Seeking recurring revenues; two readouts in 2017

RedHill BioPharma 24 May 2017 Update
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RedHill BioPharma

Seeking recurring revenues; two readouts in 2017

Q117 business update

Pharma & biotech

24 May 2017

Price*

US$9.93/ NIS3.55

Market cap

US$169m/ NIS609m

*Priced at 19 May 2017

NIS3.57/US$

Net cash ($m) at end Q117 (including short term investments)

61

Shares in issue

171m

Free float

90%

Code

RDHL

Primary exchange

TASE

Secondary exchange (ADS/share 1:10)

NASDAQ

Share price performance

%

1m

3m

12m

Abs

0.8

0.5

(11.2)

Rel (local)

(0.2)

(0.1)

(23.1)

52-week high/low

US$16.3

US$9.3

Business description

RedHill is a specialty pharma company with a R&D pipeline focusing on GI and inflammatory and gastrointestinal diseases, while earlier-stage assets also target various cancers. The most advanced products are RHB-105 for H. pylori infection, RHB-104 for Crohn’s disease and multiple sclerosis and BEKINDA for gastroenteritis and IBS-D.

Next events

Second DSMB review of RHB-104 Phase

Q217

BEKINDA Phase III for gastroenteritis top-line results III in CD

Mid-2017

BEKINDA IBS-D Phase II top-line results

Q317

Analysts

Jonas Peciulis

+44 (0)20 3077 5728

Juan Pedro Serrate

+44 (0)20 3681 2534

RedHill’s Q117 business update described steady progress on both fronts: the R&D pipeline and planned commercialisation of the two products for gastrointestinal (GI) diseases via co-promotion or in-licensing deals. The initiation of promotional activities is expected in Q217 and data readouts from two mid- to late-stage clinical trials in Q2/Q317 will provide inflection points this year. Our valuation is slightly higher at NIS1.40bn ($378m).

Year end

Revenue ($m)

PBT* ($m)

EPS* ($)

DPS ($)

P/E (x)

Yield (%)

12/15

0.0

(21.1)

(0.19)

0.0

N/A

N/A

12/16

0.1

(29.4)

(0.23)

0.0

N/A

N/A

12/17e

0.1

(39.8)

(0.23)

0.0

N/A

N/A

12/18e

0.8

(36.6)

(0.21)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Financials: Steady R&D progress

RedHill reported $8.1m in R&D costs, a significant 74% jump y-o-y and 9% q-o-q, while G&A expenses were $1.3m, up 44% y-o-y and 12% q-o-q. As expected, increased cash burn was due to increasing clinical trial activities. The company reiterated its guidance that quarterly cash burn in 2017 will stabilise at c $10m; we therefore make no changes to our FY17 estimates. Following a successful $38m fund-raising in December 2016, RedHill ended Q117 with cash reserves of $61m. This implies cash reach well into 2018 and past several mid- to late-stage trial data readouts in Q2/Q317. Two new commercial GI products, Donnatal and EnteraGam, could provide a near-term revenue source.

Two data readouts and recurring revenues in 2017

After in-licensing a second GI product, EnteraGam, RedHill now plans to start promotion activities in Q217. This will transform RedHill into a vertically integrated, commercial-stage specialty GI pharma company. RedHill is in the process of setting up a US-based commercial business and plans to have more than 30 sales representatives ready at the end of Q217. While RedHill did not provide financial guidance or timing of when the business could become profitable, RedHill plans to start promoting both EnteraGam and Donnatal in Q217. RedHill plans to be able to use the established sales organisation to promote and distribute its own developed products, if approved. Looking forward, three mid- to late-stage catalysts will shape H217 for RedHill: the second DSMB review in mid-2017 with an early stop option for RHB-104 in the first Phase III for CD, BEKINDA top-line Phase III results in gastroenteritis in Q217 and top-line Phase II results in IBS-D in Q317.

