RedHill Biopharma Ltd. (RDHL) Q1 2019 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen and welcome to the RedHill Biopharma's First Quarter 2019 Financial Results Conference Call. At this time, I would like to introduce to the conference RedHill's Chief Executive Officer, Mr. Dror Ben-Asher; Mr. Micha Ben Chorin, RedHill's Chief Financial Officer; Mr. Gilead Raday, RedHill's, Chief Operating Officer; and Mr. Guy Goldberg, RedHill’s, Chief Business Officer. After the presentation there will be a question-and-answer session. [Operator Instructions] Before we begin, we will read from RedHill's Safe Harbor statement. Please go ahead.

Thank you, Arena. 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, other therapeutic candidate development efforts and timing of the commercial launch it’s therapeutic candidates 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, timelines, results, achievements, or commercialization activities may differ materially from what RedHill projects today. Additional information concerning factors that could cause actual events, timelines, results, achievements, or commercialization activities to materially differ from those contained in the forward-looking statements can be found in the Company's Annual Report on Form 20-F filed with the Securities and Exchange Commission on February 26, 2019 and in its other filings with the Securities and Exchange Commission.

Thank you, Alexandra. Good day, everyone, and thank you for joining us. Today, we will briefly discuss our results for the first quarter of 2019 and focus on TALICIA for H. pylori bacterial infection. This morning, we announced the submission of the new drug application, NDA or marketing application. For FDA Fast-Track TALICIA. On track for potential approval and commercial launch as early as the fourth quarter of this year, H. pylori infection affects over 50% of the population worldwide and approximately 35% of the U.S. population, and is a major cause of gastric cancer, stomach ulcer and other conditions. Resistance to existing therapies is growing with the current standard-of-care failing in approximately 30% to 40% of patients. H. pylori therefore a high priority pathogen and public health concern in the U.S. and worldwide. Assuming FDA approval, TALICIA has the potential to become the new first line standard-of-care therapy for H. pylori bacteria infection. The NDA filing is a transformative milestone for the Company towards which the RedHill team and many other dedicated people to whom we are extremely grateful have diligently and relentlessly worked over many years. But first Micha, our CFO will discuss our financial results announced earlier today.

Thank you, Dror. Good morning and good afternoon everybody. I’ll provide a short overview of our financial results for the first quarter of 2019. We generated net revenues of $1.7 million in the first quarter of 2019, which is an increase of 28% compared to the fourth quarter of 2018. We recorded gross profit of $1.3 million in the first quarter of 2018, compared to $0.8 million in the fourth quarter of 2018, as gross margin increased from 57% to 76%. This growth in both net revenues and gross profit was attributable to an increase in revenues from promoted products. We recorded research and development expenses of $5.4 million in the first quarter of 2019, compared to $5.8 million in the fourth quarter of 2018, resulting from the successful finalization of the confirmatory Phase III study with TALICIA. Selling, marketing, business development expenses and G&A were the same as last quarter of approximately $5 million. We recorded lower operating losses of $9.2 million in the first quarter of 2019, as compared to $10 million in the fourth quarter of 2018. The decrease in operating loss was mainly due to the increase in gross profit and the decrease in research and development expenses, as just described. Net cash used in operating activities in the first quarter of 2019 was $7.5 million, compared to $8.2 million in the fourth quarter of 2018 and is our lowest cash burn in the last two years. Cash balance as of March 31, 2019, was $45.5 million, compared to $53.2 million as of December 31, 2018. Capitalization, as of the end of the first quarter of 2019 we have no debt on our balance sheet. We are expecting to maintain cost discipline towards potential launch of TALICIA forecasted in the last quarter of this year subject to FDA approval. I will now turn the discussion back to Dror and we'd be happy to take questions later on. Thank you.

