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Research: Healthcare
Redhill Biopharma
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Redhill Biopharma |
Co-promotion deal and key catalysts in 2017 |
Co-promotion agreement |
Pharma & biotech |
12 January 2017 |
Share price performance
Business description
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On 27 December the company completed a successful $38m fund-raising and announced a co-promotion deal in the US, which may turn RedHill into a commercial-stage, revenue-generating gastrointestinal specialty pharma company. In addition, the company revealed final results from the Phase IIa trial for RHB-104 in multiple sclerosis, which echoed positive interim findings earlier in 2016. Next steps will depend on further detailed analysis. Our post fund-raise valuation is NIS1.5bn ($378m) ahead of several key late-stage catalysts in 2017.
Year end |
Revenue ($m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/14 |
7.0 |
(10.7) |
(0.12) |
0.0 |
N/A |
N/A |
12/15 |
0.0 |
(21.1) |
(0.19) |
0.0 |
N/A |
N/A |
12/16e |
0.0 |
(25.1) |
(0.17) |
0.0 |
N/A |
N/A |
12/17e |
0.1 |
(32.9) |
(0.20) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Co-promotion deal in the US with focus on GI
A recent major announcement was for a co-promotion deal between RedHill and Concordia Healthcare, according to which RedHill will gain certain rights to promote a gastrointestinal specialty drug Donnatal (phenobarbital, hyoscyamine sulfate, atropine sulfate, scopolamine hydrobromide) in selected regions in the US. Donnatal is a proprietary combination of established compounds, which has anticholinergic (slows down the motility of intestinal muscles) and barbiturate (mild sedation) effects and has been classified by the FDA as possibly effective in irritable bowel syndrome and acute enterocolitis. Donnatal was acquired by Concordia in 2014 and had sales of $71m in H116 (7.7% of Concordia’s sales).
Strategic shift to commercial business
Although few commercial details were released, the co-promotion deal marks RedHill’s transition into a lower risk, vertically integrated, revenue-generating business. Donnatal is an established product with an existing market, so the first goal, in our view, is to get the margins right and set up a profitable US business and then look for growth. Part of the rationale is that RedHill will be able to use the US commercial business to market its own GI specialty products currently in R&D: Bekinda for gastroenteritis and irritable bowel disease with diarrhoea (IBS-D), RHB-105 for H. pylori infection, RHB-104 for Crohn’s disease (CD).
Valuation: Funding secures cash reach past catalysts
We do not yet include the co-promotion deal in our valuation, but will revisit it when more details emerge. Our valuation on an absolute basis increases from NIS1.25bn to NIS1.5bn (from $323m to $378m) including the $38m in new funds (from issuing ADSs equivalent to c 30% of the then existing shares) and rolling our model forward. On a per-share basis, we have slightly decreased our valuation from NIS9.8/share to NIS8.5/share (from $25.4 to $22.2/ADS). The new funds secure cash to easily cover near-term catalysts: 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 mid-2017 and top-line Phase II results in IBS-D in mid-2017.
Exhibit 1: Financial summary
$'000s |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016e |
2017e |
|||
December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
|||
PROFIT & LOSS |
|||||||||||
Revenue |
|
|
0 |
23 |
16 |
12 |
7,014 |
3 |
0 |
100 |
|
Cost of Sales |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
(60) |
|||
Gross Profit |
0 |
23 |
16 |
12 |
7,014 |
3 |
0 |
40 |
|||
Research and development |
(736) |
(5,414) |
(6,455) |
(8,100) |
(12,700) |
(17,771) |
(20,437) |
(28,014) |
|||
EBITDA |
|
|
(1,733) |
(7,858) |
(9,016) |
(10,748) |
(10,620) |