Valuation: Slightly up to NIS1.40bn ($378m)

Our valuation of RedHill is NIS1.40bn ($378m) or NIS7.9/share ($22.0/ADS), slightly increased from NIS1.32bn ($369m) or NIS7.7/share ($21.6/ADS) due to rolling our model forward by one quarter. We keep all other assumptions unchanged and look forward to the upcoming R&D triggers in coming weeks.

Plenty of catalysts in 2017

We expect RedHill to deliver plenty of news flow this year providing opportunities for value inflection. Main events include:

RHB-104 interim analysis and early termination option in mid-2017. The second DSMB review of the first Phase III trial in CD is expected in mid-2017 with the option for early termination if overwhelming efficacy or futility is demonstrated. If the study is not stopped the enrolment of an expected 410 CD patients should be completed by end-2017. The study explores RHB-104’s, a patented combination of three generic antibiotics (clarithromycin, rifabutin and clofazimine), efficacy in CD patients representing a novel approach aimed at treating Mycobacterium avium paratuberculosis (MAP) infection which, according to numerous studies, may be one of the causative agents of CD.

Two data readouts from BEKINDA studies around Q2/Q317. BEKINDA is a once-daily, bi-modal extended release, oral formulation of ondansetron:

Top-line results from the Phase III trial with BEKINDA (24mg) in acute gastroenteritis are expected in Q217. According to RedHill’s discussions with the FDA, this study could be sufficient to file for an NDA, conditional upon, among other things, achieving highly significant positive results and future review and guidance from the FDA.

BEKINDA (12mg) is also being explored in Phase II trial with IBS-D patients, with top-line results expected in Q317.

If approved, BEKINDA (24mg) could be the first 5-HT3 antiemetic drug indicated for the treatment of acute gastroenteritis and gastritis in the US. The opportunity for BEKINDA in IBS-D is potentially greater than in gastroenteritis, given the chronic nature of the disorder and the currently underpenetrated market due to a need for more effective treatments.

Initiation of promotion for GI products Donnatal and EnteraGam planned in Q2/17. RedHill is in the process of setting up a US-based commercial business and plans to have more than 30 sales representatives ready at the end of Q217. While the company did not provide financial guidance or timing when the US business could become profitable, RedHill plans to start promoting both products in Q217, which will mark RedHill’s transformation into a vertically integrated, commercial stage specially GI pharma company.

Donnatal (phenobarbital, hyoscyamine sulfate, atropine sulfate, scopolamine hydrobromide) was the first GI product, for which RedHill announced a co-promotion agreement with Concordia in January 2017. RedHill gained certain rights to promote Donnatal in selected regions in the US. It is an established product with an existing market and classified by the FDA as possibly effective in irritable bowel syndrome and acute enterocolitis. Donnatal was acquired by Concordia in 2014, with 2016 sales reaching around $65m (7.9% of Concordia’s sales).

In April 2017, RedHill announced an agreement with US-based medical food company Entera Health for exclusive rights to market EnteraGam in the US. In exchange, RedHill will pay tiered royalties, but notably no upfront or milestone payments. EnteraGam is a medical food intended for the dietary management of chronic diarrhoea and has to be administered under medical supervision. EnteraGam is a serum-derived bovine immunoglobulin/protein isolate (SBI) with a proposed mechanism of action of restoring gut balance. Net sales of EnteraGam in 2016 were more than $5m, substantial for a medical food product, in our view.

Steady progress in R&D and on a commercial front

Other news from RedHill include the last patient enrolled in the BEKINDA Phase II study for IBS-D, FDA orphan drug designation for YELIVA for the treatment of cholangiocarcinoma and marketing approval of Rizaport for migraines in Luxembourg. RedHill also indicated that besides the currently ongoing three clinical studies with YELIVA in multiple myeloma, hepatocellular carcinoma (HCC) and diffuse large B-cell lymphoma (DLBCL), there are plans to initiate at least three more trials H217 in cholangiocarcinoma, ulcerative colitis and for radioprotection during radiation therapy in head and neck cancer patients. The status of RedHill’s current R&D and commercial pipeline is summarised in the table below.