Thank you, Micha. To refresh your memory, I believe the revenue generating, specialty gastrointestinal of GI pharmaceutical company with a strong and advanced development pipeline focus primarily on the U.S. We continue to aggressively pursue pharma partnerships as well as promising acquisition opportunities for additional revenue generating drugs to capitalize on our existing commercial operations and strong presence within the U.S. GI community. Our commercial operation is led by a highly experienced commercial management team with a strong track record of success at Salix Pharmaceuticals and major pharma companies. Earlier today, we announced that following a positive pre-NDA meeting has recently released U.S. Food and Drug Administration, the FDA. We have submitted a new drug application for TALICIA for the treatment of H. pylori bacterial infection. TALICIA demonstrated compelling results in its clinical studies for H. pylori infection and highly prevalent and increasingly resistant and difficult to treat pathogens. The TALICIA NDA is supported by a robust package including two positive Phase III studies in the United States along with two PK studies evaluating food effects and comparative bioavailability. Assuming FDA approval, commercial launch is planned for the fourth quarter of 2019. TALICIA has the potential to become the new first line standard-of-care therapy for H. pylori bacterial infection, the strongest risk factor for developing gastric cancer, stomach ulcers, and other illnesses. H. pylori infection affects over 50% of the population worldwide and approximately 35% of the U.S. population. The 2018 potential market for H. pylori eradication therapies was estimated at approximately $4.8 billion worldwide and $1.4 billion in the U.S. TALICIA is intended to target an estimated 2.5 million patients already treated annually in the United States. Current standard-of-care therapies fail in approximately 30% to 40% of patients due to increasing resistance to antibiotics commonly used in standard combination therapies. It was clearly demonstrated by high resistance data generated in our confirmatory Phase III study. Crucially, no resistance to rifabutin, a key component of TALICIA, was detected throughout our confirmatory Phase III study. TALICIA was granted a Qualified Infectious Disease Product or QIDP, Fast-Track designation by the FDA and is eligible for six-month priority review of the NDA. If approved, TALICIA stands to receive an additional five years of U.S. market exclusivity on top of the standard exclusivity period for a total of eight years of market exclusivity. TALICIA is also covered by U.S. patents, which extend patent protection until at least 2034, with additional patents and applications pending in various territories worldwide. The first Phase III study with TALICIA ERADICATE Hp study successfully met its primary endpoint of superiority over historical standard-of-care eradication rate of 70%, demonstrating just under 90% efficacy in eradicating H. pylori infection with TALICIA with a p value of 0.001. The confirmatory Phase III study ERADICATE Hp2 study also decisively met its primary endpoint, demonstrating 84% eradication of H. pylori infection with TALICIA versus 58% in the active comparator arm, p value at less than 0.0001 with an ITT analysis. Moreover, as we announced earlier today, 90% of subjects with confirmed blood levels of TALICIA active on day 13 of treatment, an indicator of compliance achieved confirmed eradication of H. pylori. Significantly, low rates of eradication were obtained in patients treated with physician-directed standard-of-care therapies in the open-label parts of both of Phase III studies, 63% and 53%, respectively. Importantly, in our clinical study, no H. pylori resistance to rifabutin, one of the key ingredients in TALICIA was identified pre and post treatment. These results are consistent with the literature describing the diminished efficacy of standard-of-care therapies, which TALICIA is intended to address. Commercial readiness is our key corporate priority right now. We continue to implement our U.S. commercialization strategy in anticipation of the potential launch of TALICIA with our dedicated sales force. As part of the ongoing preparation for the potential launch, we continue to strengthen our Senior Commercial Management Team with additional industry executives who bring with them a wealth of highly relevant experience and a strong track record of success in managed care, marketing, sales, supply chain management, and all other key functions. The Company’s sales and marketing team already promoted several commercial GI products to gastroenterology, other high prescribing specialists, and primary care physician across select U.S. territory. So sum up 2019 is rapidly into an exciting and transformative year for RedHill as our team continues to focus on intensive and diligent preparation for the commercial launch of TALICIA in the U.S., potentially as early as the fourth quarter of this year. We are confident and well positioned for the future. We will now take any questions you might have.

[Operator Instructions] Our first question comes from the line of Christopher Marai from Nomura. Please ask your question.

Hey, good morning. Congratulations on all the progress. I was wondering, firstly, with respect to TALICIA, given the potential for approvals here in H. pylori later this year, what your current commercialization plans look like? How many reps are you expected to have on the ground? And is there any plans around potentially partnering or co-promoting the product? And then I have a follow-up. Thank you.

Thank you, Chris. Guy Goldberg, our Chief Business Officer will take this one.

