RedHill Biopharma Ltd. — FY2023 Form 20-F
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under IFRS as issued by the IASB; amounts below are U.S. dollars unless noted.
Business context
RedHill is a specialty biopharmaceutical company focused on gastrointestinal and infectious diseases. Its U.S. commercial products at year-end were Talicia for adult H. pylori infection and Aemcolo for adult travelers’ diarrhea; its pipeline comprised five therapeutic candidates. On February 2, 2023, the company transferred its Movantik rights to an HCRM affiliate in exchange for extinguishment of debt obligations, materially reducing its revenue base and commercial scale.
Financial performance and position
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net revenue | $6.5 million | $61.8 million |
| Gross profit | $3.1 million | $28.5 million |
| Gross margin | 47.0% | 46.1% |
| Research and development expense | $3.5 million | $7.3 million |
| Selling and marketing expense | $14.8 million | $35.4 million |
| General and administrative expense | $16.2 million | $28.6 million |
| Operating income (loss) | $12.6 million | $(42.8) million |
| Net income (loss) | $23.9 million | $(71.7) million |
| Adjusted EBITDA (non-IFRS) | $(28.3) million | $(29.0) million |
| Net cash used in operating activities | $(35.8) million | $(29.2) million |
Revenue fell primarily because Movantik sales ceased after the divestiture. Talicia U.S. product sales increased from $7.7 million to $9.1 million in the financial-statement note; the MD&A separately states Talicia net revenues of $8.8 million, so the filing does not provide a clear reconciled value. FY2023 total revenue also included approximately $2.6 million of negative Movantik contra-revenue, mainly returns. The reported gross margin increased slightly, but the business remained loss-making on an adjusted EBITDA and operating-cash-flow basis.
FY2023 net income included $44.1 million of other income, including a $35.5 million accounting gain on the Movantik asset transfer and $8.6 million for transition services. Financial income included a further $20.6 million gain on extinguishment of HCRM debt. These transaction-related gains, rather than recurring operating performance, were central to the reported profit.
At December 31, 2023, cash and cash equivalents were $5.6 million; restricted cash was approximately $0.9 million, including $0.8 million in the Movantik escrow. Total assets were $23.0 million, total liabilities $21.0 million, and equity $2.1 million. Current assets of $16.1 million were below current liabilities of $19.2 million. Borrowings were zero at year-end following debt extinguishment, but $4.8 million of retained Movantik pre-closing liabilities remained estimated, and certain obligations are secured by liens on Talicia- and Aemcolo-related assets. The filing reports $35.8 million of operating cash outflow and $21.4 million of financing cash inflow for 2023.
Material changes and outlook
- Movantik’s sale eliminated the company’s primary revenue source. The remaining commercial business is centered on Talicia; RedHill says it does not expect Aemcolo to generate meaningful revenue.
- Management and the auditor state that substantial doubt exists about the company’s ability to continue as a going concern. Management says year-end resources plus January and April 2024 offering proceeds would not fund current liabilities and capital expenditure requirements for more than one year from the report date. Additional financing, commercial sales or a strategic transaction is needed; none is assured.
- Management is discussing strategic transactions, including possible asset divestitures, but gives no assurance they will be completed. No quantified operating guidance is provided.
- Research and development expense declined as COVID-19/RHB-107 trials were completed and costs were reduced. The Phase 3 RHB-204 pulmonary NTM study was terminated in 2023 because of low enrollment. RHB-107 is being evaluated in a U.S. government-funded outpatient COVID-19 platform study; opaganib programs include oncology, infectious disease and radiation-countermeasure research. Development timelines, approvals and commercial outcomes remain uncertain.
- Post-year-end financings raised gross proceeds of approximately $8.0 million in January 2024 and $1.25 million in April 2024, before expenses. They involved ADSs and warrants and therefore may dilute existing holders.
- The company received a Nasdaq notice in March 2024 for a bid price below $1.00 per ADS, with an initial compliance period through September 9, 2024.
Risks, controls and contingencies
- The independent auditor issued an unqualified opinion on the IFRS financial statements, but an adverse opinion on internal control over financial reporting. A material weakness concerning controls over the calculation of revenue deductions and rebates remained unremediated at December 31, 2023; the weakness had contributed to prior-period misstatements.
- Talicia and Aemcolo-related assets secure certain surviving obligations to HCRM. A default or insolvency could put the remaining commercial assets and revenue at risk. The company also may not regain access to any residual escrow funds until permitted under the escrow agreement.
- A lawsuit against Kukbo seeks $5.0 million under a subscription agreement and $1.5 million under a license agreement; Kukbo has asserted counterclaims. The filing gives no assurance of recovery or outcome.
- Aemcolo has required pediatric postmarketing studies, with extended completion deadlines in 2025; failure to meet applicable requirements could lead to regulatory action. RHB-104 development depends in part on availability of a MAP diagnostic test.
- Other key risks include continuing losses and financing needs, product acceptance and reimbursement, third-party manufacturing and supply dependence, clinical and regulatory failure, dilution, potential Nasdaq delisting, Israel’s security situation, and competition.
Important facts for investors to verify
- Cash runway and near-term obligations, including the remaining Movantik liabilities, escrow restrictions and conditions for release of liens on Talicia/Aemcolo assets.
- Whether the company can obtain additional financing or complete a strategic transaction on terms sufficient to sustain operations.
- The reconciliation of reported Talicia revenue figures and the sustainability of Talicia sales after the loss of Movantik.
- Progress in remediating the revenue-deduction internal-control material weakness and whether future filings report effective controls.
- Nasdaq bid-price compliance and the potential dilution from outstanding and newly issued warrants, options and other securities.
- Developments in the Kukbo litigation, Aemcolo pediatric studies, and the funded RHB-107 study, including whether these produce cash, regulatory progress or additional costs.