RedHill Biopharma: Multiple Drugs In Advanced Phase III Development Provide Substantial Upside

| About: Redhill Biopharma (RDHL)
This article is now exclusive for PRO subscribers.

Summary

RedHill Biopharma is an undervalued biotech company focused on treating GI diseases, including Crohn's; inflammatory diseases; and cancer.

RedHill has multiple drugs in advanced Phase III clinical trials.

RedHill has an experienced management team, is well funded, and has multiple upcoming catalysts.

RDHL Chart

RDHL data by YCharts

RedHill Biopharma Ltd. (NASDAQ:RDHL) is an Israeli-based specialty biopharmaceutical company primarily focused on the development and commercialization of late clinical-stage, proprietary, orally-administered, small molecule drugs for the treatment of gastrointestinal (NYSE:GI) and inflammatory diseases, including cancer. RedHill's head office is located in Tel-Aviv, Israel.

Summary

  • Market cap: $175 million
  • Common shares outstanding: 170.5 million listed on Tel-Aviv stock exchange (equivalent to approximately 17.05 million RedHill ADSs traded on NASDAQ under symbol RDHL)
  • Cash and short-term investments: $70 million (January 12, 2017)
  • 52-week share price range: $8.77 - $16.54
  • Current share price: (as of market close on March 17, 2017) $10.20

Note: All dollar references in this article are in U.S. currency.

When I first read about RedHill Biopharma a few months ago, I was surprised to learn that it had a market cap of only $175 million with little or no debt and approximately $70 million in cash (as of January 12, 2017).

I also had a chance to speak briefly to its CEO Dror Ben-Asher about 3 weeks ago, who I found to be very open and knowledgeable.

For a small company, RedHill has a remarkable number of advanced stage drugs in its pipeline with very significant potential markets; as well 2017 is an important year for RedHill with a number of upcoming catalysts.

Of its 7 drugs in clinical development, RedHill has three potential blockbuster gastrointestinal drugs in three ongoing U.S. Phase III clinical trial programs:

(1) RHB-104 (Crohn's): First Phase III study ongoing;

(2) RHB-105 (H. pylori): First Phase III study successfully met its primary endpoint with high statistical significance (p<0.001), confirmatory Phase III planned to be initiated in Q2/2017; and

(3) BEKINDA®* (RHB-102) (gastroenteritis and gastritis): Phase III study ongoing.

As well, RedHill has multiple ongoing additional Phase II programs.

From its February 23, 2017 annual report Form 20-F filed with the SEC for foreign reporters, the following summary was provided by RedHill:

Name of
Product

Relevant Indication

Potential
Advantages
Over
Most Existing
Treatments

Development
Stage

Rights to the
Prod
uct

RHB-105

H. pylori infection

Improved efficacy, potential to overcome bacterial resistance; all-in-one pill

First Phase III study in the U.S. completed. Confirmatory Phase III study planned

Acquired all rights to the composition and use of two antibiotics and a proton pump inhibitor, worldwide and exclusive. We filed our own IP applications directed to the proposed commercial formulation and use

RHB-104

Crohn's disease

Novel mechanism of action and improved clinical benefit (targeting suspected underlying cause of Crohn's disease)

First Phase III study in N. America, Israel, Australia, New Zealand and Europe ongoing

Acquired all rights to the triple antibiotic combination and its use, worldwide and exclusive. We filed our own IP applications directed to the proposed commercial formulation and use

RHB-104

Multiple sclerosis (NYSE:MS)

Oral formulation and novel mechanism of action

Phase IIa proof of concept study in Israel completed

Acquired all rights to the triple antibiotic combination and its use, worldwide and exclusive. We filed our own IP applications directed to the proposed commercial formulation and use

RHB-104

Nontuberculous Mycobacteria (NTM) infections

Oral formulation targeting suspected underlying cause of NTM infections

Under review

Acquired all rights to the triple antibiotic combination and its use, worldwide and exclusive. We filed our own IP applications directed to the proposed commercial formulation and use

BEKINDA 24 mg

Acute gastroenteritis and gastritis

No other approved 5-HT3 serotonin receptor inhibitor for this indication; once daily dosing

Phase III ongoing in the U.S.

