RedHill Biopharma Ltd. (RDHL) Q3 2018 Earnings Report, Transcript and Summary

Good day and welcome to RedHill Biopharma's Third Quarter 2018 Financial Results Conference Call. Please be aware this conference is being recorded. [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. Please go ahead.

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 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 and in its other filings with the Securities and Exchange Commission.

Thank you, Alexandra. Good day everyone, and thank you for joining us. The plan for today is to briefly discuss our third quarter 2018 results and focus on our Phase III program with RHB-104 for Crohn's disease, and upcoming confirmatory Phase III study readout with TALICIA for H. pylori infection, which we are on track to deliver before the end of the year. H. pylori bacterial infection affects over 50% off the world adult population, and 30% to 40% of the U.S. population. And the 2018 global market is estimated at nearly $5 billion. H. pylori is the strongest risk factor for the development of gastric cancer and a major risk factor for peptic ulcer disease and other conditions. The medical need is particularly strong and increasing with eradication of H. pylori becoming more difficult. Current style of care therapies fail in approximately 30% of patients, who remain H. pylori positive due to increasing resistance of H. pylori through antibiotics commonly used in standard combination therapies. Our financial standing is solid as we remain debt free with approximately $43 million total cash on hand, with steadily decline in cash balance through the third quarter of 2018, in accordance with our cost reduction plan. But first Micha, our CFO will discuss our financial results announced earlier today.

Thank you, Dror, and good afternoon, good morning everybody. I'll provide an overview of our financial results for third quarter of 2018, but first with a short summary. Our balance sheet as of September 30, 2018, is solid and debt free and is $43 million in cash and cash equivalents. We continue to see steady decline in operating expenses, in operating loss and in net cash used in operating activities which all compares favorably to the previous period and with the guidance we have provided in late 2017. The operating burn rate of just below $8.4 million in the third quarter is the lowest quarterly burn rate we have seen in the last two years. Our net revenue of $2.2 million and gross profit of $1.6 million for this quarter compare favorably with $1.5 million and $600,000 for Q3 2017. I will now analyze in more details the mainline items. Net revenues for the third quarter of 2018 was $2.2 million compared to $1.5 million in the third quarter of 2017. The increase was due to the advancement of our promotional activities for our commercial products. Gross profit for the third quarter of 2018 was $1.6 million compared to $0.6 million in the third quarter of 2017. Gross margin increased to 73% from this quarter from 39% in the third quarter of 2017. Research and development expenses for the third quarter of 2018 were $6.6 million, a decrease of 18% from the third quarter of 2017. The decrease was mainly due the finalization of Phase III study with RHB-104 and completion of the clinical studies with BEKINDA RHB-102. Turning to marketing and business development expenses for the third quarter of 2018 were $3 million, the decrease of 28% from the third quarter of 2017. The decrease was mainly due to the cost cutting plan we put in place including a decrease in marketing expenses related to the company U.S. commercial operations which is ready for potential TALICIA launch in the second half of next year. General and administrative expenses for the third quarter of 2018 were $1.7 million, a decrease of 26% from the third quarter of 2017, reflecting the continued implementation of the company cost reduction plan and optimization measures. Operating loss for the third quarter of 2018 was $9.7 million, a decrease of 31% from the third quarter of 2017 due to the increase in gross margin and a decrease in operating expenses. Net cash used in operating activities for the third quarter of 2018 was $8.4 million, a decrease of 21% from the third quarter of 2017. The decrease was due to the decrease in operating loss and as just detailed. Net cash provided by financing activities for the third quarter of 2018 was $23.6 million resulting from the underwritten offering closed in August this year. Cash balance as of September 30, 2018 was $43 million, an increase of $15.1 million compared to June 30, 2018. The increase was due to the underwritten offering offset by net cash used in operating activities for Q3 as just discussed. Thank you. I will now return the discussion back to Dror and we'll be happy to take questions later on.

