Transformation to commercial/R&D spec pharma

RedHill BioPharma 6 March 2017
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RedHill BioPharma

Transformation to commercial/R&D spec pharma

Q416 business update

Pharma & biotech

 

6 March 2017

Price*

NIS3.55/$9.67

Market cap

NIS606m/$123m

*Priced at 2 March 2017

NIS3.63:US$

Net cash ($m) at end Q416 (including short term investments)

66.2

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

(2.8)

(16.0)

(10.4)

Rel (local)

(5.8)

(18.3)

(13.1)

52-week high/low

NIS6.0

NIS3.4

Business description

RedHill Biopharma is a specialty pharma company with a broad 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 III in CD

Q217

Bekinda Phase III for gastroenteritis top-line results

Q217

Bekinda IBS-D Phase II top-line results

Mid-2017

Analysts

Jonas Peciulis

+44 (0)20 3077 5728

Juan Pedro Serrate

+44 (0)20 3681 2534

RedHill’s Q416 results update showed steady progress with R&D activities and the company readying itself for commercialisation in the US, following the recently announced co-promotion deal for Donnatal. Data readouts from three mid- to late-stage clinical trials will shape RedHill’s H117, providing inflection points for the share price. Our valuation is slightly lowered to NIS1.3bn ($369m) on somewhat higher than expected guided cash burn in 2017.

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)

(0.24)

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: Ramping up R&D, financed well into 2018

RedHill reported modest Q416 licensing income of $100k (immaterial in Q415). R&D costs were $7.5m, up 51% y-o-y mainly due to increased R&D activities. G&A costs were $1.6m in Q416, down 6.9% y-o-y. This resulted in an operating loss of $9.0m versus $6.8m a year ago. Operating cash burn in Q416 was $10.1m compared to $28.2m for FY16. Following a successful $38m fund-raising in December 2016, RedHill ended the year with a cash pile of $66.2m. The company guided that quarterly cash burn in 2017 will be close to that in Q416 at c $10m, which is the main change to our FY17 estimates, decreasing operating profit to $39.9m from $33.0m. This implies cash reach well into 2018, which is comfortable given that by mid-2017 several mid- to late-stage trial data readouts will be out.

Commercial and R&D progress towards catalysts

One of the more notable recent events is a co-promotion deal with Concordia Healthcare for Donnatal (IBS/enterocolitis) in the US. The strategic importance of this deal is that RedHill aims to become a vertically integrated, commercial-stage, revenue-generating gastrointestinal speciality pharma company. Furthermore, RedHill will be able to use the established sales organisation to promote and distribute its own developed products. Looking forward, three mid- to late-stage catalysts will shape H117 for RedHill: the second DSMB review in Q217 with an early stop option for RHB-104 in Phase III for CD, Bekinda top-line Phase III results in gastroenteritis in Q217 and top-line Phase II results in IBS-D in mid-2017.

Valuation: Slightly lowered to NIS1.3bn ($369m)

Our valuation of RedHill is NIS1.3bn ($369m) or NIS7.7/share ($21.6/ADS), slightly reduced from NIS1.5bn ($378m) or NIS8.5/share ($22.2/ADS) previously. This is mainly because higher than estimated cash burn was partially offset by rolling our model forward in time. We keep all other assumptions unchanged and look forward to the upcoming R&D triggers in H117.

Key catalysts to mid-2017

RHB-104: Interim analysis in Q217 and early termination option

In October 2016, RedHill introduced an option for early termination of the Phase III study with CD patients if overwhelming efficacy or futility is demonstrated. This will be explored during the second DSMB review in Q217; the first DSMB review in December 2016 focused only on safety. If the study is not stopped, the enrolment of an expected 410 CD patients should be completed by end-2017. RHB-104 is a patented combination of three generic antibiotics (clarithromycin, rifabutin and clofazimine) for CD patients and represents a novel approach aimed at treating Mycobacterium avium paratuberculosis (MAP) infection which, according to numerous studies, can be one of the causative agents of CD.

Bekinda: Two data readouts by mid-2017

In February 2017, RedHill announced that the last patient had been enrolled to the Phase III trial in the US for acute gastroenteritis. Top-line results are expected in Q217. According to RedHill’s discussions with the FDA, this study could be sufficient to file for an NDA, assuming a clear efficacy signal is demonstrated with a favourable safety profile. Bekinda is also being explored in another Phase II trial with IBS-D patients, with top-line results in mid-2017.