(21,966) |
(25,200) |
(32,976) |
|
Operating Profit (before amort. and except.) |
(1,733) |
(7,873) |
(9,040) |
(10,772) |
(10,647) |
(22,002) |
(25,237) |
(33,014) |
|||
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|||
Operating Profit |
(1,733) |
(7,873) |
(9,040) |
(10,772) |
(10,647) |
(22,002) |
(25,237) |
(33,014) |
|||
Net Interest |
(811) |
(7,630) |
(1,286) |
144 |
(64) |
912 |
187 |
109 |
|||
Profit Before Tax (norm) |
|
|
(2,544) |
(15,503) |
(10,326) |
(10,628) |
(10,711) |
(21,090) |
(25,050) |
(32,904) |
|
Profit Before Tax (reported) |
|
|
(2,544) |
(15,503) |
(10,326) |
(10,628) |
(10,711) |
(21,090) |
(25,050) |
(32,904) |
|
Tax |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|||
Profit After Tax (norm) |
(2,544) |
(15,503) |
(10,326) |
(10,628) |
(10,711) |
(21,090) |
(25,050) |
(32,904) |
|||
Profit After Tax (reported) |
(2,544) |
(15,503) |
(10,326) |
(10,628) |
(10,711) |
(21,090) |
(25,050) |
(32,904) |
|||
Average Number of Shares Outstanding (m) |
0.0 |
48.1 |
52.6 |
62.4 |
86.6 |
110.8 |
147.3 |
167.6 |
|||
EPS - normalised ($) |
|
|
(265.00) |
(0.32) |
(0.20) |
(0.17) |
(0.12) |
(0.19) |
(0.17) |
(0.20) |
|
EPS - normalised and fully diluted ($) |
|
(265.00) |
(0.32) |
(0.20) |
(0.17) |
(0.12) |
(0.19) |
(0.17) |
(0.20) |
||
EPS - (reported) ($) |
|
|
(265.00) |
(0.32) |
(0.20) |
(0.17) |
(0.12) |
(0.19) |
(0.17) |
(0.20) |
|
Dividend per share ($) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||
Gross Margin (%) |
N/A |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
N/A |
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 |
|
|
1,208 |
1,450 |
1,533 |
1,739 |
2,837 |
6,318 |
7,281 |
8,249 |
|
Intangible Assets |
1,200 |
1,245 |
1,345 |
1,555 |
2,615 |
6,060 |
7,060 |
8,060 |
|||
Tangible Assets |
8 |
132 |
113 |
103 |
146 |
124 |
87 |
55 |
|||
Investments |
0 |
73 |
75 |
81 |
76 |
134 |
134 |
134 |
|||
Current Assets |
|
|
9,215 |
17,172 |
17,498 |
12,358 |
26,019 |
60,510 |
75,661 |
43,390 |
|
Stocks |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|||
Debtors |
150 |
89 |
198 |
488 |
3,074 |
2,372 |
1,978 |
1,978 |
|||
Cash |
9,050 |
14,070 |
16,814 |
11,851 |
5,892 |
21,516 |
55,372 |
41,412 |
|||
Other |
15 |
3,013 |
486 |
19 |
17,053 |
36,622 |
18,311 |
0 |
|||
Current Liabilities |
|
|
(141) |
(513) |
(1,078) |
(2,415) |
(1,720) |
(5,514) |
(4,664) |
(4,707) |
|
Creditors |
(141) |
(513) |
(1,078) |
(2,415) |
(1,720) |
(5,514) |
(4,664) |
(4,707) |
|||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|||
Long Term Liabilities |
|
|
(11,337) |
(886) |
0 |
0 |
0 |
0 |
0 |
0 |
|
Long term borrowings |
(10,619) |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|||
Other long term liabilities |
(718) |
(886) |
0 |
0 |
0 |
0 |
0 |
0 |
|||
Net Assets |
|
|
(1,055) |
17,223 |
17,953 |
11,682 |
27,136 |
61,314 |
78,278 |
46,932 |
|
CASH FLOW |
|||||||||||
Operating Cash Flow |
|
|
(1,632) |
(4,691) |
(6,795) |
(8,436) |
(12,229) |
(17,826) |
(23,911) |
(31,266) |
|
Net Interest |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|||
Tax |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|||
Capex |
(0) |
(136) |
(8) |
(14) |
(70) |
(14) |
0 |
(5) |
|||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|||
Financing |
0 |
13,838 |
6,550 |
2,280 |
24,369 |
54,792 |
40,455 |
0 |
|||
Other |
566 |
6,628 |
2,997 |
1,207 |
(18,029) |
(21,328) |
17,311 |
17,311 |
|||
Dividends |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|||
Net Cash Flow |
(1,066) |
15,639 |
2,744 |
(4,963) |
(5,959) |
15,624 |
33,856 |
(13,960) |
|||
Opening net debt/(cash) |
|
|
(597) |
1,569 |
(14,070) |
(16,814) |
(11,851) |
(5,892) |
(21,516) |
(55,372) |
|
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) |
|
|
469 |
(14,070) |
(16,814) |
(11,851) |
(5,892) |
(21,516) |
(55,372) |
(41,412) |
|
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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