Thank you, Micha. RedHill is a revenue generating specialty pharma company, with a strong and underlined development pipeline. As a small Company, we are not only focused on the United States GI markets, our commercial operation headquarter in Raleigh, North Carolina is already promoting four GI products to thousands of the GI and other components across the United States. With a strong focus and highly motivated sales force of 40, we are all supporting functions already in place and up and running. In parallel with the potential partnership discussion, we continue to establish RedHill's strong presence within the United States GI community and are setting a stage with a modest, balanced, disciplined and gradual investment over the last one-and-half years for the potential U.S. launch of TALICIA for H. pylori infection with or without a partner in the second-half of 2019, if TALICIA is approved. Top line results on the confirmatory Phase III study with TALICIA for H. pylori infection are on track to be announced by year end 2018, with potential NDA filing in early 2019, and potential FDA approval and commercial launch in the second-half of 2019. 455 patients have been enrolled in the ongoing confirmatory Phase III study with TALICIA in 55 sites, all of them in the United States. The last patient was a first for primary endpoint in mid-October. The study is 90% powered to detect 13% treatment effect with 83% in the active arm versus 70% in the control arm. As for FDA's Fast Track program, TALICIA is eligible to benefit from priority NDA review of six months, and has a potential to be approved as early as the second-half of 2019. If approved, TALICIA is also eligible for eight years of market exclusivity from the FDA, thanks to its QIDP status on getting marked. Last month we had an analyst and investor webcast on TALICIA for H. pylori infection, including the current treatment and competitive landscapes, the study design and the market needs and size. An audio replay of the webcast and the written presentation are publicly available on our website. To refresh everybody's memory, our first Phase III study with TALICIA successfully met its primary endpoint of superiority over historical standard-of-care, eradication rate of 70% with high statistical significance of 0.001. The study results demonstrated 89.4% efficacy in our eradicating H. pylori infection with TALICIA. Notably, these results were also superior to subsequent actual standard-of-care in the open label treatment arm while the placebo patients were treated and the arm only demonstrated 63% eradication rate with actual standard of care at 0.006. Several supporting the potential efficacy of TALICIA when it comes to standard-of-care. Treatment with TALICIA was shown to be safe and well tolerated and eliminate concerns of resistance to current standard-of-care. H. pylori bacterial infection is extremely common. It affects over 50% of the adult population worldwide and 30% to 40% of the U.S. population, with an estimated 3 million patients treated annually in the United States. H. pylori is classified as a Group 1 carcinogen by the International Agency for Research on Cancer. This is the strongest risk factor for the development of gastric cancer and the major risk factor of peptic ulcer disease, as well as MALT lymphoma. Eradication of H. pylori is becoming more and more difficult. With current standard-of-care therapies failing in approximately 30% of patients, who remain H. pylori positive due to increasing resistance of H. pylori through antibiotics commonly used in standard combination therapies. Clarithromycin resitance H. pylori was formally categorized by the World Health Organization as an infection with very high priority need to develop new treatments. The 2018 global market for H. pylori eradication therapies is estimated at approximately $5 billion, of which approximately $1.4 billion in the United States. Again, we expect to generate top line confirmatory Phase III results with TALICIA by the end of this year. And all goes well, file the new drug application in early 2019 with potential FDA approval and potential commercial launch with or without a partner in the second half of 2019. Primarily in reliance of our existing U.S. commercial operation, we have modest remaining investment ahead of launch. Moving on to RHB-104. We are extremely excited by the robust top line results from the groundbreaking MAP U.S. Phase III study with orally administered RHB-104 on top of standard-of-care. The study for Crohn's disease convincingly met both primary and key secondary endpoints. Feedback from the medical and patient communities, as well as pharma partners has been very positive and discussions are ongoing. A recent presentation at a major GI conference, UEG 2018, highlighted and enhanced the values for previously reported outcomes from the study, including the primary endpoint of clinical remission at week 26 at 0.007 and key secondary and other efficacy endpoints of clinical response at week 26 at 0.016, early clinical remission at week 16 at 0.015, as well as very importantly clinical remission at week 16 and 62 at 0.003 and durable remission at all weeks, week 16 through week 52 at 0.018. I would like to highlight the last data set in particular because of threshold for success we're set very high. To succeed in these measurements patients needed to be in remission not only at week 16 and 62, but also at each and every evaluation visits between weeks 16 and 52. The UEG presentation included new positive week 26 remission data demonstrating despite not being powered and despite very small sample sizes, also meaningful statistically significant and consistent treatment effects and meaningful clinical benefits, strongly favoring RHB-104 as compared to placebo in sub-groups of patients receiving baseline standard-of-care therapies, including immunomodulators, corticosteroids, and anti-TNF agents. Furthermore in a much more [indiscernible] in a small subset of patients in whom endoscopy was performed, the study also showed statistically significant improvement in endoscopic healing, sometimes called mucosal healing at week 26, 36% versus 10%. At 0.048 this data confirm the broad benefit of RHB-104 as an add-on therapy to standard-of-care in Crohn's disease. We continue to access additional data as it becomes available. We also continue talks with key opinion leaders ahead of the U.S. FDA meeting planned for early 2019. We'll present the data package and discuss the development path to potential FDA approval. Due to lack of time we will stop it here and take any questions you may have.

[Operator Instructions] Our first question comes from Matt Kaplan of Ladenburg Thalmann. Please go ahead. Your line is open.

