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Research: Healthcare
RedHill’s Q219 results released on 23 July 2019 described steady progress across its pipeline, with TALICIA the centre of attention as the PDUFA date (2 November 2019) approaches. Based on the data released, we assign a high likelihood of FDA approval due to the clean dataset from the Phase III trials. From a commercial perspective, RedHill also appears to be ready with a US team in operation since mid-2017. Although potential approval and launch of TALICIA will dominate H219 newsflow, other notable R&D developments include initiation of the pivotal Phase III trial with RHB-204 in NTM infections and a meeting with the FDA to discuss further development of RHB-104 in Crohn’s disease. Our valuation is virtually unchanged.
Written by
RedHill Biopharma |
TALICIA will dominate newsflow in H219 |
Q219 company results |
Pharma & biotech |
30 July 2019 |
Share price performance
Business description
Next events
Analysts
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RedHill’s Q219 results released on 23 July 2019 described steady progress across its pipeline, with TALICIA the centre of attention as the PDUFA date (2 November 2019) approaches. Based on the data released, we assign a high likelihood of FDA approval due to the clean dataset from the Phase III trials. From a commercial perspective, RedHill also appears to be ready with a US team in operation since mid-2017. Although potential approval and launch of TALICIA will dominate H219 newsflow, other notable R&D developments include initiation of the pivotal Phase III trial with RHB-204 in NTM infections and a meeting with the FDA to discuss further development of RHB-104 in Crohn’s disease. Our valuation is virtually unchanged.
Year end |
Revenue ($m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/17 |
4.0 |
(45.5) |
(0.26) |
0.0 |
N/A |
N/A |
12/18 |
8.4 |
(38.8) |
(0.17) |
0.0 |
N/A |
N/A |
12/19e |
10.0 |
(39.5) |
(0.14) |
0.0 |
N/A |
N/A |
12/20e |
13.0 |
(36.8) |
(0.13) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.
PDUFA date 2 November 2019
On 3 July 2019, RedHill announced that the FDA has accepted for review the new drug application (NDA) for TALICIA for the treatment of Helicobacter pylori infection. As TALICIA is a designated Qualified Infectious Disease Product (QIDP), the FDA also granted a priority review, which shortens the usual review time from the standard 10 months to six months. As a result, 2 November 2019 was set as the target Prescription Drug User Fee Act (PDUFA) date. Please see our previous reports for more detail on the market opportunity for TALICIA.
Slight opex increase to prepare for TALICIA launch
In Q219, revenues were $1.6m (Q119: $1.7m, Q218: $2.4m). 2018 was the first full year that RedHill promoted its speciality GI products, and there are therefore a limited number of data points on which to base our forecasts. Total 2018 sales were $8.4m and we keep our 2019 $10.0m sales forecast unchanged. RedHill maintained a high gross margin of 73% Q219. Operating loss of $12.4m increased from $9.2m in Q119, mainly due to the one-off PDUFA payment of $2.6m, expansion of its commercial team with several senior hires, as announced in May 2019, and further preparations for the potential commercial launch of TALICIA in the US in Q419. Cash and cash equivalents were $34.9m at the end of Q219, which currently cover activities into 2020 in our model (but exclude income from TALICIA).
Valuation: $518m or $18.3 per ADS
Our RedHill valuation is virtually unchanged at $518m or $18.3 per ADS, as we maintain the long-term valuation assumptions described in our previous reports. The updated lower cash position was offset by rolling our model forward (Exhibit 2). TALICIA’s launch is the main catalyst this year, while the planned initiation of the pivotal Phase III study with RHB-204 for nontuberculous mycobacteria (NTM) infections in H219 is a notable R&D event.
RedHill Biopharma is a research client of Edison Investment Research Limited
Update on other R&D projects
RedHill’s update on other R&D programmes described mostly steady progress across the pipeline:
■
RedHill plans to meet the FDA in H219 to discuss further development of RHB-104 (clarithromycin, rifabutin and clofazimine). Positive results from the first Phase III with RHB-104 for Crohn’s disease were reported in August 2018 (details in our previous notes). The next likely step is a confirmatory Phase III trial.