Exhibit 1: Update on RedHill’s R&D and commercial pipeline

Product

Stage

Indication

Recent progress and selected upcoming events

R&D products

RHB-105

rifabutin+ amoxicillin+ omeprazole

Ph III

H. pylori infection

The first Phase III study delivered positive results in March 2016. Following a meeting with the FDA, a confirmatory Phase III is planned to be initiated in Q217.

RHB-104

clarithromycin+

clofazimine+

rifabutin

Ph III

Crohn’s disease

Passed safety interim DSMB review in Q416. By January 2017, 254 out of planned 410 patients were enrolled. In October 2016, RedHill introduced an option for early termination of the first Phase III study with CD patients if overwhelming efficacy or futility is demonstrated during the second DSMB review in mid-2017. If the study is not stopped, the enrolment should be completed by end-2017. RedHill also initiated a 52-week, open-label extension study intended to assess the safety and efficacy of RHB-104 in patients who have completed 26 weeks of treatment in the ongoing Phase III study and remain with active CD.

Ph IIa

r/r multiple sclerosis

Phase IIa study (CEASE-MS) of RHB-104 in r/r multiple sclerosis delivered final results in December 2016 and echoed promising interim findings earlier in 2016. RedHill’s current focus is on CD, which is the primary indication for RHB-104, and progress with the MS indication will depend on insights from the ongoing Phase III for CD and potential interest from partners.

BEKINDA

ext. release tab. ondansetron

Ph III

Gastroenteritis

In February 2017, RedHill announced that the last patient had been enrolled to the Phase III (GUARD) trial in the US for gastroenteritis. Top-line results from Phase III study expected in Q217.

Ph II

IBS-D

In April 2017, RedHill announced that the last patient had been enrolled to the Phase II trial in the US for IBS-D. Top line results from Phase II with IBS-D patients expected in Q317.

YELIVA

sphingosine kinase-2 inhibitor

Ph Ib/II

r/r multiple myeloma

The first patient was dosed in the Phase Ib/II study, which was initiated in September 2016 and seeks to enrol up to 77 patients.

Ph II

HCC

Phase II initiated in October 2016 and seeks to enrol up to 39 patients.

Ph I/II

DLBCL / Kaposi sarcoma

Phase I/II study was initiated in June 2015 and seeks to enrol up to 33 patients.

Phase IIa

Cholangiocar-cinoma

A Phase IIa study in patients with advanced, unresectable cholangiocarcinoma is planned for Q317.

Ph Ib

Radioprotectant

A Phase Ib study of oral mucositis in head and neck cancer patients undergoing radiotherapy is expected to be initiated in Q317.

Phase II

Ulcerative colitis

A Phase II study to evaluate the efficacy of YELIVA in patients with moderate to severe ulcerative colitis is planned to be initiated in H217.

Other R&D opportunities

RHB-106, capsules of sodium picosulphate for bowel preparation for abdominal procedures; licensed to Salix Pharmaceuticals in February 2014, which was acquired by Valeant Pharmaceuticals in March 2015. It has yet to clarify further development plans.

Mesupron, protease inhibitor, for solid tumours; in-licensed from Wilex in June 2014, which explored Mesupron in 10 clinical studies including two Phase II studies in advanced pancreatic cancer and metastatic breast cancer. RedHill plans to initiate a Phase I/II in H217 in patients with unresectable pancreatic cancer in combination with first-line chemotherapeutic agents.

Commercial-stage products

Donnatal

phenobarbital, hyoscyamine, atropine sulfate, scopolamine

Market

IBS/enterocolitis

In January 2017, RedHill announced a co-promotion deal with Concordia Pharmaceuticals for Donnatal in the US. Donnatal was acquired by Concordia in 2014 and had sales of around $65m in 2016 (7.9% of Concordia’s sales). RedHill is setting up its commercial organisation in the US and plans to initiate promotional activities in Q217.

EnteraGam serum-derived bovine immuno-globulin/protein isolate (SBI)

Market

Dietary management of chronic diarrhoea and loose stools

In April 2017, RedHill announced an agreement with US-based medical food company Entera Health for exclusive rights to market EnteraGam in the US. In exchange, RedHill will pay tiered royalties, but notably no upfront or milestone payments. EnteraGam is a medical food and has to be administered under medical supervision. RedHill plans to commercialise EnteraGam using its new US-based commercial business operation with the promotion activities starting in Q217.

