RedHill: The Waiting Game Continues
Jul. 20, 2021 4:20 AM ETRedHill Biopharma Ltd. (RDHL)
Summary
RedHill's downbeat share trajectory is testing shareholder patience as its catalysts are slow to develop.
RedHill's FDA approved therapies, Talicia and its Aemcolo, are both stalled at the starting gate.
MOVANTIK revenues are coming in nicely and provide financial support while laggards catch up.
RedHill's oral opaganib study in treatment of severe COVID-19 keeps snagging headlines, nothing significant yet, but hard data should be available soon.
RedHill (RDHL) has built a three pronged base for a solid business with
the FDA approval of Talicia (omeprazole magnesium, amoxicillin and rifabutin) in treatment of H. Pylori;
in-licensed FDA approved therapies, MOVANTIK (naloxegol) for opioid induced constipation and Aemcolo (rifamycin) for travelers' diarrhea; and
solid late stage pipeline with several phase 3 candidate therapies.
This article counsels patience in the face of RedHill's sales price and market cap declines as it fends off the ongoing challenges of COVID-19 and waits to report results from its own studies in treatment of COVID-19.
RedHill's share price weakness fails to account for its favorable future prospects.
RedHill's recent (07/17/21) share price <$6.00 was hovering right at its 52 week low. When last discussed in "RedHill: More To Come", RedHill sported a market cap of ~$0.34 billion. Its current market cap of ~$0.23 billion reflects a discount of nearly 33%.
In the interim, premarket on 05/27/21, it reported Q1, 2021 earnings. Seeking Alpha reported its earnings as beating by $0.29 (note that Seeking Alpha's earnings page characterizes Q1, 2021 earnings as missing consensus by $0.21) and missing on revenues by $2.3 million. RedHill's earnings press release characterized its Q1 net earnings revenues as:
...approximately $20.6 million for the first quarter of 2021, a decrease of $0.9 million compared to the fourth quarter of 2020. The decrease was mainly attributable to typical cyclical trends in Movantik sales.
Judging by its immediate price and share volume response to its earnings, these did not disappoint as revealed by its price and volume chart below:
Chart
Data by YCharts
Actually its volume spiked briefly on release of earnings with the price showing no sustained reaction until after 07/01/21. In early July, with no apparent news, its price has been dropping during from >$7.00 to below $6.00, nearly 15%. Its 07/15/21 price drop $0.50 on high volume was particularly unnerving for those watching daily movements.
Two of RedHill's three FDA approved therapies are barely contributing to revenues as of the most recent earnings report.
During RedHill's Q1, 2021 earnings call it advised its resumption of Aemcolo promotions at the start of April, in other words after the close of Q1. There was no reason to spend money promoting a traveler's diarrhea remedy when foreign travel was stalled due to COVID-19.
The latest CDC recommendation, which is subject to update, recommends against international travel for those not fully vaccinated. As I write on 07/18/21 worldwide travel is subject to a patchwork of restrictions.
Border crossings to Mexico are restricted to essential travel through 07/21/21. Air travel to Mexico is permitted with restrictions. On investigating the prevalence of travelers' diarrhea, I encountered the following informative graphic on google:
Aemcolo is priced at retail at <$200 for a package of 12. Each script will most likely net RedHill <$100. Once travel is back to normal, Aemcolo will be jockeying for a potential market that could be substantial.
Such a market is clearly attractive depending on the details of one's marketing effectiveness. One detail which RedHill has nicely in hand is its commercial coverage piece which stood at 82% as reported during RedHill's Q1, 2021 earnings report. According to GoodRx, Medicare plans generally do not cover Aemcolo.
The market for traveler's diarrhea treatments is complicated. It usually resolves without treatment after a few days. It can be treated with several over-the-counter medications, or any of a variety of antibiotics.
As for current Aemcolo marketplace recognition, that is a work in progress. According to my 07/18/21 Google research for "traveler's diarrhea remedies", RedHill has lots of work to do in this regard. I expect it will take Aemcolo a year or likely several before it is contributing significantly to RedHill's bottom net revenues.
Talicia has an ever so slight head start on Aemcolo. Talicia actually generated ~$1.7 million in ex-factory sales during Q1, 2021. Keep in mind that Q1, 2021 was heavily impacted by COVID-19 during January and February. March saw a strong recovery with highest volume of Talicia scripts yet.
As for insurance coverage, commercial coverage continues to grow as noted by Senior Sales and Marketing VP Jackson:
...we have continued to improve our commercial coverage for Talicia. In first quarter, our market access team improved commercial coverage by 8 points ending the quarter with 77% commercial coverage. Most patients covered by commercial insurance can access Talicia without restrictions and our goal is to further improve Talicia’s commercial coverage in the months ahead.
Of concern, as noted in "RedHill: More To Come", Talicia's lack of Medicare coverage is still an issue. During its Q1, 2021 earnings call, management discussed MOVANTIK's Medicare coverage but nary a peep on Medicare coverage for Talicia. Frustratingly none of the questions broached the issue.
RedHill has done an excellent job in building a solid MOVANTIK revenue stream.