Bekinda is a once-daily, bi-modal release, oral formulation of ondansetron. Ondansetron, originally developed and marketed by GlaxoSmithKline and Novartis as Zofran, is a 5-HT3 (serotonin) receptor antagonist approved for the prevention of chemotherapy- and radiotherapy-induced nausea and vomiting (CINV and RINV, respectively) and prevention of postoperative nausea and/or vomiting (on an as needed basis, not routinely). RedHill licensed the patent-protected, extended-release formulation and, if approved, Bekinda (24mg) could be the first 5-HT3 antiemetic drug indicated for the treatment of acute gastroenteritis and gastritis in the US. Although studies are at an earlier stage, 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 lack of effective drugs.

More details about RHB-104 and Bekinda, including trial design and potential analysis, are discussed in our initiation report.

R&D and commercial progress
Co-promotion deal for Donnatal in the US

One of more notable recent events is a co-promotion deal with Concordia Healthcare for Donnatal in the US, already discussed in our previous report in more detail. The strategic importance of this deal is that RedHill aims to become a vertically integrated, commercial-stage, revenue-generating gastrointestinal speciality pharma company. Furthermore, it will be able to use the established sales organisation to promote and distribute its own developed products.

Donnatal (phenobarbital, hyoscyamine sulfate, atropine sulfate, scopolamine hydrobromide) is an established product with an existing market and classified by the FDA as possibly effective in irritable bowel syndrome and acute enterocolitis. Donnatal is an established product and was acquired by Concordia in 2014, with H116 sales reaching $71m (7.7% of Concordia’s sales). In our view, the first goal is to get the margins right and set up a profitable US business and then look for growth, potentially by adding more products to the portfolio. During the Q416 results call the company indicated that the focus this year is to set up the organisation in the US and initiate promotional activities. Initial sales could be recorded as soon as in Q317.

Positive final MS data from Phase IIa with RHB-104

RedHill's Phase IIa study (CEASE-MS) of RHB-104 in relapsing-remitting multiple sclerosis (RRMS) delivered final results in December 2016 and echoed the positive interim findings earlier in 2016. During the Q416 results call RedHill noted that the focus is on CD, which is the primary indication for RHB-104, and the progress with the MS indication will depend on insights from the ongoing Phase III for CD and potential interest from partners.

In the Phase IIa trial RHB-104 was evaluated as an add-on therapy to IFN-beta1a in an open-label, single-arm trial of 18 RRMS patients (17-patient data used for modified intent-to-treat analysis; 10-patient data used for per protocol analysis) who were treated for 24 weeks in combination with interferon beta-1a and then with interferon beta-1a only. Although not powered for efficacy, RedHill published encouraging interim results from this study in March 2016 and final top-line data in December 2016. The annualised relapse rate (ARR, one of the most common endpoints in late-stage trials in the industry)1 at 24 weeks was 0.29 in the modified intent-to-treat2 (mITT) population and 0.0 in the per-protocol3 (PP) population, comparing favourably with data published for standalone IFN-beta therapies Avonex (Biogen) 0.67 and Rebif (Merck Serono and Pfizer) 0.87-0.91. Final top-line results from patients who completed the full study showed a marked improvement over historical statistics, although data were not disclosed.

A. Lavery et al. Outcome Measures in Relapsing-Remitting Multiple Sclerosis: Capturing Disability and Disease Progression in Clinical Trials. Multiple Sclerosis International. Volume 2014, Article ID 262350.

ITT: the intention-to-treat principle requires that all participants who are randomised must be included in the final analysis regardless of the treatment received, withdrawals, lost to follow-up or cross-overs. This is the preferred analysis method to avoid bias. Modified ITT allows some post-randomisation exclusions.

Per-protocol analysis is a comparison of treatment groups, which includes only those patients who completed the originally allocated treatment. If used alone, this method may lead to bias.

Another endpoint was the relapse rate during the study. A total of 93% of the mITT patient population and 100% of the PP patient population were relapse free at 48 weeks, which also compares well with Rebif alone (75%) and Avonex alone (63%).

Commercialisation agreement for Rizaport finalised

In December 2016, RedHill finalised the agreement with Pharmatronic granting an exclusive licence to register and commercialise Rizaport in South Korea. RedHill and IntelGenx (a partner) will receive an upfront payment, milestone payments and tiered royalties. The initial term is for 10 years from the date of first commercial sale, with the commercial launch expected in Q119. This is a second agreement, similar to that signed with Grupo Juste for Spain and potentially for other territories.

