TALICIA Ph III top-line data positive

Redhill Biopharma 19 December 2018 Update
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RedHill Biopharma

TALICIA Ph III top-line data positive

R&D update

Pharma & biotech

 

19 December 2018

Price

US$5.87

Market cap

US$166m

NIS3.70/US$

Net cash ($m) at end-Q318 (includes share issue in December 2018)

63.0

Shares in issue

283.7m

Free float

90%

Code

RDHL

Primary exchange

TASE

Secondary exchange (ADS 1:10)

NASDAQ

Share price performance

%

1m

3m

12m

Abs

(25.7)

(26.6)

18.1

Rel (local)

(20.1)

(16.3)

24.8

52-week high/low

US$11

US$5

Business description

RedHill is a speciality company with an R&D pipeline focusing on gastrointestinal (GI) and inflammatory diseases; earlier-stage assets also target various cancers. The most advanced products are TALICIA for H. pylori infection, RHB-104 for Crohn’s disease, RHB-204 for NTM infections and BEKINDA for gastroenteritis and IBS-D. RedHill also promotes four GI products in the US.

Next events

Initiation of pivotal Phase III trial with RHB-204 for NTM infections

Mid-2019

Expected NDA for TALICIA submission

H119

Analysts

Jonas Peciulis

+44 (0)20 3077 5728

Alice Nettleton

+44 (0)20 3077 5700

Redhill Biopharma is a research client of Edison Investment Research Limited

On 3 December, RedHill announced positive top-line data for its second Phase III study for TALICIA in first-line Helicobacter pylori infection. With the focus now on final data, expected NDA submission (H119), approval and launch (potentially H219), TALICIA is one of the key value drivers for RedHill in the short term. The December share issue of $20m should ensure a smooth TALICIA launch, provide working capital for a pivotal Phase III nontuberculous mycobacteria trial, preparation for a Phase III trial in Crohn’s disease and support the commercial US organisation. Our updated valuation is $491m (NIS1.82bn), or $17.3/ADS (NIS6.4/sh).

Year end

Revenue ($m)

PBT* ($m)

EPS* ($)

DPS ($)

P/E (x)

Yield (%)

12/16

0.1

(29.4)

(0.23)

0.0

N/A

N/A

12/17

4.0

(45.5)

(0.26)

0.0

N/A

N/A

12/18e

9.5

(40.0)

(0.16)

0.0

N/A

N/A

12/19e

12.4

(43.5)

(0.15)

0.0

N/A

N/A

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

TALICIA met primary endpoint: 84% eradication

According to the top-line data, TALICIA achieved an 84% eradication rate in the treatment group vs 58% in the active comparator (p<0.0001), was safe and well tolerated. While, final data is still to be released (H119); we believe it is likely, and in line with preliminary company plans, that RedHill will be able to submit an NDA with the FDA in H119. The review process should be fast due to Qualified Infectious Disease Product (QIDP) designation, which grants a priority review. If approved, we expect some sales to be achieved quickly due to RedHill’s established commercial platform. Our model includes revenues in 2020, but some initial sales could be booked in 2019. The 2017 ACG Guidelines describe rifabutin triple therapy as a salvage treatment, citing ‘moderate quality of evidence’, rifabutin cost and rare but serious safety concerns, but notes a very low H. pylori resistance rate to rifabutin. RedHill’s Phase III programme (two large trials) should address any data-quality concerns and the safety profile appears excellent at the doses used in the trial.

Financials: $20m gross extends cash into 2020

The recent share issue brings our end-2018 cash estimate to $53m. According to our model, this should cover RedHill’s operating activities into 2020 (we do not yet include sales from TALICIA ahead of the FDA review process). Q318 revenues from the commercialised gastrointestinal (GI) products were $2.2m (vs $2.4m in Q218). We have revised our mid-term sales estimates down (2018 and 2019 estimates now at $9.5m vs $12.4m and $12.4m vs $30.2m, respectively), but increased long-term gross margin to 65% from 50%, resulting in a slight net negative effect.

Valuation: Revised to $491m or $17.3 per ADS

Our revised valuation of RedHill is $491m or $17.3/ADS vs $432m or $16.9/ADS. The increase is due to the increased probability of success for TALICIA (90% vs 70%), improved cash position after the share issue and moving TALICIA’s launch to 2020 from 2021, which were partially offset by reduction in GI product sales estimates. Near-term catalysts for the share price are TALICIA final data, NDA submission to the FDA in H119 and potential FDA approval in H219.