Worldwide, exclusive license to technology used in the commercial formulation. We filed our own IP applications directed to the proposed commercial formulation and use

BEKINDA 12 mg

IBS-D

Potential 5-HT3 serotonin receptor inhibitor with improved safety, while maintaining efficacy, for broader use in the indication

Phase II ongoing in the U.S.

Worldwide, exclusive license to technology used in the commercial formulation. We filed our own IP applications directed to the proposed commercial formulation and use

RHB-106

Bowel preparation

Oral pill, avoid severe bad taste of chemical solutions, no known nephrotoxicity issues

Licensed to Valeant (which acquired Salix Pharmaceuticals, Inc.)

Worldwide rights licensed to Valeant

YELIVA

Advanced solid tumors

Oral administration, first-in-class SK2 selective inhibitor, with anti-inflammatory and anti-cancer activities

Phase I study in the U.S. completed (ABC-101)

Worldwide, exclusive license

YELIVA

Refractory or relapsed diffuse large B-Cell lymphoma (DLBCL), including patients with virus-induced (e.g., KSHV- or EBV-associated) lymphoma, or Kaposi sarcoma

Oral administration, first-in-class SK2 selective inhibitor, with anti-inflammatory and anti-cancer activities

Phase I/IIa study in the U.S. initiated (ABC-102)

Worldwide, exclusive license

YELIVA

Refractory or relapsed multiple myeloma

Oral administration, first-in-class SK2 selective inhibitor, with anti-inflammatory and anti-cancer activities

Phase Ib/II study in the U.S. initiated (ABC-103)

Worldwide, exclusive license

YELIVA

Advanced hepatocellular carcinoma

Oral administration, first-in-class SK2 selective inhibitor, with anti-inflammatory and anti-cancer activities

Phase II study in the U.S. initiated (ABC-106)

Worldwide, exclusive license

YELIVA

Oncology support, prevention of radiation - associated mucositis in the treatment of head and neck cancer

Oral administration, first-in-class SK2 selective inhibitor, with anti-inflammatory and anti-cancer activities.

Phase Ib study planned (ABC-104)

Worldwide, exclusive license

YELIVA

Moderate to severe ulcerative colitis

Oral administration, first-in-class SK2 selective inhibitor, with anti-inflammatory and anti-cancer activities.

Phase II study planned (ABC-105)

Worldwide, exclusive license

MESUPRON

Gastrointestinal and other solid tumors

Oral administration; new non-cytotoxic approach to cancer therapy potentially inhibiting both tumor invasion and metastasis

Completed two Phase II studies; Pre-clinical studies ongoing, preparations for Phase I/II study for resected pancreatic cancer

Worldwide exclusive license; excludes China, Hong Kong, Taiwan and Macao

RIZAPORT

Acute migraine

Oral thin film formulation; Avoids exacerbation of nausea, administered without water, ease of use, convenient portability and discrete carriage and use

NDA filed and accepted, Complete Response Letter (NYSE:CRL) received and preparing for resubmission in the U.S.; European marketing application approved in Germany

Worldwide, exclusive license and co-development

Combination against Ebola virus

Ebola virus disease

Efficacy and safety

Nonclinical research collaboration with a U.S. government agency ongoing

All worldwide rights to the product. We filed our own IP applications directed to the combination formulations and their use

1. RHB-105 - Treatment of Helicobactger pylori ("H. pylori") infections

RHB-105: RedHill's first Phase III clinical study testing RHB-105 to treat H. pylori successfully met its primary endpoint (the occurrence of H. pylori eradication as confirmed via 13C Urea Breath Test 28 - 35 days after completion of treatment), with high statistical significance (p<0.001) and with no serious adverse events. The first Phase III trial involved a study duration of 14 days with 118 patients in 13 sites in the U.S.

A prior Phase II study in Australia (2 arm single site with 130 patients) over 12 days showed 90% efficacy with no serious adverse events.

A confirmatory follow up Phase III study is being initiated next month and expects to enroll 440 subjects in up to 55 clinical sites in the U.S.