Rizaport is an oral dissolving thin film formulation of rizatriptan, originally invented by IntelGenx, for the treatment of migraine attacks. IntelGenx, a Canada-based oral drug delivery formulation company, and RedHill entered into a co-development agreement in August 2010. In March 2013 the two companies submitted an NDA to the FDA under the 505(b)(2) regulatory path, but received a complete response letter primarily focusing on third-party chemistry and CMC issues, packaging and labelling. The FDA did not question safety or clinical trial results, and RedHill therefore plans to address the issues and resubmit the NDA in Q317. This may substantially boost the potential of Rizaport (for more details, see our initiation report).

Exhibit 1 summarises recent updates on RedHill’s R&D and commercial pipeline.

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

Product

Stage

Indication

Recent progress and 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 subject to successful completion of the ongoing pharmacokinetics programme.

RHB-104

clarithromycin+

clofazimine+

rifabutin

Ph III

Crohn’s disease

Passed 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 Phase III study with CD patients if overwhelming efficacy or futility is demonstrated during the second DSMB review in Q217. If the study is not stopped, the enrolment should be completed by end-2017.

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 positive interim findings earlier in 2016. During the Q416 results call RedHill noted that the 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

Gastro-enteritis

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

Ph II

IBS-D

Top line results from Phase II with IBS-D patients expected mid-2017.

Yeliva

sphingosine kinase-2 inhibitor

Ph I/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 2016 and seeks to enrol up to 33 patients.

Ph Ib

Radioprotectant

A Phase Ib study of oral mucositis in radiotherapy patients is expected to be initiated later in mid-2017.

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, urokinase-type plasminogen activator (uPA) 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 Phase I/II in H217 with pancreatic cancer patients who are undergoing chemotherapy after surgery.

Commercial-stage products

Donnatal

phenobarbital, hyoscyamine, atropine sulfate, scopolamine

Market

IBS/enterocolitis

In January 2017, RedHill announced a co-promotion deal with Concordia Healthcare for Donnatal in the US. Initiation of promotional activities for Donnatal in selected US territories. Donnatal was acquired by Concordia in 2014 and had sales of $71m in H116 (7.7% of Concordia’s sales). During 2017 RedHill will set up a commercial organisation in the US and initiate promotional activities with the first sales potentially in Q317.

Rizaport

oral thin film rizatriptan

Market

Migraine

Co-development agreement with IntelGenx in 2010. Re-submission of NDA expected in Q317. Received MAA in Europe in October 2015. First distribution agreement in Spain signed with Grupo Juste 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; IBS = irritable bowel syndrome and acute enterocolitis.

Valuation

We value RedHill at NIS1.3bn ($369m) or NIS7.7/share ($21.6/ADS), slightly reduced from NIS1.5bn ($378m) or NIS8.5/share ($22.2/ADS) previously. This is mainly because of a higher than estimated cash burn, which is partially offset by rolling our model forward in time. We keep all other assumptions in our model unchanged, as detailed in our initiation report.

We do not yet include the co-promotion deal in our valuation, but will revisit it when more details emerge about the commercial set-up and the initiation of promotional activities.

Our model assumed the initiation of a second Phase II trial with RHB-104 for the MS indication this year and at present we leave it unchanged ahead of the interim analysis of the Phase III CD trial, which may influence the near-term fate of the MS programme. We will also revise other details of the project, such as partnering timing and success probability.

Existing funds provide cash reach well into 2018. We assume $5.0m of illustrative financing will need to be included nominally as long-term debt (as per Edison’s policy) on the balance sheet in 2018.

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

85.6

5.0

70%

57.7

3.4

RHB-104 - Crohn’s disease

2023

145

51.5

3.0

40%

12.9

0.8

- Multiple sclerosis

2025

422

187.1

11.0

20%

48.4

2.8

Bekinda - Gastroenteritis

2019

21

34.7

2.0

70%

24.1

1.4

- IBS-D

2023

201

117.2

6.9

40%

62.6

3.7

Yeliva - r/r MM

2025

565

220.9

13.0

10%

44.9

2.6

- Advanced HCC

2025

649

124.4

7.3

10%

30.9

1.8

- DLBCL

2025

156

63.4

3.7

10%

16.8

1.0

Rizaport - Migraine

Market

20

11.0

0.6

100%

11.0

0.6

0.0

Net cash (including other financial assets)

59.5

59.5

 

100%

59.5

Valuation

955.2

955.2

52.5

 

368.8

21.6

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

2011

2012

2013

2014

2015

2016

2017e

2018e

December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

23

16

12

7,014

3

101

100

750

Cost of Sales

0

0

0

0

0

0

(60)

(450)

Gross Profit

23

16

12

7,014

3

101

40

300

Research and development

(5,414)

(6,455)

(8,100)

(12,700)

(17,771)

(25,241)

(34,254)

(30,931)

EBITDA

 

 

(7,858)

(9,016)

(10,748)

(10,620)

(21,966)

(30,499)

(39,836)

(36,534)

Operating Profit (before amort. and except.)

