RedHill Biopharma Ltd. — FY2022 Form 20-F
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under IFRS as issued by the IASB and presented in U.S. dollars. The filing was signed April 28, 2023.
Business context
RedHill is a specialty biopharmaceutical company focused on gastrointestinal and infectious diseases. In 2022 it commercialized Talicia, Aemcolo and Movantik in the U.S. and continued development of five clinical-stage candidates. On February 2, 2023, after year-end, it transferred Movantik rights to an HCRM affiliate in exchange for extinguishment of all debt obligations under its credit agreement. Talicia and Aemcolo remain its principal commercial products.
Financial performance and liquidity
| U.S. dollars, millions, except per-share data | 2022 | 2021 |
|---|---|---|
| Net revenue | $61.8 | $85.8 |
| Gross profit | $28.5 | $36.4 |
| Gross margin | 46.1% | 42.4% |
| Operating loss | $(42.8) | $(81.1) |
| Net loss | $(71.7) | $(97.7) |
| Basic and diluted loss per ordinary share | $(0.12) | $(0.21) |
| Net cash used in operating activities | $(29.2) | $(65.0) |
- Revenue included $52.1 million from Movantik, $7.7 million from other product sales and $2.0 million of licensing revenue. Three wholesale customers generated 95% of revenue.
- Research and development expense declined to $7.3 million from $29.5 million; selling and marketing expense was $35.4 million versus $55.6 million; general and administrative expense was $28.6 million versus $32.4 million. Management cited completed trial components and cost-reduction measures.
- Net financial expense increased to $28.8 million from $16.6 million. The 2022 figure includes a $29.3 million borrowing adjustment after the debt was classified as immediately due, partly offset by $13.4 million in fair-value gains on derivative instruments.
- At year-end, cash and cash equivalents were $20.0 million, bank deposits $8.5 million, and restricted cash $16.2 million. Elsewhere, the filing reports aggregate cash, cash equivalents, short-term investments and restricted cash of approximately $36.1 million; the figures do not reconcile clearly in the supplied filing text and should be checked against the statements and notes.
- Borrowings of $115.2 million were classified as current at year-end following alleged credit-agreement defaults. Total liabilities were $207.3 million and equity was negative $48.4 million. The February 2023 transaction extinguished the credit-agreement debt, but RedHill retained substantially all Movantik pre-closing liabilities, estimated at approximately $51 million.
- Auditors and management disclosed substantial doubt about the company’s ability to continue as a going concern, citing insufficient funding for operations for the next twelve months from the filing/financial-statement date. The statements were prepared on a going-concern basis.
Material changes and unusual items
- Revenue fell $24.0 million year over year, primarily reflecting higher gross-to-net allowances, mainly for Movantik. The company’s primary revenue source was subsequently sold in February 2023.
- HCRM asserted defaults in September 2022, took control of $16 million of company cash as collateral, and the company later failed additional sales covenants and debt-service payments. The definitive February 2023 agreement exchanged Movantik rights for extinguishment of the credit-agreement obligations. The $16 million was placed in escrow for retained pre-closing liabilities; Movantik receivables and certain Talicia- and Aemcolo-related assets also secure specified obligations pending release conditions.
- The company restated its March 31, 2022 interim financial statements because an error in calculating revenue deductions overstated revenue; cost of revenue was adjusted accordingly. The year-end allowance for revenue deductions was $47.9 million, and the auditor identified its estimation as a critical audit matter.
- Internal control over financial reporting and disclosure controls were ineffective at December 31, 2022. The material weakness involved inadequate controls and staffing for calculating revenue deductions. Management was undertaking remediation; the auditor also concluded controls were ineffective.
- Net loss improved from 2021, but the company remained loss-making, with an accumulated deficit of $433.9 million. The 2021 comparison included an $8.9 million Aemcolo intangible-asset impairment; no impairment of intangible R&D assets was recorded in 2022.
Outlook, commentary and key risks
- No quantified company-wide financial guidance is provided. Management says additional capital is needed and may be difficult to obtain; financing could be dilutive. It is seeking to replace Movantik with another commercial product, but gives no assurance this will happen or restore prior revenue levels.
- Talicia and Aemcolo sales may not cover operating costs. Aemcolo demand was severely affected by reduced travel, while commercial success also depends on reimbursement, market acceptance and third-party manufacturing. Aemcolo has required pediatric postmarketing studies, with FDA-approved extensions to January 2025 for study completion and December 2025 for reports.
- Pipeline outcomes remain uncertain. RHB-204’s Phase 3 NTM study had slow enrollment. Opaganib’s global Phase 2/3 COVID-19 study did not meet its primary endpoint; favorable subgroup analyses were post hoc or otherwise not definitive. RHB-107’s COVID-19 Phase 2 results were described as promising but were not powered to establish efficacy. Further regulatory guidance or trials may be required.
- The $6.5 million Kukbo-related payments—$5.0 million under a subscription agreement and $1.5 million under an opaganib license—were disputed and subject to litigation and counterclaims; collection is uncertain.
- Other risks include heavy customer concentration, secured claims over remaining product-related assets, potential dilution and Nasdaq listing compliance, clinical and regulatory uncertainty, dependence on third-party manufacturers, and political/security conditions in Israel. The ADS-to-ordinary-share ratio changed in March 2023 from 1:10 to 1:400.
Important facts for investors to verify
- Reconcile the filing’s approximately $36.1 million aggregate liquidity disclosure with the balance-sheet components and determine what cash is unrestricted and accessible.
- Review the February 2023 HCRM transaction documents, retained Movantik liabilities, escrow balance and conditions for releasing liens on Talicia- and Aemcolo-related assets.
- Assess current cash burn, financing needs, runway and any subsequent financing or dilution; the filing’s going-concern warning is central.
- Check the status of remediation for the revenue-allowance material weakness and review the March 2022 interim restatement and $47.9 million year-end allowance estimate.
- Track commercial revenue after the Movantik transfer, including Talicia performance, Aemcolo demand and reimbursement, and any replacement-product plans.
- Monitor the Kukbo litigation and collectability of the disputed $6.5 million, alongside key trial and regulatory milestones for the remaining pipeline.