RedHill Biopharma Ltd.
Q2 2018 Earnings Call Transcript

Published: 30 Aug 2018

[Operator:]

Good day and welcome to the RedHill Biopharma Second Quarter 2018 Financial Results Conference Call. At this time, I’d like to introduce the conference call 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. We will also be having a question-and-answer session during today’s conference call. Before we begin, we will read from RedHill Safe Harbor statement. Please go ahead.

[Alexandra Okmian:]

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 U.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.

[Dror Ben-Asher:]

Thank you, Alexandra. Good day, everyone and thank you for joining us. In order to leave sufficient time to answer your questions, the plan for today is to briefly discuss our second quarter results. And then focus on our Phase III program with RHB-104 for Crohn’s disease and the confirmatory Phase III study with TALICIA for H. pylori infection. Our financial spending is solid as we remain debt free with approximately $43 million total cash on hand, especially considering our steadily declining cash burn, down to just under $8.5 million in the second quarter of 2018 well in accordance with our cost reduction plan. The RedHill team remains focused on successful execution. We are increasingly excited by the robust topline results from the groundbreaking MAP US Phase III study with orally administered RHB-104 for Crohn’s disease, which convincingly met both its primary and key secondary endpoints. This randomized double blind placebo controlled Phase III study enrolled 331 subjects who were randomized 1

[Micha Ben Chorin:]

Thank you, Dror. Good morning, good afternoon everybody. I will provide an overview of our financial results for the second quarter of 2018, but first is a short summary. Our balance sheet is now solid and debt free with almost $28 million in cash of June 30, 2018 and current cash on hand of approximately $43 million. We're seeing steadily decrease in operating expenses, in operating loss and in net cash used in operating activity, which all compared favorably with previous periods and the guidance we've provided in late 2017. The operating burn rate of $8.4 million in the second quarter is the lowest quarterly burn rate we've seen in the last seven quarters. Our net revenues of $2.4 million and gross profit of $1.6 million of this quarter are compared favorably with $0.5 million and $0.2 million of Q2, 2017 last year. I will now analyze in more detail the main line items. Net revenue for the second quarter of 2018 was $2.4 million compared to $0.5 million in the second quarter of last year. The increase was due to the advancement of promotional activities for Donnatal and EnteraGam and the initial promotion of Esomeprazole Strontium Delayed-Release Capsules 49.3 milligrams in late 2017. Gross profit for the second quarter of 2018 was $1.6 million compared to $0.2 million in the second quarter of 2017. Gross margin increased to 69% for this quarter from 44% in the second quarter of 2017. Research and development expenses for this quarter was $6 million, a decrease of 28% from $8.4 million for the second quarter of last year. The decrease was mainly due to the initiation of our cost reduction plan. The completion of patient treatment for primary endpoint assessment in the Phase III study with RHB-104 for Crohn's disease and completion of the Phase III and phase II studies with BEKINDA RHB-102 for gastroenteritis and IBS-D, respectively. Selling and marketing and business development expenses for the quarter were $3.1 million, a decrease of 7% from $3.4 million in the second quarter of 2017. The decrease was due to the continued implementation of our cost reduction plan and optimization measures. General and administrative expenses for the second quarter of 2018 were fairly flat year-over-year at $2 million. Operating loss for the quarter was $9.6 million, a decrease of 29% from $13.5 million for the second quarter of last year. The decrease was due to the improvement in net revenues and gross profit and a decrease in operating expenses by 19%. Net cash used in operating activities for the quarter was $8.4 million, a decrease of 14% from $9.7 million for the second quarter of 2017. The decrease was mainly due to the advancement of the company's clinical development programs and overall optimization of the Company's operations. Cash balance as of June 30, 2018 was almost $28 million. Following the closing of our $25 million underwritten offering on August 14 this year, our cash balance as of today August 30, 2018 is approximately $43 million. I will now turn the discussion back to Dror and we will be happy to take questions later on. Thank you.

[Dror Ben-Asher:]

Thank you, Micha. RedHill is a revenue generating specialty pharma company with a strong development by plan. We're focused on the U.S GI market and our commercial operation headquartered in Raleigh, North Carolina is already responsible for promoting four GI products to thousands of GI call points across the United States with a strong focused and highly motivated sales force of 40. We are establishing RedHill's strong presence within the U.S GI community and are setting the stage for the potential U.S launch of RedHill's own potential blockbuster drugs, including the potential commercial launch of TALICIA for H. pylori infection in 2019, if approved. On July 30, 2018, we announced positive top-line safety and efficacy results from the first Phase III study with orally-administered RHB-104 for Crohn’s disease. The study was called the MAP US study. The study successfully met both its primary endpoint and key secondary endpoints. The randomized, double-blind, placebo-controlled first Phase III study enrolled 331 subjects. Subjects were randomized 1

[Operator:]

Thank you. [Operator Instructions] We will now take our first question from Scott Henry from ROTH Capital. Please go ahead.