■
A pivotal Phase III trial with RHB-204 (clarithromycin, clofazimine and rifabutin) for first-line pulmonary NTM infections is expected to start in Q419. This is still subject to completion of the ‘ongoing supportive non-clinical program’ and additional input from the FDA. The upcoming Phase III study could be sufficient for the approval of RHB-204 as a standalone, first-line treatment for pulmonary NTM infections caused by Mycobacterium avium complex (MAC). The NTM infections indication is the latest addition to RedHill’s R&D pipeline and we reviewed the potential of RHB-204 for these difficult-to-diagnose and difficult-to-treat NTM infections in our outlook report. RHB-204 was also granted QIDP designation by the FDA for the treatment of NTM Infections, which should also include such benefits as priority review, fast-track designation and extended market exclusivity. RedHill provided some additional details about potential timelines during the analyst call Q&A session. The expected primary endpoint for accelerated approval should be six months of treatment, which will be followed with an additional treatment through 15 months. In the case of a successful outcome, the drug could be approved around end-2021, which makes it one of the lead programmes in the pipeline currently when it comes to time to market. Our model assumes approval process in 2022 and market launch in 2023 and is therefore more conservative than the preliminary indications from RedHill, but we will review it once the trial design is clear and enrolment starts.
■
RedHill is also working on two indications for BEKINDA (bimodal extended release, once-daily, ondansetron) – acute gastroenteritis and diarrhoea-predominant irritable bowel syndrome (IBS-D). The company met with the FDA after the positive results from the first Phase III trial with BEKINDA for gastroenteritis and is now designing a confirmatory Phase III study in this indication. Similarly, RedHill is finalising the design of two pivotal Phase III studies with BEKINDA for IBS-D after a positive Phase II trial. No specific timelines have been provided.
■
YELIVA (SK2 inhibitor) is undergoing a Phase IIa study in cholangiocarcinoma, with the study expected to be fully enrolled (n=39) by the end of 2019. In addition, YELIVA is being explored in two other investigator-led clinical trials in refractory/relapsed multiple myeloma and advanced hepatocellular carcinoma.
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Exhibit 1: RedHill’s R&D pipeline |
|
|
Source: RedHill Biopharma |
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 |
148.2 |
5.2 |
90% |
133.1 |
4.7 |
RHB-104, - Crohn’s disease |
2023 |
145 |
82.4 |
2.9 |
50% |
37.2 |
1.3 |
RHB -204, - NTM infections |
2024 |
50 |
54.2 |
1.9 |
30% |
14.5 |
0.5 |
BEKINDA, - Gastroenteritis |
2022 |
21 |
33.6 |
1.2 |
85% |
28.2 |
1.0 |
- IBS-D |
2023 |
201 |
158.4 |
5.6 |
60% |
115.8 |
4.1 |
YELIVA, - Cholangiocarcinoma |
2024 |
115 |
185.5 |
6.5 |
10% |
14.3 |
0.5 |
- r/r MM |
2025 |
565 |
283.4 |
10.0 |
10% |
72.5 |
2.6 |
- Advanced HCC |
2025 |
649 |
170.8 |
6.0 |
10% |
53.9 |
1.9 |
GI specialty products |
Market |
48 |
13.5 |
0.5 |
100% |
13.5 |
0.5 |
Net cash (last reported) |
34.9 |
100% |
34.9 |
1.2 |
|||
Valuation |
1,165.0 |
39.8 |
517.9 |
18.3 |
|||
Source: Edison Investment Research. Note: WACC = 12.5% for product valuations. IBS-D = irritable bowel syndrome; r/r MM = refractory/relapsed multiple myeloma; HCC = hepatocellular carcinoma; NTM = nontuberculous mycobacteria.