Rizaport

oral thin film rizatriptan

Market

Migraine

In contrast to Donnatal and EnteraGam RedHill will not commercialise Rizaport directly, but will seek distribution arrangements. Rizaport is being co-developed with IntelGenx since 2010. Re-submission of NDA expected in Q317. Received MAA approval in Germany in October 2015 and in Luxembourg in April 2017 under the European Decentralized Procedure. First commercialisation agreement in Spain signed with Grupo Juste (now Exeltis) in July 2016. Second agreement with Pharmatronic granting an exclusive licence to register and commercialise Rizaport in South Korea in December 2016.

Source: Edison Investment Research. Note: IBS-D = irritable bowel disease with diarrhoea; r/r =relapsing-remitting multiple sclerosis/ refractory or relapsed multiple myeloma; DLBCL = diffuse large B-cell lymphoma; HCC = hepatocellular carcinoma

 

Valuation

We value RedHill at NIS1.40bn ($378m) or NIS7.9/share ($22.0/ADS), a slight increase from NIS1.32bn ($369m) or NIS7.7/share ($21.6/ADS) previously due to rolling our model forward. We keep all other assumptions in our model unchanged, as detailed in our initiation report. We do not yet include the Donnatal co-promotion and EnteraGam deals in our valuation, but will revisit it when more details emerge about the commercial set-up, the initiation of promotional activities and initial sales potential. Existing funds provide cash reach well into 2018. We assume $5.0m of illustrative financing for 2018 included nominally as long-term debt on the balance sheet (as per Edison’s policy).

Exhibit 2: Sum-of-the parts RedHill valuation

Product

Launch

Peak sales, $m

NPV ($m)

NPV/ADS, ($)

Probability

rNPV ($m)

rNPV/ADS ($)

RHB-105 - H. pylori infection

2021

86

87.6

5.1

70%

59.0

3.4

RHB-104 - Crohn’s disease

2023

145

52.7

3.1

40%

13.2

0.8

- Multiple sclerosis

2025

422

191.4

11.2

20%

49.5

2.9

BEKINDA - Gastroenteritis

2019

21

35.5

2.1

70%

24.6

1.4

- IBS-D

2023

201

119.9

7.0

40%

64.0

3.7

YELIVA - r/r MM

2025

565

226.0

13.2

10%

46.0

2.7

- Advanced HCC

2025

649

127.3

7.4

10%

31.7

1.8

- DLBCL

2025

156

64.9

3.8

10%

17.2

1.0

Rizaport - Migraine

Market

20

11.3

0.7

100%

11.3

0.7

0.0

Net cash (including other financial assets)

61.0

61.0

 

100%

61.0

Valuation

977.5

53.4

 

377.5

22.0

Source: Edison Investment Research. Note: WACC = 12.5% for product valuations. IBS-D = irritable bowel syndrome; r/r MM = refractory/relapse multiple myeloma; Advanced HCC = hepatocellular carcinoma; DLBCL = Diffuse large B-Cell Lymphoma.

Exhibit 3: Financial summary

$000s

2012

2013

2014

2015

2016

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

16

12

7,014

3

101

100

750

Cost of Sales

0

0

0

0

0

(60)

(450)

Gross Profit

16

12

7,014

3

101

40

300

Research and development

(6,455)

(8,100)

(12,700)

(17,771)

(25,241)

(34,254)

(30,931)

EBITDA

 

 

(9,016)

(10,748)

(10,570)

(21,866)

(30,499)

(39,836)

(36,534)

Operating Profit (before amort. and except.)