Congrats on the progress during the quarter. Want to just first focus on TALICIA with the upcoming Phase III data given the - I guess the strong result that you saw in the first Phase III, what should we be looking for with respect to the topline data focusing on eradication endpoint what should we be looking for in this Phase III when you have an active control there?

I will refer it to Gilead.

Thank you, Dror. In the current study as Dror mentioned we assumed or made assumptions that the study needs to show superior effectiveness of our RHB-105 TALICIA as compared to the competitor with 70% eradication rates in the comparator arm versus 83% in the active arm of TALICIA. This is based on the assumption of the comparator arm from studies on the label of EPIs and amoxicillin which have used the comparator previously in the U.S. and showed 61% and 70% effectiveness in two separate Phase III studies on their label. So that is the basis for the assumption of the comparator. As we announced the previous study showed TALICIA met 89.4% eradication in the same patient population. So that is still what we expect or hope just to confirm the confirmatory Phase III study.

And then I guess as you're getting closer to potential commercialization of TALICIA if the results are positive, can you give us some additional color in terms of your commercialization plans in terms of augmenting the existing sales force that you have and potential pricing like you’re thinking obviously it’s going to be driven by the Phase III results but what are you current thoughts?

It’s a great question, I'll refer to Guy.

So we have the privilege we have been very fortunate to have already built up a very nice and effective commercial organization already and we’ll building on that after launch. And the commercial operation already has all the core functions we would need to be able to launch including everything for managing the trade, medical affairs, manage markets and of course our sales force which is also supplemented by our sale supports, sales operation training. So in short we have everything we need right now and only thing will look for just we want to in modest form increase that in terms of for example number of sales reps. So we already have an organization in place it’s been operating, teams working well together we’re very happy with the team and the people we brought on board, and again potential modest increase if we need to in order to do launch.

Thank you, Guy. Just to add to that, the message here is very strong we have learnt from the experience of others in the GI specialty and other specialties. And we recognize that it is very challenging for small company to role that because an attempt to go it alone. And our conclusion was that if we want to do that and keep the high margins to ourselves and keep controlling the destiny of our product, we need to prepare well in advance which we did. We have our operation already up and running for nearly one and a half years. The investment has been gradual has been modest and balanced and mostly behind us and everything is up and running. For us to launch TALICIA alone let alone with a partner, we’ll not take much primarily scaling up the number of reps and we have a lot of flexibility by how much to increase if at all. We do not need to borrow large sums, we do not need to raise huge sums learning from the experience of others who have done so and it is not turn out to be the right strategy but I hope we answered your question.

No, that’s very good. And last quarter shifting gears a little bit, the next steps now for RHB-104 given that you had a chance to more fully analyze the Phase III data?

In parallel to ongoing discussions with quite a few Pharma including big Pharma potential partners, we continue to generate more and more data from the study. That data will become available ahead of the plan FDA meeting sometimes probably towards the end of Q1 maybe again as Q2 something like that where we will be discussing the path to approval, as well as design for the next study. We may do the study with the partner but it remains to be fit.

We will now take our next question from Sean Lee of H.C. Wainwright. Please go ahead. Your line is open.

My first question is on TALICIA assuming the Phase III comes up positive and the six month review period. We could see the drug on the market in the second half of next year, I was just wondering whether there is any additional CMC or other backend stuff validations that you completed before then?

Yes, we are only and has been only for a very long time including available piece for commercial use as the approval. We are working on the exact demand models over time with the manufacturer. And feel very confident that we will be ready with all the CMC package on time both for FDA approval and for commercial launch.

Have there been any discussions with the EMA potentially doing a study in Europe or launching at TALICIA?

EMA or individual EU states will come later. Our focus is entirely on the U.S. However, we are in ongoing discussions with European pharma partners who may be the ones that we take the drug all the way to approval and commercial launch in Europe. RedHill itself has no aspiration whatsoever to promote any of its products outside the U.S. in the coming years.

My next question is on RHB-102. So you reported some pretty promising results for the treatment of IBSD earlier this year. I was just wondering how the discussions for that program is going and what are the next steps?

What we have done and keen to RHB-102 for both indications gastroenteritis, which successfully completed a Phase III study in over 300 patients in the U.S. and IBSD, which successfully completed a Phase II study in 120 patients in the U.S. was to achieve regulatory clarity. We now have that clarity on the path of approval and that requires obviously a confirmatory Phase III study for gastroenteritis, pivotal studies for IBSD. The plan will be to do it with partners. If the partners are not there, we will do it by ourselves as soon as resources are available sufficiently. I hope this answer your question.

Our next question comes from Swayampakula Ramakanth of H. C. Wainwright. Please go ahead. Your line is open.