RHB-105 appears to have higher efficacy than the current standard of care in eradicating resistant H. pylori strains, and has a broader indication than current therapies with a larger potential patient population.

According to RedHill, H. pylori infection is the strongest risk factor for the development of gastric cancer and peptic ulcer disease. The prevalence of H. pylori infection in the US is estimated at 30% to 40% of the population with three million treated patients. (Source: Chey WD et al. Management of Helicobacter pylori Infection. Am J Gastroenterol 2007; 102: 1808-1825).

The company indicates that standard therapy fails in approximately 30% of patients who remain H. pylori positive due to growing resistance to the commonly used antibiotics to treat H. pylori (clarithromycin and metronidazole)

RHB-105 received Qualified Infectious Disease Product (QIDP) designation under the GAIN Act. As part of this QIDP designation, FDA's review of the drug application is expedited and also qualifies the drugs for five years of marketing exclusivity to be added to certain exclusivity already provided by the Food, Drug, and Cosmetic Act. RHB-105 also received Fast Track designation, Priority Review, and extended market exclusivity for 8 years.

The company estimates the U.S. and global markets at approximately $1.45 billion and $4.83 billion respectively. Assuming that RHB-105 succeeds in obtaining approval and is found to be materially more than effective than the current standard of care, it would be reasonable to expect 20% or higher market share.

2. RHB-104

RHB-104 is an oral combination therapy targeting MAP bacteria for the treatment of Crohn's disease and potentially other autoimmune diseases.

RedHill has an ongoing first 410 patient Phase III study in the treatment of Crohn's disease in adult patients (with approved Orphan Drug Designation for pediatric patients). On October 6, 2016 RedHill announced that this Phase III study had been modified to increase its size and add an early stop option (expected in Q2 2017) where overwhelming efficacy (p < 0.003) is demonstrated.

The Phase III study is ongoing in North America, Europe, Israel, Australia and New Zealand in up to 150 sites.

Dror Ben-Asher, CEO, believes that this MAP treatment approach is revolutionary. No doubt there is tremendous unmet need in the treatment of Crohn's disease in which approximately 80% of patients end up in surgery.

In December, 2016 there was positive and unanimous recommendation received from the DSMB to continue the Phase III study as planned. The second DSMB meeting expected in Q2 2017 once 50% of subjects complete 26 weeks of study participation. Completion of all patient enrolment in the current Phase III study is expected by the end of 2017.

There are also a couple of open-label extension studies being initiated.

The current standard of care drugs used to treat Crohn's disease have limited efficacy and are associated with numerous side effects. As well the current cost of anti-TNFz drug treatments are $29,000 to $44,000 per year.

Dror Ben-Asher, CEO, believes that RHB-104 can be priced lower and be much more effective than the current standard of care.

RedHill has presented extensive evidence (see its recent March 2017 corporate presentation found on RedHill's website) that intracellular mycobacteria (MAP) plays a crucial role in Crohn's disease.

In a small single site Australian study, results presented in October 2013 indicated that RHB-104 resulted in 80% remission in the small group of pediatric patients (8 out of 10 patients) with only mild adverse events.

The company estimates the worldwide market for the treatment of Crohn's exceeds $5.7 billion. Potentially this could be a blockbuster for RedHill.

RHB-104 - Multiple Sclerosis indication: As well, RedHill has completed a proof-of-concept Phase IIa study testing RHB-104 in the treatment for multiple sclerosis which generated encouraging results. The study was completed in December 2016 with 18 patients in 2 sites in Israel. Top-line final results after completion of the 24 week treatment period and the 24 week follow up treatment period with interferon beta-1a without RHB-104 add on, demonstrated positive safety and efficacy signals and support further clinical development.

RHB-104 - Select Additional Potential INdications: RHB-104 has been tested pre-clinically for the treatment of Rheumatoid Arthritis, Lupus, Type 1 Diabetes, Psoriasis, and Nontuberculous Myclobacteria (NTM) infections. In fact RHB-104 has been granted QIDP designation by the FDA for the treatment of NTM, and is consulting with the FDA to develop a clinical program to test treatment of NTM.