(9,040)

(10,772)

(10,647)

(22,002)

(30,543)

(39,887)

(36,588)

Intangible Amortisation

0

0

0

0

0

0

0

Exceptionals

0

0

0

0

0

0

0

Other

0

0

0

0

0

0

0

Operating Profit

(9,040)

(10,772)

(10,647)

(22,002)

(30,543)

(39,887)

(36,588)

Net Interest

(1,286)

144

(64)

912

1,173

109

0

Profit Before Tax (norm)

 

 

(10,326)

(10,628)

(10,711)

(21,090)

(29,370)

(39,777)

(36,588)

Profit Before Tax (reported)

 

 

(10,326)

(10,628)

(10,711)

(21,090)

(29,370)

(39,777)

(36,588)

Tax

0

0

0

0

0

0

0

Profit After Tax (norm)

(10,326)

(10,628)

(10,711)

(21,090)

(29,370)

(39,777)

(36,588)

Profit After Tax (reported)

(10,326)

(10,628)

(10,711)

(21,090)

(29,370)

(39,777)

(36,588)

Average Number of Shares Outstanding (m)

52.6

62.4

86.6

110.8

128.5

169.6

173.7

EPS - normalised ($)

 

 

(0.20)

(0.17)

(0.12)

(0.19)

(0.23)

(0.23)

(0.21)

EPS - normalised and fully diluted ($)

 

(0.20)

(0.17)

(0.13)

(0.19)

(0.24)

(0.23)

(0.21)

EPS - (reported) ($)

 

 

(0.20)

(0.17)

(0.12)

(0.19)

(0.23)

(0.23)

(0.21)

Dividend per share ($)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

100.0

100.0

100.0

100.0

100.0

40.0

40.0

EBITDA Margin (%)

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

1,533

1,739

2,837

6,318

6,397

6,386

6,405

Intangible Assets

1,345

1,555

2,615

6,060

6,095

6,130

6,165

Tangible Assets

113

103

146

124

165

119

103

Investments

75

81

76

134

137

137

137

Current Assets

 

 

18,563

12,601

26,019

60,510

67,815

32,947

1,978

Stocks

0

0

0

0

0

0

0

Debtors

198

488

3,074

2,372

1,661

1,978

1,978

Cash

16,814

11,851

5,892

21,516

53,786

30,969

0

Other

1,551

262

17,053

36,622*

12,368*

0

0

Current Liabilities

 

 

(1,078)

(2,415)

(1,720)

(5,514)

(5,356)

(8,575)

(7,575)

Creditors

(1,078)

(2,415)

(1,720)

(5,514)

(5,356)

(8,575)

(7,575)

Short term borrowings

0

0

0

0

0

0

0

Long Term Liabilities

 

 

0

0

(2,125)

(1,237)

(6,155)

(6,155)

(11,114)

Long term borrowings

0

0

0

0

0

0

(4,959)

Other long term liabilities

0

0

(2,125)

(1,237)

(6,155)

(6,155)

(6,155)

Net Assets

 

 

19,018

11,925

25,011

60,077

62,701

24,603

(10,306)

CASH FLOW

Operating Cash Flow

 

 

(6,795)

(8,436)

(12,229)

(17,826)

(28,258)

(35,145)

(35,855)

Net Interest

0

0

0

0

0

0

0

Tax

0

0

0

0

0

0

0

Capex

(8)

(14)

(70)

(14)

(85)

(5)

(38)

Acquisitions/disposals

0

0

0

0

0

0

0

Financing

6,550

2,280

24,369

54,792

36,017

0

0

Other

2,997

1,207

(18,029)

(21,328)

24,596**

12,333**

(35)

Dividends

0

0

0

0

0

0

0

Net Cash Flow

2,744

(4,963)

(5,959)

15,624

32,270

(22,817)

(35,928)

Opening net debt/(cash)

 

 

(14,070)

(16,814)

(11,851)

(5,892)

(21,516)

(53,786)

(30,969)

HP finance leases initiated

0

0

0

0

0

0

0

Other

0

0

0

0

0

0

0

Closing net debt/(cash)

 

 

(16,814)

(11,851)

(5,892)

(21,516)

(53,786)

(30,969)

4,959

Source: Edison Investment Research, RedHill accounts. Note: *Short-term investments. **Includes short-term investments converted to cash and cash equivalents.

