Redhill Biopharma: An Attractive, Underfollowed $10 Biotech Stock
May 16, 2017 11:39 AM ET| About: Redhill Biopharma Ltd. (RDHL)
Bret Jensen
Summary
Redhill Biopharma gets little attention from analysts or investors in the United States, mainly because it is headquartered in Israel.
However, this provides a buying opportunity given the company's robust pipeline and myriad upcoming potential catalysts.
A full investment & pipeline overview is provided below.
"Facts are stubborn things, but statistics are pliable." ? Mark Twain
Mark Twain
I thought it was a good time to revisit an attractive "off the radar" $10 biotech stock. The shares have not seen much movement over the past six months despite the company continuing to move its pipeline development forward. The should change as additional trial milestones are met and I think the name is very attractive on a risk/reward level.
Company Overview:
With a relatively small market capitalization of around $170 million, shares of Redhill Biopharma (NASDAQ:RDHL) have fallen over 20% in the past year. Shares did spike above $15 in late July however, but the move was short lived. The stock has basically flat lined over the past half year or so.
Founded in 2009, this Israeli specialty biopharmaceutical firm went public at the beginning of 2013 and is currently prioritizing its late clinical-stage orally-administered small molecule drug candidates for the treatment of gastrointestinal and inflammatory diseases, as well as cancer. Management considers their strategy superior in that assets are considerably de-risked and capable of delivering cost-savings to the healthcare system while addressing areas of clear medical need. Another advantage to this strategy is the potentially faster time to market for their drug candidates as compared to other novel chemical entities.
Pipeline:
The company's robust gastrointestinal pipeline includes three ongoing pivotal programs in the United States, with additional phase 2 trials currently underway. They also have two approved specialty GI treatments, as well an asset licensed to Salix Pharmaceuticals which lends them a certain degree of credibility.
Starting off with the company's approved assets, management expects initiation of promotional activities by midyear. In December 2016 Redhill entered into a co-promotion agreement (accompanied by a revenue split) with a subsidiary of Concordia International Corp for US promotion rights for Donnatal, an oral prescription drug in the treatment of IBS and acute enterocolitis. This month they also entered an exclusive license agreement with Entera Health Inc. for exclusive U.S. rights to EnteraGam, a serum-derived bovine immunoglobulin/protein isolate {SBI} intended to restore gut balance. While these products may not significantly affect the bottom line in the near term, they do allow the company to utilize their experienced specialty GI commercial team, while also preparing the way for the launch of other late stage candidates should they make it across the finish line to approval.
While not approved yet, Rizaport is likely to be the first thin film triptan to reach the U.S. market with NDA expected in the third quarter. The drug candidate has already seen its European MAA approved, and offers certain advantages over conventional treatment, especially for migraine patients who are experiencing nausea as is often the case with this condition. Competitive pricing and ease of use could result in increased adherence and lead Rizaport to become the preferred triptan treatment in a worldwide market estimated to be reaching $600 million annually. With a very low cost of production, management estimates profit margins would be quite high, while independent patient and physician surveys have led them to believe there is a lot of interest in a thin film based migraine treatment.
Speaking of late stage assets, RHB-105 is the company's new combination therapy for the treatment of H. pylori infection. In February this year the World Health Organization categorized H.pylori (clarithromycin-resistant) as a pathogen for which there is a high priority need to develop new treatments The candidate, which has QIDP designation and fast track development status, is a novel combination of two antibiotics and a proton pump inhibitor (rifabutin, amoxicillin and omeprazole) in a single oral capsule. With a U.S. market size of $1.45 billion and the initial phase three trial demonstrating 89.4% efficacy in eradicating H. pylori infection with (p< 0.001), RHB-105 appears to have significant potential. A confirmatory phase three study is planned to be initiated in the second quarter, enrolling up to 440 patients.
Moving on, RHB-104 is a combination therapy targeting MAP (mycobacterium avium subsp. paratuberculosis) bacteria for the treatment of Crohn's disease. MAP causes an infectious disease in cattle similar to Crohn's disease, and advances in diagnostic technology have identified high percentages of MAP in Crohn's patients (92% and 86% based on two prior smaller scale studies). A phase three trial for the standard of care treatment (Remicade) In this disease setting revealed that 42% of enrolled patients failed to qualify as responders and only 23 to 26% were in remission at 30 weeks, showing there is much room for improvement. RHB-104 is in an ongoing phase three trial with a second DSMB meeting expected in mid-2017 which will include a safety and interim efficacy analysis, with the possibility of an early stop for success if efficacy is overwhelming.
Figure 3: Clinical and retrospective studies revealing a significant reduction in Crohn's disease activity
RHB-104 also has potential applications in other autoimmune disease settings- a recently completed phase 2a proof of concept study evaluating the drug as an add-on therapy to interferon beta-1a in patients treated for relapsing remitting multiple sclerosis enrolled 18 subjects in two sites in Israel. Positive signals were observed, including only five relapses throughout the study with four occurring in a single patient. 100% of the patient population were relapse free at both 24 and 48 weeks and 88% and 93% of the mITT patient population were relapse free at 24 and 48 weeks, which compared favorably to prior pivotal data utilizing Rebif in comparison with Avonex as standalone first-line therapies (75% and 63%, respectively). Based on preclinical results future studies are planned in rheumatoid arthritis, lupus, type 1 diabetes, and psoriasis.
Touching on the company's other assets, Bekinda is a patent-protected, once-daily extended release oral version of ondansetron that could become the first 5-HT3 antiemetic drug indicated for the treatment of acute gastroenteritis or gastritis in the U.S. Top-line results from a phase three trial are expected in the second quarter and the global potential market for such a treatment could exceed $650 million annually. Top-line results are also expected mid year for a trial utilizing Bekinda to treat patients with diarrhea predominant irritable bowel syndrome (IBS-D).
Finally, Yeliva is a first-in-class orally-administered sphingosine kinase-2 (SK2) inhibitor being tested in several oncology settings. Early data revealed several patients who received Yeliva experiencing prolonged stabilization of disease. Studies are ongoing in multiple myeloma, hepatocellular carcinoma, DLBCL, and Kaposi sarcoma, while others are planned to be initiated in the second half of the year for radioprotection, cholangiocarcinoma, and ulcerative colitis.
Analyst Commentary & Balance Sheet:
The company reported a cash balance of $66 million at the end of 2016, with the strong balance sheet due in part to $35.9 million received from their secondary offering of shares and warrants in December. Net cash used in operating activities for the fourth quarter totaled $10.1 million, up 69% from the same quarter in 2015 due to an increase in research and development costs.
The name appears to be flying under the radar for the moment, with little in the way of analyst coverage and an average price target of $28.00 a share. The name did see the first analyst activity of the year earlier this month as Roth Capital, H.C. Wainwright and FBR Capital all reissued Buy ratings with price targets ranging from $25 to $33 a share
Outlook:
The company has a lot going on within its pipeline given its small market capitalization. Over the next few months, the company should disclose several important trial results which could well act as a positive catalyst for the stock. Given this, it seems an attractive $10 biopharma stock ahead of these milestones.
"There is nothing more deceptive than an obvious fact." ? Arthur Conan Doyle
Thank You & Happy Hunting
Bret Jensen
Founder, Biotech Forum
Disclosure: I am/we are long RDHL.
