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Research: Healthcare
RedHill BioPharma delivered a flurry of news recently, including a major R&D milestone when a Phase III trial with BEKINDA 24mg showed that the drug was beneficial to gastroenteritis/gastritis patients. There are several inflection points still to come in 2017: a data readout from the BEKINDA Phase II trial with IBS-D patients, a second DSMB review of RHB-104 Phase III in Crohn’s disease trial with an early termination option, and the meeting with the FDA to decide the further strategy with BEKINDA for gastroenteritis. We have increased our valuation to $390m (NIS1.42bn).
Written by
RedHill Biopharma |
Positive Phase III with BEKINDA for gastroenteritis |
Company update |
Pharma & biotech |
17 July 2017 |
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Business description
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RedHill BioPharma delivered a flurry of news recently, including a major R&D milestone when a Phase III trial with BEKINDA 24mg showed that the drug was beneficial to gastroenteritis/gastritis patients. There are several inflection points still to come in 2017: a data readout from the BEKINDA Phase II trial with IBS-D patients, a second DSMB review of RHB-104 Phase III in Crohn’s disease trial with an early termination option, and the meeting with the FDA to decide the further strategy with BEKINDA for gastroenteritis. We have increased our valuation to $390m (NIS1.42bn).
Year end |
Revenue ($m) |
PBT* |
EPS* |
DPS |
P/E |
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.
R&D milestone: Successful Phase III with BEKINDA
On 14 June 2017, RedHill announced positive top-line results from its GUARD Phase III trial with gastroenteritis patients receiving BEKINDA 24mg, which is a once-daily, bi-modal release, oral formulation of antiemetic drug ondansetron. The primary endpoint was met with statistical significance and, as RedHill indicated, it will know whether another Phase III trial is needed after its meeting with the FDA, expected by October 2017. If approved, it could be the first once-daily formulation of ondansetron for acute gastroenteritis to reach the US and European markets.
Promotion of Donnatal and EnteraGam initiated
In line with guidance, RedHill began promotion of Donnatal and EnteraGam in the US in June 2017. This will be a key area of focus for us in the upcoming Q217 report, although we expect a more general update rather than any financial details at this early stage of commercialisation. As planned, RedHill has also initiated a second Phase III trial with RHB-105 (now branded as TALICIA) for H. pylori Infection, which will enrol 444 patients. This follows a successful Phase III trial, which showed that TALICIA eradicated H. pylori in 89.4% patients compared to historical 70% after standard-of-care and 63% in subsequent open-label treatment of the placebo arm patients in same trial (see our initiation report).
Valuation: Several inflection points in 2017 remain
We have increased our valuation to $390m (NIS1.42bn) or $22.7/ADS (NIS8.3/share), from $378m (NIS1.40bn) or $22.0/ADS (NIS7.9/share), partly due to rolling our model forward, but mainly after increasing our success probability for BEKINDA from 70% to 85%. RedHill expects more newsflow through H217. The second DSMB review of the first Phase III trial with RHB-104 for Crohn’s disease is expected mid-2017 and will include an option for early termination; top-line results from the Phase II trial with BEKINDA for diarrhoea-predominant irritable bowel syndrome (IBS-D) are expected in September 2017; and the meeting with the FDA to decide the further development strategy with BEKINDA is expected by October.
BEKINDA 24mg Phase III top-line results positive
In the GUARD study BEKINDA was administered to gastroenteritis/gastritis patients in order to prevent vomiting. The trial was randomised, double-blind, placebo-controlled and enrolled 321 adults and children over the age of 12 and randomised at a ratio of 60:40 to receive either BEKINDA or placebo, respectively.
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The primary endpoint was the proportion of patients without further vomiting, without rescue medication, and who were not given intravenous hydration from 30 minutes post first dose of the study drug until 24 hours post dose compared to placebo.
■
The secondary endpoints included frequency of vomiting, proportion of patients receiving rescue antiemetic therapy or intravenous fluids; requiring hospitalisation or returning to emergency department, time to resumption of normal activities and several others.
So far, RedHill has released top-line results, with the final study report to come in Q317. The reported results included:
■
The primary endpoint was met with statistical significance even though RedHill noted that there was a high positive outcome rate in the placebo arm, which hindered achieving an even higher statistical significance.