TALICIA Phase III top-line readout

The top-line results from the TALICIA confirmatory Phase III study in first-line treatment of H. pylori infection regardless of ulcer status were announced on 3 December 2018. They show that the primary endpoint has been met, which was the H. pylori eradication rate with TALICIA vs active comparator of amoxicillin + omeprazole. The TALICIA treatment group achieved an 84% eradication rate (n=228) vs 58% with the active comparator (n=227) with a high level of significance (p<0.0001). In addition, TALICIA was found to be safe and well tolerated, which is key because the main safety issues seen with rifabutin were not observed in the study. This is likely due to the lower doses used in the study, as concerns about rifabutin toxicity (myelotoxicity) mainly come from treating other infections and using higher doses. The secondary endpoints and final results should be released early in 2019 and RedHill should be able to submit an NDA with the FDA in H119. As a reminder, after the first Phase III study (n=188) TALICIA delivered positive final results in March 2016, which showed that TALICIA eradicated H. pylori in 89.4% of patients (p<0.001) and 63% in subsequent open-label treatment of the placebo arm patients in the same trial.

Rifabutin as part of combination of generic therapy is already used for the treatment of H. pylori as a salvage therapy, although it has not been approved by the FDA specifically for this indication. The therapy has been found to be very effective at H. pylori eradication. This may partly explain the muted share price reaction after the TALICIA data announcement. The 2017 ACG Guidelines describe rifabutin triple therapy as a salvage treatment and cites ‘moderate quality of evidence’, the generic rifabutin cost and rare but serious safety concerns, but notes a very low H. pylori resistance rate to rifabutin. We believe RedHill’s Phase III programme (two large trials) should address any data quality concerns and the safety profile appears to be excellent at doses used in the trial. If approved by the FDA, TALICIA will also be the only rifabutin-based therapy with an H. pylori eradication indication included in its label.

As RedHill described in its recent R&D call on TALICIA, there were previous attempts to introduce branded therapies for H. pylori eradication (Pylera and Prevpac), which corresponded to first-line generic combination therapies. While initially successful, these drugs failed to achieve sustained growth because they mainly offered convenience, but still suffered from the same increasing resistance issue as the generic combination therapies, which successfully eradicate H. pylori in 60–70% of cases. This has been decreasing constantly over the last couple of decades and RedHill’s trial showed a 58% success rate in the active comparator arm against amoxicillin plus omeprazole, which is one of the first-line options. In addition, RedHill’s first Phase III study showed 63% efficacy of standard-of-care therapies in a subsequent open-label part of the study, while the confirmatory Phase III study showed 64% efficacy of standard of care in the subsequent open-label part. Therefore, with the Phase III data in hand and against this background of increasing in H. pylori resistance rates against front-line therapies, RedHill is well positioned to influence clinical practice, although it is never an easy task. Notably, RedHill’s Phase III trial was designed as front-line therapy regardless of ulcer status, which, if approved by the FDA, opens up the broadest possible target population. Prevpac and Pylera are approved for patients with diagnosed ulcers, which is a substantially smaller target population.

RedHill has also collected data on antibiotic resistance rates during the US study. This data shows similar rates to those summarised in the recent ACG Guidelines published in 2017 (from two separate studies on samples of the US population) (Exhibit 1). Both sets of resistance rates show a significantly lower resistance to rifabutin and amoxicillin than clarithromycin and metronidazole, supporting the use of rifabutin and amoxicillin as alternatives.

Exhibit 1: H. pylori antibiotic resistance rates in the US (%)

Antibiotic

2009 – 2011*

(ACG Guidelines 2017)

2017 – 2018**

(RedHill)

Metronidazole

20

45

Clarithromycin

16

17

Levofloxacin

31

-

Tetracycline

<2

-

Amoxicillin

<2

6

Rifabutin

<2

0

Source: *American Journal of Gastroenterology Clinical Guideline: Treatment of Helicobacter pylori Infection (2017); Shiota S, Reddy R, Alsarraj A et al. Antibiotic resistance of Helicobacter pylori among male United States veterans. Clin Gastroenterol Hepatol 2015; 13:1616–24; Gisbert JP, Calvet X. Review article: rifabutin in the treatment of refractory Helicobacter pylori infection. Aliment Pharmacol Ther 2012; 35:209 – 21; **RedHill ERADICATE Hp2 Phase III study

Next steps

RedHill expects to present the full data at a conference in early 2019 and submit an NDA application to the FDA in H119. As mentioned, TALICIA has QIDP designation from the FDA, which endows both fast-track development and priority review status and, according to management, this could lead TALICIA to be approved in H219. If approved, RedHill plans to use its existing commercial platform to market TALICIA to gastroenterologists and expects a minimal incremental cost of launch. Theoretically this should allow RedHill to quickly leverage this platform to achieve initial sales as soon as H219, with all 40 US sales reps expected to be engaged in the TALICIA commercial launch. Worth noting that the company can increase the salesforce as necessary. Commercial manufacturing is already in scale-up mode and RedHill is ready to start discussions with payors. In our view, RedHill’s commercialisation to gastroenterologists is sensible as this community is much smaller than primary care physicians, which makes it easier to promote TALICIA. However, to access the broader patient pool, we believe RedHill will consider how to market to primary care physicians. One option could be a co-promotion partner, but no concrete announcement has been made in this regard yet.