[Scott Henry:]

Thank you and good morning. Just a couple questions. First, with regards to the Crohn's data, when would you expect to have expanded presentation of that data including possibly the background medications between active and the placebo arm?

[Dror Ben-Asher:]

Thank you, Scott. We analyze data as it comes. It will take time. Some of these analysis is outside our control. We're pushing as fast and as hard as possible and expect to be able to release additional data as it comes in the coming months. That said, the most important by far data is already out. And as you know primary endpoint, the key secondary endpoints that has been met convincingly with a healthy P value. Whatever comes next, we will do as quickly as possible, but it will take time.

[Scott Henry:]

Okay. Fair enough. And I don't recall, did you mention when you expect to meet with the FDA with regards to this program?

[Dror Ben-Asher:]

Not yet, but it will be in the coming months, probably sometimes Q1, maybe early Q2.

[Scott Henry:]

Okay. And then shifting gears, could you talk about Mytesi? Hopefully I’m pronouncing that correct. And what sort of revenue contribution we could think about for that product, that co-promote?

[Dror Ben-Asher:]

We don't know. IMS data is already delayed and we only launched late July. The potential market size that was announced by our partner is significant. It remains to be seen what the actual potential is in the GI community. We are focused primarily on GI especially. Probably a quarter or two before, we are able to have any visibility.

[Scott Henry:]

Okay. And then just kind of finishing up with, the marketed products were somewhat flat from Q1 to Q2. Would you expect us to see more pronounced growth in the second half of '18? And I guess ultimately the first target for a marketing organization would be gross profit being greater than selling expenses. At what point would you expect to see gross profit kind of outweighing selling expenses for your marketing division?

[Dror Ben-Asher:]

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

[Guy Goldberg:]

Thanks for the question, Scott. Our trends are up. There are some quarters that will be more successful than others, but the overall trend is very strong and solid, and we expect to see continued growth into the future both in terms of gross profit and net revenue. We’ve not given guidance on when we will achieve that calculation that you mentioned where gross profit is greater than expenses. But that's in our sights and that’s where we’re focused on.

[Scott Henry:]

Okay. Thank you for the additional color and thank you for taking the questions.

[Operator:]

We will now take our next question from Matt Kaplan from Ladenburg Thalmann. Please go ahead.

[Matthew Kaplan:]

Hi. Good morning, guys.

[Dror Ben-Asher:]

Morning.

[Matthew Kaplan:]

Good morning. Yes, I just wanted to -- with the near-term, I guess, milestone in terms of TALICIA Phase III data from ERADICATE Hp2 study. Can you give us a little bit of context there in terms of what we should be looking for? Obviously, it's an actively controlled study in terms of what we should be expecting in terms of the data from this study?

[Dror Ben-Asher:]

I will defer this to Gilead, Matt. Gilead is leading this program.

[Matthew Kaplan:]

Thank you.

[Gilead Raday:]

Thank you, Dror. Thanks, Matt. Yes, as Dror mentioned, we’re wrapping up the enrollment phase. And top-line results should be expected in Q4. The focus of the results will be the superiority of the active arm eradication as compared to the comparator arm which is high dose dual therapy. That is the primary endpoint of the study. The evaluation of the primary endpoint is using a gold standard test, the urea breath test. So it's an objective measurement and we should have that data in Q4.

[Matthew Kaplan:]

Okay. Thank you. And can you give us a little bit more sense in terms of what the difference the study is powered to show between the two arms?

[Gilead Raday:]

Yes, we powered the study for difference between the active and their comparator arm of 70% to 83%. And that’s based on data from the labels of dual therapy. So this is the high-end with some margins and that was the [indiscernible] study.

[Matthew Kaplan:]

All right. Thank you. And then just a little bit of follow-up on to Scott's question with respect to 104. Can you give us a sense in terms of what can you tell us, I guess, about the next trial? And what your thoughts are in terms of that -- the design of that study and what would that look like?

[Dror Ben-Asher:]

Yes. Next study will probably be - there's no definite answer, but our thinking is potentially a shorter duration of treatment. We've seen a very nice remission at week 16, so potentially earlier induction of remission, the end point and the design generally is something that’s a little bit too early to discuss given how important FDA feedback is. What I will add though is that if you look at pretty much all approvals of existing Crohn's medications in the last years or in recent times, you see essentially a tool component that are critical. The first is induction of remission. At a period that’s defined by the sponsor. We just discuss that. So this will be 26 or 16 weeks for us. Second, you would need to show durability of remission. Many results that are in remission at the defined primary endpoint time, are followed to see whether they remain in remission all the way to week 52. We have done extremely well on both those fronts in our MAP US study with healthy statistical significance, therefore we're very happy with the results as they relate to the tool component that the FDA cares about.