■
In the intent-to-treat population1 65.6% of BEKINDA treated patients (n = 192) met the primary outcome compared to 54.3% of placebo patients (n = 129) (21% improvement in efficacy, p = 0.04). Correcting for randomisation error, the difference was larger with 65.8% (BEKINDA) compared to 53.9% (placebo) (p = 0.03).
Intent-to-treat population (ITT) analysis includes every subject, who is randomized according to randomized treatment assignment. It ignores noncompliance, protocol deviations, withdrawal, and anything that happens after randomization. The logic is that such method would likely mimic the real world and the estimate of treatment effect is generally conservative.
■
In per-protocol (PP) analysis2 69.5% of BEKINDA treated patients (n = 177) met the primary outcome compared to 54.9% of placebo patients (n = 122) (27% improvement in efficacy, p = 0.01).
Per-protocol population is defined as a subset of the ITT population who completed the study without any major protocol violations.
■
BEKINDA 24mg was also shown to be safe and well-tolerated.
Next steps
BEKINDA top-line data are positive; however, as RedHill indicated, additional clinical studies may be required prior to potential submission of a New Drug Application (NDA), which will be clarified after meeting with the FDA, expected by October 2017. In an ideal scenario no additional trials would be needed, and the company could file for the NDA right away, which is a scenario we use in our model. However, if an additional trial is needed, we still see a high chance of success partly based on the results from the current study, but also on the fact that ondansetron (BEKINDA’s API) is already being used off label (originally it was developed for nausea and vomiting associated with chemotherapy, radiotherapy and operations) and has been shown to have a beneficial effect in children suffering from gastroenteritis.3 This implies that there is already at least some consensus that the drug is likely beneficial for gastroenteritis patients and RedHill is aiming to back it with data and receive a label with this indication. If approved, it could be the first once-daily oral formulation of ondansetron for acute gastritis and gastroenteritis to reach the US and European markets. Given that generic ondansetron is already routinely used off-label in this setting, BEKINDA’s ability to gain market share will rely on its competitive advantage, which is an extended release formulation and it will be used on-label compared to standard ondansetron.
Z. Fedorowicz et al. Antiemetics for reducing vomiting related to acute gastroenteritis in children and adolescents. The Cochrane Library, 7 September 2011.
BEKINDA 12mg is also being studied in the Phase II trial for diarrhoea-predominant irritable bowel syndrome (IBS-D) in Phase II. Enrolment of patients has been completed and top-line results are expected in September 2017. We reviewed BEKINDA’s potential in this indication in our initiation report.
Valuation
Our RedHill valuation has increased to $390m (NIS1.42bn) or $22.7/ADS (NIS8.3/share), from $378m (NIS1.40bn) or $22.0/ADS (NIS7.9/share) previously, due to rolling our model forward, but mainly due to increasing our success probability for BEKINDA in gastroenteritis from 70% to 85%. Our typical Phase III probability of success is 90-95%. Cautiously we use 85% to reflect the uncertainty as to the need for another Phase III trial.
Our financial forecasts are unchanged and 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 them when more details emerge about the commercial setup and initial sales potential. Existing funds provide cash reach well into 2018. We assume $5.0m of illustrative financing for 2018, included nominally as long-term debt on the balance sheet (as per Edison’s policy).