Couple of questions from me Dror. First one is 204, it's interesting to see that you planned initiate studies Phase III studies in NTM with this drug. I am just trying to - I'm just trying to see if you had presented any clinical data in this indication before or if you did please remind us and if you haven't, can you tell us what sort of data you have that makes you feel comfortable to bring to this indication?

To recap our RHB-204 program is a new formulation of RHB-104 for Crohn's disease. When we go forward NTM, we need to remember that two of the three entities arguably even the third to an extent are being used for NTM already. RHB-204 aims to become the first and only, only the treatment for NTM infections. First line, it’s a standalone treatment in an oral capsule. No need for inhalation, no need for device, no need to be on top of standard-of-care and we are going for the whole market first line. The data to answer your question has to do with all of three active individually and combined, various studies that has been conducted by RedHill and others in support of our Crohn's program with the same active, as for as later two, input and ongoing non-clinical studies that we are conducting to check the boxes and try to make sure that our planned single pivotal Phase III study of RHB-204 for first line NTM infection gets up to the market immediately. To refresh your memory, we have had discussions with FDA already about this program and indication from agency is very clear. Six months data, which allows to file NDA immediately while the study is ongoing. As such all goes well, we expect to be the first in the market the only in the market for first line exploring NTM, as well as being a standalone regardless of standard of care. It's a very good position to be. If you look at our study design which we elaborated on, you'll see that this study plans to have two arms, RHB-204 and placebo. Needless to say there is no placebo effect in micro bacterial infections, therefore we are cautiously optimistic about the outcome of that study all goes well. I hope I answered your question.

Yes, perfectly. So my last question is actually on the commercial operations. If I just go by revenues over the last three quarters, it's been flat 2 point some million for the quarter. I'm just trying to understand, is that a statement on the kind of therapies that we are working with in terms of demand and what not or is it because as you keep recruiting folks into your commercial team, it's still taking time for them to learn the ropes so that it is - they're properly integrated into the system and commercial operations are running smooth. So I'm just trying to find - understand, is that an issue, if not an issue then that's fine because you certainly want this group to be ready for your own products when it comes to the market.

It's a great question and it's very timely, I'll refer this to Guy.

So, you're right, there has been some quarter-over-quarter fluctuation. Overall, we're happy, very happy with the sales efforts that our team is doing as the trend is up. If you remember we started from zero sales, zero revenue, and the trend is growing. So we are optimistic that that will continue as a long-term trend and especially as we head into TALICIA potential launch next year. We're happy with our partners and we also look to potentially bring an additional product, commercial. Of course there's no guarantee in business development but we're looking to do that and that would also potentially be very big product for our commercial team if we're successful.

[Operator Instructions] Our next question comes from Ed Woo of Ascendiant Capital. Please go ahead.

Going back to the commercial operations, can you mention how many sales people you have right now and what's your coverage percentage of the U.S.?

So we have approximately 40 people and we pretty much cover the entire United States. And the reason we do that is we have an outside sales force which is sort of the boots on the ground which are or in all the major metro areas. And then we also the rest of the area which is less densely populated is covered by our inside sales team, which is folks who do telephone and other means are able to cover the area. So it's effectively the entire continental United States that we're able to cover in one way or another.

You mentioned that you may potentially increase your sales force, would it be to increase coverage in dense areas, high metro population areas?

Yes, that's exactly right. So right now we cover all the major metro areas and as we look at to this year potential launch, we may decide to decrease the size of the territory in those densely populated areas and add some support. So for example, the major city crew if we had one sales rep, maybe they would have two sales reps covering additional areas. And then that allows reps to be more focused and to - when you have a target rich environment like we expect to have with H. pylori to have more productivity.

Our next question comes from Robin Garner of LifeSci Capital. Please go ahead.

Just a quick question asking if you could elaborate on the ideal target business development program that you might bring in, in addition to what you are currently developing?

Yes, right now and thank you for that Robin our pipeline is full. We are a small company for the moment and we have several Phase III programs in development, as well as several Phase II programs. What we are looking for is additional commercial assets if the approved products - we are in discussion for several such FDA approved products that we would like to promote to the GI community. And we are cautiously optimistic that we’ll be able to bring at least one additional and meaningful GI product into the basket of our sales in the coming few months, well ahead of the TALICIA launch. We have the hope and expectation that that will also significantly boost the numbers if we are generating and help us reach profitability sooner rather than later.

At this time it appears we have no further questions. So I would like to turn the conference back for any additional or closing remarks.

Thank you, Rovin. Thank you all for joining the call. Please reach to us if you have any additional questions. We wish you all a pleasant day.

Thank you. This does conclude RedHill Biopharma's third quarter 2018 financial results conference call. Thank you for your participation. You may now disconnect.