Thanks for your question, Chris. In regards to the total size of our salesforce, that's something that we're looking at right now. We're doing territory mapping and analyzing the size of it. It will probably be in the range of what you see with other GI companies promoting in the space. And as far as the second question about co-promotion, we've built up the infrastructure so that we can fully promote this product ourselves. If a partner wants to partner especially ex-U.S., we'd be very happy to work with them on those territories is the potential ex-U.S. is also very, very large. Inside the U.S., we'd be a very selective if there were certain specialties that we weren't focused on, we would be happy to talk to those partners. But we're very confident in our capabilities to do this ourselves and to do it successfully.

Great. And then just a follow-up if I may on NTM and RHB-204. So it sounds like you’re in constant dialogue with regulators or you're still in dialogue with regulators regarding the pivotal trial design there, perhaps could you provide an update on those conversations? And then secondarily, it looks like you have a proposed Phase III study plan with a six-month primary efficacy endpoint and follow-up treatment through 15 months. Is that your expectation that you would need to submit an NDA after that 15 month follow-up, or would it be possible on that six-month data endpoints? Thank you.

Thanks again, Chris. Gilead, whom you know Chief Operating Officer will take this one.

Thank you, Dror. Thank you, Chris. Indeed we are continuing development towards initiation of this Phase III study and we are in communication and contact with the FDA. Recently there was actually a NTM conference that we participated in. Our expectation is that the primary endpoint for an accelerated approval submission would be the six-month culture conversion endpoint that you mentioned, and that should serve that accelerated approval NDA filing. We will continue in parallel to that the enrollment in the study or the follow-up of patients in this study as you say through 15 months treatment and we'll submit that or conclude that study and add it to the NDA filing for full approval. So that is the current standing plan and we will still be in discussion with FDA about any additional data that might be needed for full approval.

Got it. And then if I just can squeeze in one more here. It looks like you want to enroll about a hundred subjects, how many sites are you looking at targeting and how quickly do you think you might be able to enroll those hundred subjects? I know there's a lot of unmet need here and this is pretty much part of the standard-of-care anyway. So a little color on that would be great. And that's my last one. Thank you.

Certainly, we are working with the several care wells in the NTM fields in the United States, and we expect to be able to enroll the full cohort currently planned for a 100 patients within a year from initiation of the study. So that is the current expectation. And we have a lot of excitement from the clinical sites that that hope to have the participation in this study once it's initiated.

Great. Thank you. Congrats on all the progress.

Thank you.

Thank you. Your next question is from Steve Brozak from WBB. Please ask your question.

Hi. Good morning. Thanks for taking the questions and obviously congrats on all the progress that's being made. I'll just ask two questions then hop back in the queue. The first one is, I know you can't give us details on insurance, but you can probably tell us what the conversations have been in the receptivity has been so far. And what are your thoughts in terms of coverage on this? And again, I know it's too early for details, but what are you seeing? And then one more question after that please.

Thank you, Steve. Good to have you with us today. Managed care is a top priority for us when it comes to strategy. Fortunately for us, we have been on the field for two years now with several FDA approval products. Therefore, our managed care team is in front of the payer constantly. And during those meetings, typically you also do so-called pipeline review. So you're generally talked about what the company is walking on when it comes to R&D. And the message from the payer is very clear that this is a high unmet need and there are very eager to explore without the right managed care approach here, which we are currently doing. I would also mention that we are hiring as we speak, the top experts in the field into our senior commercial management team. I hope this helps.

Great. No, no, it's exactly what you would look for on – on the launch of a product. Last question and again, I'll hop back in the queue. On the rifabutin side, how familiar are the gastroenterologists that you've worked with and how familiar do you believe the rest of the gastroenterology field is going to be in understanding the impact that TALICIA will have on treating H. pylori and resistant H. pylori? How comfortable are they in terms of – what you presented so far? What's your feedback? And again, I'll hop back in the queue. Thank you.

Thank you. Rifabutin is currently primarily used for Mycobacterium avium complex in HIV patients. TALICIA is indeed if approved, the only rifabutin based therapy. The challenge that we are tackling successfully as it seems with the TALICIA is how to overcome the resistance that is growing vis-à-vis existing antibiotics used in existing combination. Rifabutin in our confirmatory Phase III study was shown to have zero resistance from H. pylori, zero. By contrast, in our study the data we generated points to 40% or more or 20% or so depending on which antibiotic you look of resistance to existing antibiotics. What we have been doing among other things is, we have conducted a service, we talk to the GI specialist and to primary care physicians about H. pylori as a whole about the results that we had and what they think about them and generally about the profile of the product if and when approved by FDA. The message is overwhelmingly positive vis-à-vis TALICIA as the new next generation standards-of-care for first line treatment of H. pylori provided approved by FDA, which we expect in the fourth quarter of this year given what we know to date. I hope this helps.