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street,

Sydney , NSW 2000

Australia

Tel Aviv +44 (0)20 3734 1007 Medinat Hayehudim 60

Herzilya Pituach, 46766

Israel

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street,

Sydney , NSW 2000

Australia

Tel Aviv +44 (0)20 3734 1007 Medinat Hayehudim 60

Herzilya Pituach, 46766

Israel

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

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Disclosure regarding the scheme to enhance the awareness of investors to public companies in the technology and biomed sectors that are listed on the Tel Aviv Stock Exchange and participate in the scheme (hereinafter respectively “the Scheme”, “TASE”, “Participant” and/or “Participants”). Edison Investment Research (Israel) Ltd, the Israeli subsidiary of Edison Investment Research Ltd (hereinafter respectively “Edison Israel” and “Edison”), has entered into an agreement with the TASE for the purpose of providing research analysis (hereinafter “the Agreement”), regarding the Participants and according to the Scheme (hereinafter “the Analysis” or “Analyses”). The Analysis will be distributed and published on the TASE website (Maya), Israel Security Authority (hereinafter “the ISA”) website (Magna), and through various other distribution channels. The Analysis for each participant will be published at least four times a year, after publication of quarterly or annual financial reports, and shall be updated as necessary after publication of an immediate report with respect to the occurrence of a material event regarding a Participant. As set forth in the Agreement, Edison Israel is entitled to fees for providing its investment research services. The fees shall be paid by the Participants directly to the TASE, and TASE shall pay the fees directly to Edison. Subject to the terms and principals of the Agreement, the Annual fees that Edison Israel shall be entitled to for each Participant shall be in the range of $35,000-50,000. As set forth in the Agreement and subject to its terms, the Analyses shall include a description of the Participant and its business activities, which shall inter alia relate to matters such as: shareholders; management; products; relevant intellectual property; the business environment in which the Participant operates; the Participant's standing in such an environment including current and forecasted trends; a description of past and current financial positions of the Participant; and a forecast regarding future developments in and of such a position and any other matter which in the professional view of the Edison (as defined below) should be addressed in a research report (of the nature published) and which may affect the decision of a reasonable investor contemplating an investment in the Participant's securities. To the extent it is relevant, the Analysis shall include a schedule of scientific analysis of an expert in the field of life sciences. An "equity research abstract" shall accompany each Equity Research Report, describing the main points addressed. The full scope reports and reports where the investment case has materially changed will include a thorough analysis and discussion. Short update notes, where the investment case has not materially changed, will include a summary valuation discussion. The Agreement with TASE regarding the participation of Edison in the scheme for the research analysis of public companies does not and shall not constitute an approval or consent on the part of TASE or the ISA or any other exchange on which securities of the Company are listed, or any other securities’ regulatory authority which regulates the issuance of securities by the Company to the content of the Report or to the recommendation contained therein. A summary of this report is also published in the Hebrew language. In the event of any contradiction, inconsistency, discrepancy, ambiguity or variance between the English Report and the Hebrew summary of said Report, the English version shall prevail; and a note to this effect shall appear in any Hebrew summary of a Report. Edison is regulated by the Financial Conduct Authority. According to Article 12.3.2, Chapter 12 of the Conduct of Business Sourcebook, Edison, which produces or disseminates non-independent research, must ensure that it: 1) is clearly identified as a marketing communication; and 2) contains a clear and prominent statement that (or, in the case of an oral recommendation, to the effect that) it: a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research; and b) is not subject to any prohibition on dealing ahead of the dissemination of investment research. The financial promotion rules apply to non-independent research as though it were a marketing communication.

EDISON INVESTMENT RESEARCH DISCLAIMER

Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street,

Sydney , NSW 2000

Australia

Tel Aviv +44 (0)20 3734 1007 Medinat Hayehudim 60

Herzilya Pituach, 46766

Israel

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street,

Sydney , NSW 2000

Australia

Tel Aviv +44 (0)20 3734 1007 Medinat Hayehudim 60

Herzilya Pituach, 46766

Israel

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