RedHill acquired MOVANTIK in treatment of opioid induced constipation [OIC] from AstraZeneca (AZN) in 02/2020. Although RedHill bills itself as a specialty biopharmaceutical company primarily focused on gastrointestinal and infectious diseases, RedHill has struggled as a marketer of such therapies. It abandoned its initial in-licensing foray (Donnatal, EnteraGam and others) in 01/2020.
With Aemcolo in stall mode and Talicia slow to develop as noted above, RedHill's viability as an effective commercial organization would be much in doubt without MOVANTIK. Now with a year of MOVANTIK revenues under its belt the picture has substance. CFO Ben Chorin's financial report Q1, 2021 financial overview painted an encouraging picture.
RedHill exited the quarter with $92 million in cash. Its quarterly cash burn was $12.3 million. It has been generating quarterly revenues in excess of $20 million (latest company presentation, slide 7) since it acquired the rights to MOVANTIK, the bulk of such revenues have come from MOVANTIK.
RedHill's COVID-19 studies are tantalizing shareholders with opaganib data imminent.
As reviewed in "RedHill: More To Come", RedHill's two COVID-19 therapy studies have been proceeding apace. As study news has developed from time to time it has regularly boosted RedHill's share price and volume. Today, (07/19/21) as I write, a RedHill press release announced completion of last patient treatment and follow-up in its 475 patient study global Phase 2/3 study with opaganib in patients hospitalized with severe COVID-19 pneumonia (NCT04467840).
With variants much in the news, the release emphasized that opaganib was expected to be effective against emerging variants, including Delta and Delta Plus. It noted that top line data was expected within weeks.
In this regard it is helpful for shareholders to review RedHill's discussion of opaganib during its Q1, 2021 earnings call. It emphasized positives such as:
peer reviewed journal reporting that compassionate use with opaganib in severe COVID-19 cases provided substantial benefits;
successful completion of a 40 patient phase 2 study in the U.S. demonstrated positive safety and efficacy signals;
the advantages of opaganib as an orally administered small molecule therapy in terms of distribution and administration; and
its expectation that opaganib's MOA impacts emerging variants, including those which may be resistant to certain direct acting antibodies.
In a more cautionary vein it noted that the regulatory environment for FDA approval of COVID-19 therapies has substantially tightened from the early days. In particular COO Raday explained:
...with the advent of vaccinations and with several emergency use approved therapies, FDA requirements have become stricter and the hurdles for approval have risen accordingly. Our expectation for discussions with senior expert consultants is that the strength of clinical safety and efficacy data will be key to potential regulatory application.
In response to an analyst question, CEO Ben-Asher emphasized that in the US, the EU and other jurisdictions around the world, data is king. In order to obtain regulatory approval for either of its COVID-19 therapies, RedHill must demonstrate compelling data as to both strength and efficacy. RedHill's game plan going forward is to:
...generate as good as possible data, package it appropriately, show it to the regulators everywhere and have that discussion. Whether or not we’ll be filing for emergency authorization conditional approval in different places or even full marketing application later on entirely remains up to the strength of the data, as well as the feedback that we’ll be receiving from the various regulators.
The little bumps that RedHill's shares periodically experience on interim opaganib reports, such as referenced on 07/19/21, are meaningless in RedHill's big picture. Unless the top line data expected in the weeks to come shows meaningful results, opaganib will fade into the deep background.
In terms of data, I will be focusing on whether or not RedHill reports statistically significant efficacy. In this regard keep in mind the primary outcome measure as shown for NCT04467840:
NCT04467840
There are another nine secondary outcome measures. These are of lesser significance at this point in terms of opaganib's approval prospects. The outcome measure below focused on safety will be significant in terms of approval.
Conclusion
Many RedHill investors were likely unnerved by RedHill's sharp drop in 07/2021 capped by heavy volume on 07/15/2021. Why is RedHill falling so fast in July? Does it represent an investment opportunity or a falling knife?
RedHill has potential but to this point has yet to show evidence of an impending breakout. Certainly it's comforting for shareholders that opaganib fueled a 5% price jump today (07/19/21) on increased volume, albeit not quite as great (~718,000 compared to ~949,000) as its 07/15/21 down volume.
RedHill's investment thesis for the next quarter will likely be subsumed by results from its opaganib study. By my reckoning opaganib is a sideshow. If these results are positive it will likely offer a profit taking opportunity. If they are negative and shares decline it will present a buying opportunity.
RedHill's longer term thesis as it works to build its pipeline, and to grow its revenues while it finally shakes itself free from the pandemic overhang make up its far more interesting story. It is one which will play out over a period of years, not weeks or even quarters. Such longer term story is the one that has my focus. It is where RedHill's interesting growth opportunities exist.
Writing under the pseudonym "out of ignorance", I very much regard investing as a learning process. Investing failures are tuition paid. Investing successes enter the trove of lessons learned. In my Seeking Alpha articles I share my experience from decades of investing and from ~5 years of focused research on a variety of stocks, in recent years with a primary emphasis on healthcare stocks. I greatly appreciate those who take the time to share their reactions to articles, particularly those who share relevant anecdotes and experiences.
Disclosure: I/we have a beneficial long position in the shares of RDHL either through stock ownership, options, or other derivatives. 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.
Additional disclosure: I may buy or sell shares in any stock mentioned over the next 72 hours.