Exhibit 2: Eradication rates of regimens for H. pylori treatment (TALICIA contains omeprazole + amoxicillin + rifabutin)

Regimen

Components

Use

Eradication (%)

Disadvantages

Standard triple therapy (7–14 d)

PPI + clarithromycin + amoxicillin (or metronidazole)

First line in areas of low CAM resistance

60-70% (14% in resistant strains)

Widespread clarithromycin resistance

Bismuth quadruple therapy (10–14 d)

PPI + bismuth + tetracycline + metronidazole

First line in areas of > 20% CAM resistance. Second line when triple therapy fails.

c 80%

Bismuth has some toxicity issues; complex dosing, many tablets. Metronidazole resistance has some impact on efficacy of bismuth but to a lesser extent than clarithromycin with standard triple therapy.

Sequential therapy, (5d + 5d)

Dual therapy; PPI + amoxicillin followed by triple therapy; ppi + clarithromycin + metronidazole

As above

c 70% in CAM resistant strains (40% in dual resistant strains)

Dual resistance problems

Levofloxacin-based triple therapy, (10d)

PPI + levofloxacin + amoxicillin

Second or third line. Broad-spectrum quinolone used to overcome CAM resistance.

c 90%

Quinolone resistance increasing (40% in US, 20% Europe, 10% Asia)

Rifabutin-based triple therapy, (714d)

PPI + amoxicillin + rifabutin

'Rescue' treatment

67–91%, Gisbert et al

89.4%, RedHill first Phase III data

84% RedHill confirmatory Phase III data

Rifabutin has rare side effects (myelotoxicity, ocular toxicity), although RedHill did not encounter significant side effects; the TALICIA PK/PD profile is different as the rifabutin dose is divided into three 50mg pills per day.

Source: Adapted from V. Papastergiou et al and C Fallone et al.

Note: PPI: proton pump inhibitor (lansoprazole/ rabeprazole/ esomeprazole) at standard dose; CAM: clarithromycin.

Financials and valuation

On 11 December 2018, RedHill announced the closing of an ADS share issue for $20m (gross). In total, 2,857,143 ADS were issued at a price of $7.00 (28,571,430 ordinary shares). RedHill also granted the underwriters a 30-day option to purchase up to an additional 15% (428,571) ADS (expiring on 10 January 2019). At the end-September Q318 cash and cash equivalents were $43m. This and the new funds, according to our model, should cover RedHill’s operating activities into 2020, which includes the TALICIA’s launch, a new trial in NTM, and preparation for another trial in Crohn’s disease.

Q318 revenues from the commercialised GI products were $2.2m (vs $2.4m in Q218). The reported gross profit margin improved again in Q318 to 73% vs 69% in Q218. The operating loss was $9.7m vs $13.9m in Q317 following the implementation of the cost-cutting programme. Q318 R&D costs were $6.6m versus $8.1m a year ago. Cash burn in the quarter was at the target $8.5m average rate per quarter for 2018.

We have revised down our near- to mid-term sales estimates (2018 and 2019 estimates now at $9.5m vs $12.4m and $12.4m vs $30.2m, respectively). RedHill has consistently posted a stronger gross margin for its product portfolio (we had assumed 50%), and have therefore increased it to 65% in our model; this could be even higher if the level booked in Q3 results holds. The overall net effect from this revision on our calculated NPV of the commercial business was slightly negative.

Our RedHill valuation has increased to $491m or $17.3/ADS from $432m or $16.9/ADS. This is mainly due to the increase in probability of success of TALICIA, increased cash position and moving the launch date of TALICIA from 2021 to 2020 in our model. Our detailed assumptions for each of the indications are discussed in our last outlook report. Final data, NDA submission to the FDA in H119 and potential FDA approval in H219 of TALICIA for H. pylori are other potential catalysts in the near term.