(7,873)

(9,040)

(10,772)

(10,647)

(22,002)

(30,543)

(39,887)

(36,588)

Intangible Amortisation

0

0

0

0

0

0

0

0

Exceptionals

0

0

0

0

0

0

0

0

Other

0

0

0

0

0

0

0

0

Operating Profit

(7,873)

(9,040)

(10,772)

(10,647)

(22,002)

(30,543)

(39,887)

(36,588)

Net Interest

(7,630)

(1,286)

144

(64)

912

1,173

109

0

Profit Before Tax (norm)

 

 

(15,503)

(10,326)

(10,628)

(10,711)

(21,090)

(29,370)

(39,777)

(36,588)

Profit Before Tax (reported)

 

 

(15,503)

(10,326)

(10,628)

(10,711)

(21,090)

(29,370)

(39,777)

(36,588)

Tax

0

0

0

0

0

0

0

0

Profit After Tax (norm)

(15,503)

(10,326)

(10,628)

(10,711)

(21,090)

(29,370)

(39,777)

(36,588)

Profit After Tax (reported)

(15,503)

(10,326)

(10,628)

(10,711)

(21,090)

(29,370)

(39,777)

(36,588)

Average Number of Shares Outstanding (m)

48.1

52.6

62.4

86.6

110.8

128.5

169.0

172.0

EPS - normalised ($)

 

 

(0.32)

(0.20)

(0.17)

(0.12)

(0.19)

(0.23)

(0.24)

(0.21)

EPS - normalised and fully diluted ($)

 

(0.32)

(0.20)

(0.17)

(0.12)

(0.19)

(0.23)

(0.24)

(0.21)

EPS - (reported) ($)

 

 

(0.32)

(0.20)

(0.17)

(0.12)

(0.19)

(0.23)

(0.24)

(0.21)

Dividend per share ($)

0.0

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

100.0

40.0

40.0

EBITDA Margin (%)

N/A

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

N/A

BALANCE SHEET

Fixed Assets

 

 

1,450

1,533

1,739

2,837

6,318

6,397

6,386

6,405

Intangible Assets

1,245

1,345

1,555

2,615

6,060

6,095

6,130

6,165

Tangible Assets

132

113

103

146

124

165

119

103

Investments

73

75

81

76

134

137

137

137

Current Assets

 

 

17,172

17,498

12,358

26,019

60,510

67,815

32,947

1,978

Stocks

0

0

0

0

0

0

0

0

Debtors

89

198

488

3,074

2,372

1,661

1,978

1,978

Cash

14,070

16,814

11,851

5,892

21,516

53,786

30,969

0

Other

3,013

486

19

17,053

36,622*

12,368*

0

0

Current Liabilities

 

 

(513)

(1,078)

(2,415)

(1,720)

(5,514)

(5,356)

(8,575)

(7,575)

Creditors

(513)

(1,078)

(2,415)

(1,720)

(5,514)

(5,356)

(8,575)

(7,575)

Short term borrowings

0

0

0

0

0

0

0

0

Long Term Liabilities

 

 

(886)

0

0

0

0

0

0

(4,959)

Long term borrowings

0

0

0

0

0

0

0

(4,959)

Other long term liabilities

(886)

0

0

0

0

0

0

0

Net Assets

 

 

17,223

17,953

11,682

27,136

61,314

68,856

30,758

(4,151)

CASH FLOW

Operating Cash Flow

 

 

(4,691)

(6,795)

(8,436)

(12,229)

(17,826)

(28,258)

(35,145)

(35,855)

Net Interest

0

0

0

0

0

0

0

0

Tax

0

0

0

0

0

0

0

0

Capex

(136)

(8)

(14)

(70)

(14)

(85)

(5)

(38)

Acquisitions/disposals

0

0

0

0

0

0

0

0

Financing

13,838

6,550

2,280

24,369

54,792

36,017

0

0

Other

6,628

2,997

1,207

(18,029)

(21,328)

24,596**

12,333**

(35)

Dividends

0

0

0

0

0

0

0

0

Net Cash Flow

15,639

2,744

(4,963)

(5,959)

15,624

32,270

(22,817)

(35,928)

Opening net debt/(cash)

 

 

1,569

(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

0

Other

0

0

0

0

0

0

0

0

Closing net debt/(cash)

 

 

(14,070)

(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.

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, advisors and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison 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

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, advisors and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison 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

EDISON ISRAEL DISCLAIMER

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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