[Matthew Kaplan:]

Thanks, Dror, for the added detail and congrats on the progress.

[Dror Ben-Asher:]

Matt, we couldn’t hear you?

[Matthew Kaplan:]

I said thanks for the added details, Dror, and congrats on the progress you’ve made on the quarter.

[Dror Ben-Asher:]

Thank you, Matt. Thank you.

[Operator:]

[Operator Instructions] We will now take our next question from Ed Woo from Ascendiant Capital. Please go ahead.

[Edward Woo:]

Yes. Thank you for taking my question. My question is on your existing salesforce and on your current product line. Do you see opportunities to increase the amount of products that you carry for co-promotion? And also about your salesforce, do you feel that [indiscernible] is enough or where you [indiscernible] to expand that?

[Dror Ben-Asher:]

Thank you, Ed. Great question. As far as additional products, absolutely we’re in discussions for additional products, including some with very meaningful revenues already. We are doing our best to secure the best possible deal. So I think we’ve shown that we're capable of doing this again and again. As far as the 40 [ph] strong sales force, we look to increase that over time and the key decision point is of course the results for TALICIA. Assuming the confirmatory Phase III results for TALICIA are positive, we will look to increase the salesforce by a significant number ahead of the commercial launch, if all goes well in 2019. I hope I answered your question.

[Edward Woo:]

Yes, you did. And my last question is on the salesforce, the 40 salesforce that you have, would you consider them as fully ramped, almost ramped or still beginning to ramp up in terms of their productivity?

[Dror Ben-Asher:]

Yes. So, it's a very good question. We expect -- in terms of productivity, we continue to expect sales to increase. So I think they’ve a lot more potential to be productive. I will say that we're very proud of the sales team that we have built. We really spent a lot of time trying to find the best possible sales reps for every territory and it's truly a remarkable group of people. We expect great things from them and we're constantly bringing them new products to launch. So we are very hopeful and optimistic that we will continue to see them increase the amount of bottom line and top-line dollars that they bring into the company.

[Edward Woo:]

Great. Well, thank you for answering my question and good luck. Thank you.

[Operator:]

We will now take our next question from Robin Garner from LifeSci Advisors. Please go ahead.

[Robin Garner:]

Good morning and thank you for taking my question. My first question is regarding the 104 Crohn's trial and whether you have any further detail on the MAP status of patients?

[Dror Ben-Asher:]

Thank you, Robin. The MAP status is not data that we have. It will take time. Also it needs to be -- said again that there's no FDA approved diagnostic for MAP. We are using everything that we are able to gather. We’ve been doing so in collaboration with several highly sophisticated entities, both academic and commercial entities. We will come up with the best possible data. But again, MAP is extremely tricky and we do not know, it will take time to fully receive, understand and make sense of MAP data. The good news is our primary index, our primary endpoint was not related to MAP. It was a standard CDA remission. Crohn's endpoint, we met that in a very healthy way as well as the secondary endpoints that aren't related to MAP. So we’re doing our best. We will do our best and as soon as we have something to report there, you can be rest assured we will report as quickly as possible.

[Robin Garner:]

Okay. Thank you for that. Look forward to seeing that information. And then, additionally, just my final question is regarding YELIVA and whether you have any updates on the multiple ongoing Phase II study addressing patients with cholangiocarcinoma?

[Dror Ben-Asher:]

Thank you, Robin. Our YELIVA study, Phase II study is ongoing in the leading centers in the United States in close cooperation with the leading key opinion leaders in the United States. The study to refresh the listeners memory is aiming to recruit 39 patients. This is one-off, if not the most serious type of concept, and we’re expecting patients that beyond first-line therapy. We do respect to answer your question. We do expect to be able to provide an update in the coming weeks as to the status of the study and what we know, given that it's open-label. We love the product. We feel that this program is of utmost importance. And when you have interactions with the patients and their families, your sense of urgency is heightened even further. It is moving and heartbreaking to the involved in such an indication [ph], such a disease in such patient community. At the same time, it's inspiring and highly, highly motivating for our team. We are doing our best and we will be able to provide an update in the coming weeks. I hope I answered your question.

[Robin Garner:]

Yes. Thank you very much.

[Operator:]

There are no further questions from the telephone.

[Dror Ben-Asher:]

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