BEKINDA (RHB-102) - A once-daily oral pill formulation of ondansetron with both an ongoing Phase III study treating acute gastroenteritis and gastritis and an ongoing Phase II study for Irritable Bowel Syndrome (IBS-D).

RHB-102 is also being used for oncology support. European MAA for oncology support indications in discussions with European regulatory authorities. RedHill estimates the potential worldwide market size to be $470 million.

Top line Phase III results (double blind "GUARD" study) for the treatment of gastroenteritis are expected to be released in Q2 2017. The GUARD study was initiated in September 2014 with 320 adults and children over 12 years of age, in up to 30 sites in the U.S. The primary endpoint is the absence of vomiting through the protocol-defined period. On February 13, 2017 RedHill announced that enrollment was complete in its GUARD study assessing BEKINDA (ondansetron) 24 mg for the treatment of acute gastroenteritis and gastritis. Ondansetron is already approved for sale in the U.S. for the prevention of chemotherapy-, radiotherapy- and surgery-induced nausea and vomiting. RedHill states that BEKINDA slows intestinal transit time in humans, hence its utility in treating gastrointestinal disorders.

If approved by the FDA, it could become the first 5-HT3 antiemetic drug in the USA for the treatment of acute gastroenteritis or gastritis. Long lasting (24 hour) oral treatment with potential reduce hydration and hospital visits.

Following discussions with the FDA, RedHill believes that the Phase III study may be sufficient as a single Phase III study to support future marketing applications in the U.S. conditional, among other factors, achieving highly significant positive results and future review and guidance from the FDA.

The company estimates the worldwide potential market to exceed $650 million annually.

Top line Phase II, double blind, 2-arm (12 mg and 24 mg) study to evaluate the safety and results of BEKINDA (RHB-102) for the treatment of Diarrhea-Predominant Irritable Bowel Syndrome (IBS-D) are expected in mid 2017.

The BEKINDA Phase II IBS-D study has 120 patients in 16 test sites in the U.S.

The Company estimates the U.S. market to treat IBS-D to exceed $1.3 billion by 2020.

RHB-106 - This is an encapsulated formulation for bowel preparation which RedHill licensed worldwide rights to Salix Pharmaceuticals Ltd. in February 2014. Salix (acquired by Valeant in April 2015) estimates peak Rx share of 20% with annual sales of $280 million. Current status is that a Phase IIa study was conducted in 62 patients in Australia. Salix has assumed responsibility for future development of RHB-106. Potential advantages of RHB-106 is improved safety, no need to consume liquid solution and no bad taste.

YELIVA (ABC294640) - Multiple Phase I and Phase II-stage, orally-administered, first-in-class SK2 selective inhibitor targeting multiple oncology, inflammatory and gastrointestinal indications.

Phase 1 open label study with YELIVA in cancer patients with advanced solid tumors successfully met its primary and secondary endpoints. 21 patients with advanced solid tumors, majority of whom were GI cancer patients, achieved positive final results announced in June, 2016.

Phase 1b/ II open label, dose escalation study for the treatment of refractory or relapsed multiple myeloma initiated at Duke University Medical Center initiated in September 2016, with up to 77 patients, supported by $2 million NCI grant.

Phase II study to evaluate efficacy and safety of YELIVA as a second-line monotherapy in patient with advanced Hepatocellular Carcinoma, initiated in October, 2016 with up to 2016 at the Medical University of South Carolina and additional clinical sites. Supported by $1.8 million grant from the NCI.

Initiation of a Phase 1b study to evaluate YELIVA as a radio-protectant for the prevention of mucositis in head and neck cancer patients undergoing therapeutic radiotherapy is scheduled to being in H1 2017.

MESUPRON - A Phase II-stage, orally-administered, first-in-class uPA inhibitor targeting gastrointestinal and other solid tumor cancers. Successful completion of two Phase II proof of concept clinical studies. Initiation of a Phase II development program expected in 2017 subject to successful outcome in ongoing non-clinical studies.

RP101 - Has multiple treatment applications. Planned indication for congestive heart failure and hypertension.

A Phase II-stage orally-administered, first-in-class Hsp27 inhibitor targeting pancreatic and other gastrointestinal cancers, currently subject to an option-to-acquire by RedHill.

