RedHill Biopharma Ltd. — 2019 Form 20-F
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone fourth-quarter filing; quarterly figures below are unaudited. Financial amounts are U.S. dollars unless stated otherwise. The financial statements were prepared under IFRS and received an unqualified audit opinion.
Business context
RedHill is an Israel-based specialty biopharmaceutical company focused on gastrointestinal diseases, combining U.S. product commercialization with clinical development. In 2019, it commercialized and promoted products under several arrangements, began U.S. commercialization of Aemcolo in December, and received FDA approval for Talicia in November; Talicia’s U.S. launch was planned for Q1 2020. At year-end, Aemcolo was the only product being commercialized, while six therapeutic candidates remained in development.
Financial performance
| Metric (USD millions, except per-share data) | 2019 | 2018 |
|---|---|---|
| Net revenue | 6.291 | 8.360 |
| Cost of revenue | 2.259 | 2.837 |
| Gross profit / gross margin | 4.032 / 64.1% | 5.523 / 66.1% |
| Research and development expense, net | 17.419 | 24.862 |
| Selling, marketing and business development expense | 18.333 | 12.486 |
| General and administrative expense | 11.481 | 7.506 |
| Operating loss | 43.201 | 39.331 |
| Net loss | 42.304 | 38.820 |
| Basic and diluted loss per ordinary share | $0.14 | $0.17 |
| Net cash used in operating activities | 40.749 | 34.462 |
| Net cash provided by investing activities | 5.164 | 5.352 |
| Net cash provided by financing activities | 35.509 | 41.763 |
Fourth-quarter 2019 unaudited revenue was $1.590 million and net loss was $11.691 million, compared with fourth-quarter 2018 revenue of $1.359 million and net loss of $7.684 million. The filing does not provide quarterly EPS in the supplied text.
Financial position and liquidity
- At December 31, 2019, cash and cash equivalents were $29.023 million, bank deposits were $10.501 million (current and non-current), and financial assets at fair value were $8.500 million. The selected-data presentation reports cash and short-term investments of $47.872 million.
- Working capital was $42.598 million; total assets were $74.099 million, total liabilities $14.097 million, and equity $60.002 million. Accumulated deficit was $208.363 million.
- Year-end liabilities included $3.815 million of lease liabilities. The company had no term-loan borrowing at December 31, 2019; the HCRM facility was entered into after year-end.
- Ordinary shares outstanding rose to 352.696 million at year-end from 283.687 million, principally reflecting the Cosmo transaction and financing.
- IFRS 16 was adopted in 2019 without restating 2018 comparatives. Year-end right-of-use assets were $3.578 million.
Material changes and notable transactions
- Revenue declined 24.7% year over year, which management attributed mainly to competition affecting Donnatal and EnteraGam. Commercial product sales were $3.227 million and promotional-services revenue was $3.064 million.
- R&D expense fell 29.9%, mainly following completion of Talicia’s Phase 3 study and finalization of RHB-104 Phase 3 studies. Selling, marketing and business development expense increased 46.8%, and G&A increased 53.0%, reflecting commercial expansion and preparation for Aemcolo and Talicia.
- In October 2019, Cosmo invested $36.3 million in cash and RedHill issued additional ADSs as the upfront consideration for exclusive U.S. Aemcolo rights. The company recorded the commercialization asset at $11.788 million and agreed to pay Cosmo a royalty in the high twenties on U.S. net sales, plus potential milestones totaling up to $100 million.
- In December 2019, RedHill terminated the Bausch Health license for RHB-106 and regained worldwide rights. It also ended or did not renew several promotional arrangements, including Donnatal and esomeprazole strontium, as it shifted focus to its own commercial portfolio.
Outlook, risks and contingencies
- Management planned a Q1 2020 Talicia launch and continued Aemcolo commercialization. It expected to pursue Movantik commercialization under a February 2020 AstraZeneca sublicense, subject to HSR clearance and other closing conditions; the transaction had not closed as of the filing.
- The February 2020 HCRM agreement provides for a six-year facility of up to $115 million: an initial $30 million tranche, a further $50 million intended to fund the Movantik rights acquisition, and up to $35 million in later tranches subject to conditions. The facility bears variable interest (three-month LIBOR plus 8.20%, subject to a revenue-based reduction), includes revenue-interest payments, fees, minimum liquidity and sales covenants, and is secured by substantially all U.S. subsidiary assets and assets materially related to Talicia. These are post-year-end terms, not year-end debt.
- Management stated that existing capital resources were expected to fund current and planned operations for at least 12 months, but also disclosed that cash was insufficient to complete all pipeline development and fully support commercial ambitions. RedHill anticipated continuing operating losses and may need additional financing; equity financing could dilute shareholders.
- RHB-104’s Phase 3 Crohn’s study showed clinical-remission results favoring treatment, but ECG monitoring showed progressive QTcF prolongation, with the largest reported placebo-corrected increase of 30.6 ms at week 52. RedHill was analyzing the findings and planned further FDA discussions; additional studies may be needed. MAP diagnostic availability and the regulatory path remain uncertain.
- Other material execution risks include product uptake and reimbursement, competition and generic entry, dependence on third-party manufacturers and suppliers, clinical and regulatory outcomes, and completion of required pediatric postmarketing studies for Aemcolo. The filing also identifies possible supply-chain effects from the emerging coronavirus outbreak, including API sourcing and reduced travel-related demand.
- The company reported no significant legal proceedings. It did not pay dividends and did not anticipate doing so in the foreseeable future.
Key investor verification points
- Track cash burn, liquidity and financing availability against management’s stated 12-month funding expectation and the planned commercial and R&D spending.
- Confirm whether the Movantik sublicense closed, which loan tranches were drawn, the upfront payments and royalties incurred, and compliance with HCRM covenants and security provisions.
- Assess Talicia and Aemcolo prescription demand, net sales, gross margins, reimbursement, channel inventory and the effect of product royalties and returns.
- Follow FDA discussions and QTcF safety analysis for RHB-104, the MAP diagnostic program, and the status, cost and results of required postmarketing studies.
- Reconcile share-count growth and potential dilution from outstanding options, future financing, and any subsequent share issuance.