch of the three products. Can you just provide a breakdown of the revenues from each product?

Thank you. Thank you for that. We're not yet at a stage that we feel this is required or the right time. We will need to do so down the road, but it's too early in the game.

Okay, terrific. And my second question is a pipeline one. Now, some studies were planned with YELIVA. Can you provide an update on the programs with YELIVA?

Yes. Gilead will take this.

Thank you. Yes, we currently have several ongoing Phase II studies that are investigator sponsored and supported with NCI grants. Those are in hepatocellular carcinoma and in multiple myeloma. Those are ongoing and will continue to proceed. We are initiating a Phase II study in cholangiocarcinoma by the end of this year. And that is a study that is very interesting and is getting a lot of attention from clinicians and patients. We will follow-up in an open label setting in this study during the course of 2018 and expect to see – or hope to see signals of efficacy during 2018. So, that would be very interesting data coming up.

Will that also be investigator sponsored?

No, this is a study – the CCA study – cholangiocarcinoma is a study sponsored by RedHill. We have orphan designation for this indication. And we're also potentially getting grants to support this study too. We will know early in 2018 whether the grants support the study in addition to RedHill.

Great. Thanks for the update on the program.

Thank you. We'll take our next question from Scott Henry of ROTH Capital Partners. Please go ahead.

Hey, good morning. This is David Solomon in for Scott Henry. Thanks for taking our question. We were wondering how the financial spend should directionally change in the fourth quarter and into 2018? Thank you.

Thank you for the question. We do not feel that this is the right time yet to discuss this. But we will elaborate not too far from now, as soon as we feel that the plans and the visibility are solid enough.

Okay, thank you.

Thank you. We would take the next question from Jonas Peciulis of Edison Investment Research.

Hi all. Hi. Thank you for taking my questions. Actually, some of those were already answered. So, just to follow up on financials, US organization, so I'm trying to understand what the cost base for that organization is? So, obviously, COGS is the variable. But then you have G&A of – I think increase was $1.2 million. And sales and marketing was increased $3.8 million. So, probably, it was mainly related to the US. How should we think about it? Is it more like a fixed cost, G&A, similar, or there is also a variable element to those?

Thank you. Thank you for that. We did not disclose the breakdown of COGS and so on. What you can [indiscernible] with 40 reps. The numbers are pretty standard. The range is well known. I hope this helps.

Yes, yes. Yes. Thank you.

Thank you. [Operator Instructions]. And that will conclude today's question-and-answer session. I'd like to turn the call back over to the speakers for any additional or concluding remarks.

Thank you, Rhonda. I would like to thank you for your interest and for taking the time this morning in the US, this afternoon in Israel. We remain available should you have any additional questions or concerns. Please feel free to reach out to us. Thank you and have a great day and great evening in Israel.

Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.