RedHill Biopharma Ltd. — FY2018 Form 20-F
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone Q4 filing; it also presents unaudited quarterly results. Financial statements are prepared under IFRS and presented in U.S. dollars. RedHill is an Israel-based specialty biopharmaceutical company focused primarily on gastrointestinal diseases, with seven clinical-stage candidates and U.S. promotion or commercialization rights for four products.
Financial performance and position
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $8.36 million | $4.01 million |
| Cost of revenue | $2.84 million | $2.13 million |
| Gross profit / gross margin | $5.52 million / 66% | $1.88 million / 47% |
| Research and development expense | $24.86 million | $32.97 million |
| Selling, marketing and business development expense | $12.49 million | $12.01 million |
| General and administrative expense | $7.51 million | $8.03 million |
| Operating loss | $39.33 million | $51.97 million |
| Net loss | $38.82 million | $45.54 million |
| Basic loss per ordinary share | $0.17 | $0.26 |
| Cash used in operating activities | $34.46 million | $44.77 million |
| Cash, cash equivalents, bank deposits and financial assets at fair value | $53.19 million | $46.21 million |
| Working capital | $46.41 million | $39.85 million |
| Total assets / total liabilities | $62.41 million / $11.23 million | $57.34 million / $12.28 million |
Revenue comprised $4.67 million from EnteraGam commercialization and $3.69 million from promotional services. Donnatal contributed $3.5 million of promotional revenue; EnteraGam contributed $4.7 million; Esomeprazole Strontium contributed $0.2 million; Mytesi revenue was immaterial. No material conventional borrowings are identified in the financial statements provided; liabilities included accounts payable and accruals, a $0.34 million derivative liability, and a $0.50 million royalty obligation. Lease commitments were approximately $1.85 million.
For Q4 2018, unaudited revenue was $1.36 million, operating loss $10.04 million and net loss $7.68 million. Revenue was below Q3 2018’s $2.21 million; the filing does not explain the quarter-to-quarter change in detail.
Material changes versus prior periods
- Revenue more than doubled year over year, reflecting the expansion of U.S. commercial activities; gross margin rose from 47% to 66%.
- Operating loss narrowed by $12.64 million. R&D expense declined by $8.11 million, which management attributed mainly to cost reductions and completion or winding down of certain studies.
- Net loss improved by $6.72 million, but financial income fell from $6.43 million to $0.51 million, mainly because the prior year included a substantially larger fair-value gain on derivative instruments.
- Operating cash use decreased by $10.31 million. Financing provided $41.76 million, primarily from two 2018 ADS offerings; net proceeds were approximately $23.5 million in August and $18.4 million in December.
- Issued ordinary shares increased to 283.7 million at year-end from 212.7 million a year earlier, reflecting equity issuance and exercises. Further option and warrant issuance may dilute shareholders.
Outlook, commentary and key risks
- Management said a cost-reduction plan targeted average quarterly operating cash use of about $8.5 million and believed existing resources should fund planned operations for more than 12 months. The company also stated that current working capital would not fund development of all candidates and that additional capital would be needed; financing availability and timing remain uncertain.
- TALICIA’s confirmatory Phase 3 study reported 84% H. pylori eradication versus 58% for the active comparator (p<0.0001). RedHill expected the study to complete the clinical package for a potential FDA NDA submission in the first half of 2019, subject to regulatory feedback.
- RHB-104’s Phase 3 Crohn’s disease study reported remission at week 26 in 37% of treated patients versus 23% on placebo (p=0.007). Results were top-line and subject to further analysis; the filing anticipated additional studies could be needed for an NDA.
- Management planned to initiate a pivotal RHB-204 Phase 3 study for pulmonary NTM in the second half of 2019, subject to supportive non-clinical work and FDA input. BEKINDA’s further development also required confirmatory or pivotal studies.
- Revenue concentration is significant: two customers accounted for 46% and 42% of FY2018 revenue, respectively. The filing does not identify them in the cited text.
- Commercial and regulatory exposures include Donnatal’s unresolved FDA DESI review and risk of market withdrawal; potential FDA challenge to EnteraGam’s medical-food classification; limited reimbursement and competition; and reliance on partners for product supply, manufacturing and regulatory responsibilities. Mytesi co-promotion rights were scheduled to expire in January 2020.
- The company reported an accumulated deficit of $169.1 million and expected continued losses. Clinical, regulatory, manufacturing, partner-performance, intellectual-property, reimbursement, foreign-exchange and geopolitical risks could affect results and funding needs.
- Auditors issued unqualified opinions on the IFRS financial statements and on internal control over financial reporting as of December 31, 2018. Management also concluded disclosure controls were effective at a reasonable-assurance level.
Most important facts for investors to verify
- Whether the anticipated TALICIA NDA submission occurred, and what FDA review, manufacturing or CMC requirements followed.
- Final, independently reviewed RHB-104 results and the FDA-agreed development path, including whether further trials are required.
- Quarterly cash burn, commercial-product revenue and actual runway versus management’s stated expectation of more than 12 months.
- Identity and continuing status of the two customers representing 88% of FY2018 revenue, plus product-level sales, margins and partner economics.
- Whether additional equity, debt or non-dilutive financing was raised, and the resulting dilution and cash balance.
- Developments in the Donnatal DESI process, EnteraGam’s regulatory classification, product supply arrangements and Mytesi co-promotion rights.