RIZAPORT (RHB-103) - An oral thin film formulation of rizatriptan, for the treatment of acute migraines. An NDA was filed with the FDA in 2013 and a CRL received from the FDA in February, 2014. Resubmission of a new NDA is currently under discussion with the FDA and expected to be filed in H1 2017.

A marketing authorization was received in Germany in October 2015 under the brand name RIZAPORT. A commercialization agreement has been entered into with Grupo JUSTE for Spain and with Pharmactronic Co. for South Korea.

RedHill estimates that the worldwide triptan market for migraines is approximately $697 million.

Donnatal: In December, 2016 RedHill entered into an exclusive U.S. co-promotion agreement with a subsidiary of Concordia International Corp. (NASDAQ: CXRX) (TSX: CXR) for Donnatal, a prescription oral adjunctive drug (tablets and elixir) used in the treatment of IBS and acute enterocolitis.

Redhill is contractually obligated under its contract with Concordia to hire a 30 person sales force in the U.S. to promote Donnatal. The promotion has been announced to begin in Q2 2017. This will allow RedHill to establish a GI specialty salesforce in the U.S. which will form the basis of a larger sales force to sell its own GI related products (RHB-104/ RHB-105/ BEKINDA) if and when approved by the FDA.

In RedHill's February 25, 2017 earnings call, the company announced that it was looking for (and in some stage of discussions) to acquire or license additional GI drugs to add to its product line to be promoted by its sales force, and expected to add at least one new GI drug to be promoted within the U.S. within the year.

On March 7, 2017, RedHill announced that it plans to initiate the promotion of Donnatal in the U.S. in Q2 2017.

Upcoming Catalysts:

1. Q2 2017

RHB-104: There is a second DSMB meeting for the MAP US Phase III study for Crohn's disease in Q2 2017, to conduct a safety and interim efficacy analysis. The DSMB will have the first option (as 50% of enrollment having completed 26 weeks of treatment) for an early stop of the clinical trial for success where overwhelming efficacy is demonstrated. However, given the very high p value threshold to demonstrate "overwhelming efficacy" (p <0.003) it is likely that the Phase III clinical trial will continue. The potential of an early stop is however a low risk, high reward proposition.

RHB-105: • Initiation of a confirmatory pivotal Phase III study with RHB-105 for the treatment of H. pylori infection to begin in April, 2017.

BEKINDA® (RHB-102): • Top-line Phase III results in the 320 patient GUARD study (gastroenteritis) to be read out in Q2 2017 or early Q3 2017

• Top-line Phase II results of BEKINDA for the treatment of IBS-D to be read out in mid-2017.

YELIVA® (ABC294640): • Initiation of Phase Ib study to evaluate YELIVA® as a radio-protectant for prevention of mucositis in head and neck cancer patients undergoing therapeutic radiotherapy.

2. Mid 2017

Donnatal®: Initiation of promotional activities for Donnatal in select U.S. territories with up to 30 sales reps in Q2 2017.

3. Q3 2017

RIZAPORT® (RHB-103) for the treatment of migraines: • Re-submission of U.S. NDA with potential approval in early 2018 with a potential commercial launch in Q2 or Q3 2018.

4. H2 2017

YELIVA® (ABC294640): • Initiation of a Phase II study with YELIVA® for ulcerative colitis.

MESUPRON • Initiation of a Phase I/II study with MESUPRON for pancreatic cancer in Germany.

Expectations are for trial continuation given a high p-value threshold of p<0.003 for an early stop to the trial. That said, with expectations for continuation, this presents a high reward, low risk event.

5. 2017 - Additional GI Drugs to be Acquired

The acquisition or in-licensing of one or more GI drugs to be promoted within the U.S. by RedHill's 30 person GI sales force being hired to promote Donnatal.

Experienced Leadership Team

Dror Ben-Asher, CEO (formerly P.C.M.I. Ltd.)