Exhibit 3: Financial summary
$'000s |
|
2016 |
2017 |
2018 |
2019e |
2020e |
|
December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
101 |
4,007 |
8,360 |
10,000 |
13,000 |
Cost of Sales |
0 |
(2,126) |
(2,837) |
(3,500) |
(4,550) |
||
Gross Profit |
101 |
1,881 |
5,523 |
6,500 |
8,450 |
||
Research and development |
(25,241) |
(32,969) |
(24,862) |
(22,684) |
(22,976) |
||
EBITDA |
|
|
(30,499) |
(51,891) |
(39,241) |
(39,451) |
(36,732) |
Operating Profit (before amort. and except.) |
(30,543) |
(51,972) |
(39,331) |
(39,545) |
(36,831) |
||
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
(30,543) |
(51,972) |
(39,331) |
(39,545) |
(36,831) |
||
Net Interest |
1,173 |
6,428 |
511 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(29,370) |
(45,544) |
(38,820) |
(39,545) |
(36,831) |
Profit Before Tax (reported) |
|
|
(29,370) |
(45,544) |
(38,820) |
(39,545) |
(36,831) |
Tax |
0 |
0 |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(29,370) |
(45,544) |
(38,820) |
(39,545) |
(36,831) |
||
Profit After Tax (reported) |
(29,370) |
(45,544) |
(38,820) |
(39,545) |
(36,831) |
||
Average Number of Shares Outstanding (m) |
128.5 |
176.6 |
231.2 |
283.8 |
284.1 |
||
EPS - normalised ($) |
|
|
(0.23) |
(0.26) |
(0.17) |
(0.14) |
(0.13) |
EPS - normalised fully diluted (c) |
|
|
(24.00) |
(25.79) |
(16.79) |
(13.93) |
(12.97) |
EPS - (reported) ($) |
|
|
(0.23) |
(0.26) |
(0.17) |
(0.14) |
(0.13) |
Dividend per share ($) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
100.0 |
46.9 |
66.1 |
65.0 |
65.0 |
||
EBITDA Margin (%) |
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 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
6,397 |
5,667 |
5,623 |
9,592 |
9,551 |
Intangible Assets |
6,095 |
5,285 |
5,320 |
5,355 |
5,390 |
||
Tangible Assets |
165 |
230 |
163 |
92 |
16 |
||
Investments |
137 |
152 |
140 |
4,145 |
4,145 |
||
Current Assets |
|
|
67,815 |
51,676 |
56,788 |
20,897 |
5,134 |
Stocks |
0 |
653 |
769 |
1,300 |
1,300 |
||
Debtors |
1,661 |
4,818 |
2,834 |
2,834 |
2,834 |
||
Cash |
53,786 |
16,455 |
29,005 |
16,763 |
1,000 |
||
Other* |
12,368 |
29,750 |
24,180 |
0 |
0 |
||
Current Liabilities |
|
|
(5,356) |
(11,830) |
(10,381) |
(12,302) |
(12,302) |
Creditors |
(5,356) |
(11,830) |
(10,381) |
(12,302) |
(12,302) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(6,155) |
(448) |
(844) |
(4,525) |
(22,874) |
Long term borrowings |
0 |
0 |
0 |
0 |
(18,349) |
||
Other long term liabilities |
(6,155) |
(448) |
(844) |
(4,525) |
(4,525) |
||
Net Assets |
|
|
62,701 |
45,065 |
51,186 |
13,662 |
(20,490) |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
(28,258) |
(44,769) |
(34,462) |
(35,864) |
(34,054) |
Net Interest |
0 |
0 |
0 |
0 |
0 |
||
Tax |
0 |
0 |
0 |
0 |
0 |
||
Capex |
(85) |
(146) |
(23) |
(23) |
(23) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
0 |
||
Financing |
36,017 |
25,653 |
42,263 |
0 |
0 |
||
Other** |
24,596 |
(18,069) |
4,772 |
23,645 |
(35) |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
32,270 |
(37,331) |
12,550 |
(12,242) |
(34,112) |
||
Opening net debt/(cash) |
|
|
(21,516) |
(53,786) |
(16,455) |
(29,005) |
(16,763) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(53,786) |
(16,455) |
(29,005) |
(16,763) |
17,349 |
Source: RedHill accounts, Edison Investment Research. Note: *Bank deposits and financial assets at fair value. **Includes bank deposits converted to cash and cash equivalents.
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Research: Energy & Resources
In June 2019, Hurricane Energy successfully delivered first oil from the Lancaster early production system (EPS) on time and on budget. Initial production performance has been ahead of management expectations providing support for increasing the EPS production plateau from a current base case of 17kbd to c 30kbd from Q420/Q121. Key to achieving this would be access to gas export, together with success at the ongoing Lincoln Crestal well, 205/26b-14, in the Greater Warwick Area (GWA). In this note, we update our short-term oil price deck (continuing to use last published EIA short-term forecasts) and adjust operational metrics to reflect the latest company guidance. In addition, we increase our risking of GWA to reflect the results of the Warwick Deep exploration well and remove the risked value we had included for Halifax. Overall, these leave our valuation broadly unchanged at 102.8p/share (+0.5%).