No, no, it's exactly the answer that you would look for. Again, congrats and I'll hop back in the queue. Thank you, gentlemen.

Thank you, Steve.

Thank you. Your next question is from the line of Matt Kaplan from Ladenburg. Please go ahead.

Hi, good morning. Thanks for taking the questions. Dror, I just wanted to follow-up on the TALICIA with respect to the potential competitive landscape from other treatments out there once in TALICIA is approval later this year. How do you think TALICIA will be positioned in the market and how you position it from a commercial point of view?

Thank you, Matt. TALICIA is intended to be indicated for first line H. pylori therapy. It is the only one that's intended for that indication. As you know current treatments are indicated for H. pylori associated with ourselves or history of ourselves. There's no product approved for first line H. Pylori treatment as such with no surrogate. That's the first differentiator, assuming we are approved by FDA. Secondly, when it comes to our efficacy or two Phase III studies in hundreds of patients, all of them in the U.S. demonstrated a robust results with extremely high statistical significance, extremely low p-values as well as resistance data demonstrating the TALICIA as the only rifabutin based therapy, if approved an extremely attractive value proposition. There are of course, many other factors, but the key one are as always deliver efficacy and safety. All three of them, TALICIA of course it seems extremely well vis-à-vis competition and we are now in the hands of FDA for approval and timing of approval.

Thank you, Dror. That's very helpful. And then just last question, in terms of pipeline. You mentioned in your press lease BEKINDA RHB-102 you're planning for a launch of a confirmatory Phase III. Can you give us a little bit more detail in terms of what that Phase III would look like and kind of timelines there?

Sure Matt. The PR refers to BEKINDA for gastroenteritis, which already succeeded in a Phase III study in over 300 patients, all of them in the U.S. We are very excited about this program from what we know so far, they seem to be probably 100 million cases of gastroenteritis in the U.S. alone. So it's a large potential market and unmet need, FDA has been a very positive when it came to this indication and BEKINDA. Therefore we are decisive about conducting this confirmatory Phase III study. About the design and the general plan this has been discussed with FDA already, but I’ll refer to Gilead to add color if he thinks it's [indiscernible].

Thank you, Dror. Just to add a bit of color. We spoke with the agency and it seems to be acceptance on a single confirmatory study to follow-up on the study that was successful. Several hundred of patients probably a little bit larger than the study that we conducted and similar endpoints, similar population, so we feel it's an excellent study to get us through the NDA filing stage. We still have a few discussions with the FDA about the pediatric study plan and once we complete that we should be able to continue with the whole program.

Thanks for the added detail.

Thank you, Matt.

Thank you. Your next question is from the line of Jonas Peciulis from Edison Research. Please go ahead.

Hi. Congratulations for the today's announcements of NDA submission. That's a good progress. Now just to follow-up on TALICIA’s commercial readiness. As you said, obviously it's in focus this year. You already talked a lot about it. What about manufacturing gets scale, is that in place all the necessary arrangement for that? And also when do you expect to really change the deal from TALICIA’s pricing kind of your gross margin?

Thank you, Jonas. Good to have you with us. I’ll refer to Gilead about manufacturing and Guy will talk about pricing.

Thank you, Dror. Thank you, Ed. We are fully ramped up in terms of the manufacturing facilities. We have completed manufacturing, of course, the registration batches at the GMP facility in Europe, and that was submitted as part of the NDA, which we announced today with long-term, over 12 months stability data. And we already in the process of scaling up for commercial batch manufacturing and we are preparing for having that material available for the launch, which would be expected after the PDUFA as early as Q4 of this year as previously announced. I’ll let Guy discuss the pricing.

Thank you. As far as your question on the pricing gross margin, that's something that we're now in the process of determining how the pricing should look through payer research and that along with the manufacturing work that Gilead is referring to it also provide us our gross margin. However, we're not in a position right now to provide any estimates on either one.