Exhibit 1: Sum-of-the parts RedHill valuation
Product |
Launch |
Peak sales ($m) |
NPV ($m) |
NPV/ADS ($) |
Probability (%) |
rNPV ($m) |
rNPV/ADS ($) |
|
RHB-105 – H. pylori infection |
2021 |
86 |
89.4 |
5.2 |
70% |
60.2 |
3.5 |
|
RHB-104 – Crohn’s disease |
2023 |
145 |
53.8 |
3.1 |
40% |
13.5 |
0.8 |
|
– Multiple sclerosis |
2025 |
422 |
195.4 |
11.4 |
20% |
50.6 |
2.9 |
|
BEKINDA – Gastroenteritis |
2019 |
21 |
36.2 |
2.1 |
85% |
30.7 |
1.8 |
|
– IBS-D |
2023 |
201 |
122.4 |
7.1 |
40% |
65.4 |
3.8 |
|
YELIVA – r/r MM |
2025 |
565 |
230.7 |
13.4 |
10% |
46.9 |
2.7 |
|
– Advanced HCC |
2025 |
649 |
129.9 |
7.6 |
10% |
32.3 |
1.9 |
|
– DLBCL |
2025 |
156 |
66.2 |
3.9 |
10% |
17.6 |
1.0 |
|
Rizaport – Migraine |
Market |
20 |
11.5 |
0.7 |
100% |
11.5 |
0.7 |
|
|
||||||||
Net cash end Q117 (including other financial assets) |
61.0 |
|
100% |
3.6 |
||||
Valuation |
996.6 |
54.5 |
389.6 |
22.7 |
||||
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 2: Financial summary
$000s |
2015 |
2016 |
2017e |
2018e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
3 |
101 |
100 |
750 |
Cost of Sales |
0 |
0 |
(60) |
(450) |
||
Gross Profit |
3 |
101 |
40 |
300 |
||
Research and development |
(17,771) |
(25,241) |
(34,254) |
(30,931) |
||
EBITDA |
|
|
(21,866) |
(30,499) |
(39,836) |
(36,534) |
Operating Profit (before amort. and except.) |
(22,002) |
(30,543) |
(22,002) |
(30,543) |
||
Intangible Amortisation |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Operating Profit |
(22,002) |
(30,543) |
(39,887) |
(36,588) |
||
Net Interest |
912 |
1,173 |
109 |
0 |
||
Profit Before Tax (norm) |
|
|
(21,090) |
(29,370) |
(39,777) |
(36,588) |
Profit Before Tax (reported) |
|
|
(21,090) |
(29,370) |
(39,777) |
(36,588) |
Tax |
0 |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(21,090) |
(29,370) |
(39,777) |
(36,588) |
||
Profit After Tax (reported) |
(21,090) |
(29,370) |
(39,777) |
(36,588) |
||
Average Number of Shares Outstanding (m) |
110.8 |
110.8 |
128.5 |
169.6 |
||
EPS – normalised ($) |
|
|
(0.19) |
(0.23) |
(0.23) |
(0.21) |
EPS – normalised and fully diluted ($) |
|
|
(0.19) |
(0.24) |
(0.23) |
(0.21) |
EPS – (reported) ($) |
|
|
(0.19) |
(0.23) |
(0.23) |
(0.21) |
Dividend per share ($) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
100.0 |
100.0 |
40.0 |
40.0 |
||
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 |
|
|
6,318 |
6,397 |
6,386 |
6,405 |
Intangible Assets |
6,060 |
6,095 |
6,130 |
6,165 |
||
Tangible Assets |
124 |
165 |
119 |
103 |
||
Investments |
134 |
137 |
137 |
137 |
||
Current Assets |
|
|
60,510 |
67,815 |
32,947 |
1,978 |
Stocks |
0 |
0 |
0 |
0 |
||
Debtors |
2,372 |
1,661 |
1,978 |
1,978 |
||
Cash |
21,516 |
53,786 |
30,969 |
0 |
||
Other |
36,622* |
12,368* |
0 |
0 |
||
Current Liabilities |
|
|
(5,514) |
(5,356) |
(8,575) |
(7,575) |
Creditors |
(5,514) |
(5,356) |
(8,575) |
(7,575) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(1,237) |
(6,155) |
(6,155) |
(11,114) |
Long term borrowings |
0 |
0 |
0 |
(4,959) |
||
Other long term liabilities |
(1,237) |
(6,155) |
(6,155) |
(6,155) |
||
Net Assets |
|
|
60,077 |
62,701 |
24,603 |
(10,306) |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(17,826) |
(28,258) |
(35,145) |
(35,855) |
Net Interest |
0 |
0 |
0 |
0 |
||
Tax |
0 |
0 |
0 |
0 |
||
Capex |
(14) |
(85) |
(5) |
(38) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
||
Financing |
54,792 |
36,017 |
0 |
0 |
||
Other |
(21,328) |
24,596** |
12,333** |
(35) |
||
Dividends |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
15,624 |
32,270 |
(22,817) |
(35,928) |
||
Opening net debt/(cash) |
|
|
(5,892) |
(21,516) |
(53,786) |
(30,969) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(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.
|
|
Intelligent Energy’s interims were in line with the guidance given at the AGM in March. The results demonstrate that management has succeeded in reducing cash burn to its stated target of c £1.6m/month. It intends to bring the group to a cash break-even position within the next two years through volume roll-out of standard air-cooled products. Project wins during the period indicate there is appetite for Intelligent Energy’s fuel cell stacks in the target markets, although we note that additional funding will be required to support this process. We leave our estimates unchanged.