Adi Frish, Senior VP Business Development & Licensing (formerly Y. Ben-Dror, MediGus)

Reza Fathi PhD, Senior VP R&D (formerly XTL, PharmaGenics, Harvard Inst. of Chem. & Cell Biology)

Patricia Anderson, VP Regulatory Affairs (formerly MAPI Group, OptumInsight, Bayer, Novopharm)

Ira Kalfus MD, Medical Director (formerly Lev Pharmaceuticals, Aetna/US Healthcare)

Terry F. Plasse MD, (formerly Medical Director Rhone Poulenc-Rorer, Cytokine PharmaSciences)

Aida Bibliowicz, VP Clinical Affairs Europe (MSc Technion, MBA TAU, Cato Research Israel)

Gilead Raday, Chief Operating Officer (MSc Neurology, MBE Cambridge, Sepal Pharma)

Guy Goldberg, Chief Business Officer (formerly Eagle Pharma, ProQuest, Mckinsey)

Micha Ben Chorin, Chief Financial Officer (formerly GVT, Pyramid Analytics, Starhome B.V.)

Shani Maurice, VP Business Development & Communications (formerly Prime Minister's Office)

Clara Fehrmann, Director Clinical Operations (formerly Merck Canada, Santhera Pharmaceuticals, ICON)

Danielle Abramson, PhD, Director IP & Research (PhD Medical Sciences Brown, Patent Agent Greenberg Traurig)

Valuation:

RedHill has a number of very valuable drugs in its pipeline in advanced stages of development.

The approval by the FDA of any of these drugs in the next couple of years (including RHB-105, RHB-104, and Bekinda (RHB-102) could be blockbusters which would significantly increase the value of RedHill (RDHL: NASDAQ). Other assets could significantly add value as well including Mesupron and YELIVA. As well regulatory approval (or partnering) of RedHill's drugs in other ex-U.S. jurisdictions could also add significant value; I am not including the value of same in my analysis.

In reviewing the potential annual peak sales of RHB-105, RHB-104, Bekinda (RHB-102), Rizaport, Yeliva, and the other earlier stage assets, RedHill's annual peak sales of these drugs, if and when approved by the FDA alone, could be well in excess of $500 million and perhaps in excess of $1 billion. I also expect that RHB-105, RHB-104 and Bekinda (RHB-102) may obtain FDA approval in 2018 or 2019 (60% to 70% probability).

Assuming a sum of parts valuations based upon these drugs, if and when approved, to be conservatively valued at two times estimated peak sales at the time of FDA approval; and assuming a 15% discount rate, RDHL shares could be valued in the $30.00 plus range within 12 to 24 months. I actually believe I'm being conservative with this $30.00 share price projection for RDHL; if all goes well for RedHill within the next 12 to 24 months with all 3 of its current Phase III ongoing trials for RHB-105, RHB-104 and Bekinda, $30.00 could look very cheap.

In its February 3, 2017 note on RedHill, Roth Capital Partners issued a Buy rating on RedHill with a 12 month $26.00 target price based on a sum-of-the-parts analysis: RHB-104 ($10.00/share), RHB-105 ($5.50/share), RHB-102 ($2.50/share), RHB-103 ($1.00/share), cash (~$4.50/ share) and the remaining pipeline / Donnatal ($2.50/share).

H.C. Wainwright issued a report on RDHL on January 4, 2017 maintaining a Buy rating and a 12 month price target of $33.00 .

Risks: RedHill represents an undervalued, speculative, high-risk investment with a very substantial upside. I began buying RDHL shares just over a month ago at about $9.75 per share.

RedHill has an experienced management team, is reasonably funded at present, has very promising clinical results to date in a number of different advanced clinical trials in a number of drugs treating a number of diseases with unmet clinical needs.

Risks include, but are not limited to, clinical trial failure risks, market forecasting risks, future financing and potential dilution risks, intellectual property risks, liquidity issues trading on NASDAQ, country risk (being based in Israel exposes it to risks inherent in Israel being potentially subject to military or terrorist attack), competition, the loss of key personnel, and general market and economic risks generally attributable to public early stage biotech companies. For additional discussions of potential investment risks please review the February 23, 2017 Form 20-F filed by RedHill with the SEC found here.

Disclosure: I am/we are long RDHL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.