RedHill Biopharma Ltd. — FY2020 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2020. 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 auditor issued unqualified opinions on the financial statements and internal controls.
Business context
RedHill is a specialty biopharmaceutical company focused on gastrointestinal and infectious diseases. Its U.S. commercial products were Movantik, Talicia and Aemcolo; it also had six clinical-stage therapeutic candidates. FY2020 included the launch of Talicia and the acquisition and commercialization of Movantik.
Financial performance and liquidity
| Metric (US$ millions, except per-share data) | FY2020 | FY2019 |
|---|---|---|
| Revenue | 64.4 | 6.3 |
| Cost of revenue | 36.9 | 2.3 |
| Gross profit / margin | 27.5 / 42.7% | 4.0 / 64.1% |
| Research and development expense | 16.5 | 17.4 |
| Selling, marketing and business development expense | 49.3 | 18.3 |
| General and administrative expense | 25.4 | 11.5 |
| Operating loss | 63.7 | 43.2 |
| Net loss | 76.2 | 42.3 |
| Basic loss per ordinary share | $0.21 | $0.14 |
| Cash used in operating activities | 48.6 | 40.7 |
| Cash used in investing activities | 35.6 | — |
| Cash provided by financing activities | 84.4 | 35.5 |
Revenue rose sharply, chiefly because Movantik generated $59.4 million; other revenue was $5.0 million. Commercial growth was accompanied by substantially higher selling and administrative costs. Gross margin fell, mainly due to Movantik royalties and amortization. Net financial expense was $12.5 million, largely reflecting borrowing-related costs.
At year-end, cash and cash equivalents were $29.3 million, restricted cash $16.2 million, bank deposits $0.017 million and financial assets at fair value $0.5 million. The filing also describes total cash, cash equivalents, short-term investments and restricted cash of approximately $46.0 million. Current assets of $70.5 million were below current liabilities of $73.2 million. Accumulated deficit was $280.3 million.
Borrowing had a carrying value of $81.4 million at year-end. The facility’s contractual undiscounted borrowing cash flows were $136.2 million; this figure includes future interest and other contractual amounts and is not equivalent to principal outstanding. The company reported total liabilities of $166.4 million and total equity of $13.9 million.
Material changes versus FY2019
- Revenue increased from $6.3 million to $64.4 million, principally following the Movantik acquisition and Talicia launch.
- Commercial expansion drove higher operating expenses: selling, marketing and business development expense rose to $49.3 million from $18.3 million, and G&A to $25.4 million from $11.5 million.
- Operating loss widened to $63.7 million from $43.2 million; net loss widened to $76.2 million from $42.3 million.
- Operating cash use increased to $48.6 million from $40.7 million. Investing cash use was $35.6 million, including the Movantik acquisition; financing cash inflow was $84.4 million, primarily from loan proceeds and equity issuance.
- Trade receivables rose to $28.7 million from $1.2 million, while the allowance for revenue deductions increased to $18.3 million from $1.3 million.
Outlook, risks and unusual items
- Funding and debt: Management said existing capital resources should fund current and planned operations for at least 12 months, but also said resources were insufficient to complete development of all candidates and fully support commercial operations through sustainable positive cash flow. The company expected continued losses and anticipated needing additional financing. Subsequent to year-end, it reported net proceeds of $23.1 million from a January 2021 offering and $34.8 million from March 2021 offerings. These financings are post-period events, not FY2020 cash.
- Loan terms and constraints: RedHill borrowed $80 million under a facility of up to $115 million. The loan bears interest at three-month LIBOR plus 8.2%, reduced to 6.7% from April 1, 2021, subject to a 1.75% floor; maturity is February 2026. HCRM also receives a 4% revenue interest, capped at $75 million of annual net revenue, for nine years beginning in 2021. The facility is secured by substantially all RedHill U.S. assets, Talicia-related assets and RedHill U.S. equity, and imposes liquidity, sales and operational covenants. $16 million was restricted under the facility at year-end.
- COVID-19: Reduced office visits and travel affected product promotion and demand, particularly Aemcolo. The filing reported no significant supply-chain disruption at year-end, but warned that prolonged pandemic effects could affect sales, trials, enrollment and regulatory timelines. Aemcolo’s pediatric postmarketing studies and the Movantik cardiovascular safety study remained obligations; Movantik study enrollment was slow.
- Development uncertainty: Opaganib and RHB-107 were being studied for COVID-19, with no assurance of efficacy, authorization or commercial success. The U.S. opaganib Phase 2 study was small and not powered for statistical significance. RHB-104 showed QTcF prolongation in its Crohn’s disease study; further regulatory guidance and potentially additional studies were expected. Development of a MAP diagnostic was also uncertain.
- Product and legal exposure: Aemcolo recorded a $0.8 million impairment in 2020 due to reduced travel-market expectations. RedHill assumed Movantik-related ANDA litigation and disclosed a separate patent-infringement complaint filed by Aether Therapeutics in February 2021; the company said it would defend the claims and could not estimate the potential loss. Movantik patent litigation could affect exclusivity and economics.
- Revenue-estimation judgment: The auditor identified rebate allowances as a critical audit matter. The $18.3 million year-end allowance depends on estimates of channel inventory and rebate-program utilization.
- Other: RedHill reported no dividends and said its credit agreement prohibits them. Management concluded internal control over financial reporting was effective at December 31, 2020.
Most important facts for investors to verify
- Reconcile reported liquidity, restricted cash and the near-term cash requirements under the HCRM facility; assess covenant headroom and future debt payments.
- Track product-level sales, gross margins, rebates and returns, especially the concentration of revenue among three wholesale customers and the large receivables balance.
- Review the terms and use of proceeds from the January and March 2021 equity offerings, including potential dilution and remaining financing needs.
- Monitor Movantik patent and Aether litigation, postmarketing study progress, and the status of Aemcolo pediatric study commitments.
- Assess clinical and regulatory updates for opaganib, RHB-107, RHB-204 and RHB-104, including the QT-prolongation findings and MAP diagnostic uncertainty.