Exhibit 2: Sum-of-the-parts RedHill valuation

Product

Launch

Peak sales ($m)

NPV ($m)

NPV/share ($)

Probability

rNPV ($m)

rNPV/share ($)

TALICIA, - H. pylori infection

2020

86

132.6

4.7

90%

118.6

4.2

RHB-104, - Crohn’s disease

2023

145

72.5

2.6

50%

30.6

1.1

- NTM infections

2022

50

59.6

2.1

30%

15.0

0.5

BEKINDA, - Gastroenteritis

2022

21

30.2

1.1

85%

25.2

0.9

- IBS-D

2023

201

147.1

5.2

60%

107.5

3.8

YELIVA, - Cholangiocarcinoma

2024

115

170.2

6.0

10%

11.3

0.4

- r/r MM

2025

565

260.7

9.2

10%

64.9

2.3

- Advanced HCC

2025

649

156.1

5.5

10%

47.7

1.7

GI specialty products: Donnatal, EnteraGam & Esomeprazole

Market

48

17.6

0.6

100%

17.6

0.6

Net cash (est. end-2018)

52.5

100%

52.5

1.9

Valuation

1,099.1

36.9

490.7

17.3

Source: Edison Investment Research. Note: WACC = 12.5% for product valuations. IBS-D: irritable bowel syndrome; r/r MM: refractory/relapse multiple myeloma; HCC: hepatocellular carcinoma; NTM: nontuberculous mycobacteria.

 

Exhibit 3: Financial summary

$000s

2016

2017

2018e

2019e

December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

101

4,007

9,501

12,351

Cost of Sales

0

(2,126)

(3,135)

(4,323)

Gross Profit

101

1,881

6,366

8,028

Research and development

(25,241)

(32,969)

(25,920)

(29,084)

EBITDA

 

 

(30,499)

(51,891)

(39,911)

(41,556)

Operating Profit (before amort. and except.)

(30,543)

(51,972)

(30,543)

(51,972)

Intangible Amortisation

0

0

0

0

Exceptionals

0

0

0

0

Other

0

0

0

0

Operating Profit

(30,543)

(51,972)

(40,018)

(41,687)

Net Interest

1,173

6,428

0

0

Profit Before Tax (norm)

 

 

(29,370)

(45,544)

(40,018)

(41,687)

Profit Before Tax (reported)

 

 

(29,370)

(45,544)

(40,018)

(41,687)

Tax

0

0

0

0

Profit After Tax (norm)

(29,370)

(45,544)

(40,018)

(41,687)

Profit After Tax (reported)

(29,370)

(45,544)

(40,018)

(41,687)

Average Number of Shares Outstanding (m)

128.5

128.5

175.3

248.0

EPS - normalised (c)

 

 

(0.23)

(0.26)

(0.16)

(0.15)

EPS - normalised

 

 

(0.24)

(0.26)

(0.16)

(0.15)

EPS - (reported) ($)

 

 

(0.23)

(0.26)

(0.16)

(0.15)

Dividend per share (c)

0.0

0.0

0.0

0.0

Gross Margin (%)

100.0

46.9

67.0

65.0

EBITDA Margin (%)

N/A

N/A

N/A

N/A

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

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

6,397

5,667

6,211

6,995

Intangible Assets

6,095

5,285

5,820

6,605

Tangible Assets

165

230

239

238

Investments

137

152

152

152

Current Assets

 

 

67,815

51,676

57,428

29,265

Stocks

0

653

653

653

Debtors

1,661

4,818

4,270

4,270

Cash

53,786

16,455

28,163

0

Other*

12,368

29,750

24,342

24,342

Current Liabilities

 

 

(5,356)

(11,830)

(11,521)

(11,521)

Creditors

(5,356)

(11,830)

(11,521)

(11,521)

Short-term borrowings

0

0

0

0

Long-Term Liabilities

 

 

(6,155)

(448)

(2,536)

(14,610)

Long-term borrowings

0

0

0

(12,074)

Other long-term liabilities

(6,155)

(448)

(2,536)

(2,536)

Net Assets

 

 

62,701

45,065

49,582

10,130

CASH FLOW

Operating Cash Flow

 

 

(28,258)

(44,769)

(35,350)

(39,321)

Net Interest

0

0

0

0

Tax

0

0

0

0

Capex

(85)

(146)

(116)

(131)

Acquisitions/disposals

0

0

0

0

Financing

36,017

25,653

42,300

0

Other**

24,596

(18,069)

4,873

(785)

Dividends

0

0

0

0

Net Cash Flow

32,270

(37,331)

11,708

(40,236)

Opening net debt/(cash)

 

 

(21,516)

(53,786)

(16,455)

(28,163)

HP finance leases initiated

0

0

0

0

Other

0

0

0

0

Closing net debt/(cash)

 

 

(53,786)

(16,455)

(28,163)

12,074

Source: Edison Investment Research, RedHill accounts. Note: *Bank deposits and financial assets at fair value. **Includes bank deposits converted to cash and cash equivalents.

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This report has been commissioned by RedHill Biopharma and prepared and issued by Edison, in consideration of a fee payable by RedHill Biopharma. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by RedHill Biopharma and prepared and issued by Edison, in consideration of a fee payable by RedHill Biopharma. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by RedHill Biopharma and prepared and issued by Edison, in consideration of a fee payable by RedHill Biopharma. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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