Yes. Thank you. Thank you for that. One question about financials, specifically gross margin in this quarter apparently, if I'm correct, it's all time high, and it keeps increasing. So just my question is what should we still [indiscernible] as a sustainable gross margin going forward? Does it probably depends on product mix? So I was wondering whether gross margin in last year, whether that’s [indiscernible] coming in 2019 maybe 10% to 20% or you expect uptick from last year, which is I think just above 60%?

Thank you, Jonas. So right as you said, we have a mix of few products and whenever those that we promote rather than those that we commercialize, increase the gross margin, increase in – this is the case in this quarter. We had an increase in the products that in which we promote that and tail higher gross margin.

Okay. Okay, thank you. Just last one also on the financials. So we've been now practically one cycle in since your commercial launch of the commercial portfolio, so by that I mean several quarters and specifically my question is, have you noticed any seasonality effects? So there's been this uptake and this Q1 versus Q4 last year? Is this a potential sign of [indiscernible] still quite early, but just something additional piece for modeling from outside?

Jonas, Guy will take this one.

Thanks. We haven't seen anything out of the ordinary. There's – does some to be some Q1 affect you to deductibles and things like that. And then of course, the holidays that happen in December, thanksgiving and Christmas, those all to have seemed to have some small effect, but there's no major seasonality there were observing relating to the drug or anything were that – it's market specific to what we're doing.

Okay. That's great. Thank you.

Thanks, Jonas.

Thank you. Your next question is from the line of Ed Woo from Ascendiant Capital. Please go ahead.

Yes. Congratulations. And my question is, once you guys – do you assuming you get the FDA approval for TALICIA, has that changed your co-promotion strategy with the products that you currently have right now?

Thank you, Ed. Guy would take this one.

Thanks. We think the products are nicely complimentary. The focus in GI and some other high prescribing physicians, all of these products are focused to the same type of high prescriber. So we think there's a lot of complimentary aspects to them that would be helpful. And it's always good to have more than one product in the bag from assume salesforce perspective and other touch point to be able to get into a doctor's office and meet and be able to expand the voice of the rep and the awareness of what RedHill is doing. So we see these things as complimentary.

From the press release, did you change one of your products, because it sounds like there's only three products that are currently called co-promoting?

Yes. You’re reading very carefully. Well done. Yes, we are currently promoting four products, but we do expect minor changes between now and the launch of TALICIA with potentially one of the smaller product in material to the financial then in any way.

Great. Well, thank you. And good luck.

Thank you.

Thank you. [Operator Instructions] And we will take our next question comes from the line of Sean Lee from H.C. Wainwright. Please go ahead.

Good morning, guys. And thank you for taking my question. My first question is on a RHB-104 for the treatment of Crohn's disease. I was just wondering whether you've had any feedback from the regulators so far or discussions with KOLs on what a potential face – a confirmatory Phase III will look like. Maybe you can give us a little color on the size of the timing of this study.

Thank you, Sean. Yes, for lack of time we didn't dive into it in the script itself. But RHB-104 for Crohn's remain one of our top priorities flagship product with a very strong results across the board in the Phase III study that we completed last year. We did not have discussions with the FDA yet to answer your question about the data. We do intense and full steam ahead preparing for an FDA meeting that will take place in the second half of the year. And our plan is to propose a confirmatory Phase III study that we’ll constitutes a path to approval and we hope that the FDA will agree with our direction. Currently we're putting a lot of effort into finalizing our pockets for the FDA meeting to make sure it goes as well as one would expect again. The data of the more we dive into it the more we like it, safety data is very appealing, the efficacy data in pretty much all key parameters is excellent and we feel very good about the drug demonstrated efficacy in our Phase III study. I hope this answers your question.

I see, thank you for that. My second question is on your commercial portfolio. What kind of growth can we expect from that this year? And are there any product that we should pay attention to?

Thanks. We have not given any guidance. And as far as the portfolio, we’re the two major products that are – I think most driving growth right now are EnteraGam, Donnatal and but all the products in our portfolio have potential, Mytesi as well and will be continued to put an effort into all of them. Thank you.

I see kind of thanks for taking my questions.

Thank you, Sean.

Thank you. [Operator Instructions] We have not received any further requests. Please continue.

Thank you, Arena. Thank you everybody for joining us today. We will remain available to answer any questions you might have. Have a great day.

Ladies and gentlemen, this does conclude your conference for today. Thank you very much for participating. You may now all disconnect. Enjoy your day.