RedHill Biopharma: Looking At An Unexciting Dead-End
Dec. 30, 2021 3:32 PM ETRedHill Biopharma Ltd. (RDHL)
Summary
RDHL has had many avatars, and the latest one has taken the stock down considerably.
There does not seem to be a defining nature in RDHL's business.
I will avoid this for now.
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About RedHill Biopharma (RDHL), I said the following exactly a year ago - "a somewhat boring, long-term, relatively risk-free, low-headache investment for investors." What happened to RedHill to take it down 70% since I wrote that?
RedHill was once a supplier of legacy products no one wanted. These products didn't sell too well, and the business was discontinued. In 2017, it acquired a pair of products from AstraZeneca (AZN) and privately held Cosmo, and started generating a good amount of revenue. Then, during the pandemic, RedHill rediscovered itself. It began developing reformulated old products, or old products with new delivery methods. Talicia was the first product of this kind that got approved. A combination of omeprazole magnesium, amoxicillin and rifabutin, Talicia treats Helicobacter pylori infection in adults. It is supposed to have a pretty large target market. Their next product in the pipeline was RHB-104 in Crohn's Disease, with positive phase 3 data in hand.
This was the state of RDHL in December last year when I covered it. They were a little low on cash, with about $50mn in hand at that time. So I was expecting a dilution, but I was not expecting a 70% depreciation in shareholder value in one year for what I had said was a staid, boring, low-risk stock.
Going through the news for the previous year, there are mainly two things that took the stock down. One of these is dilution. The other was euphoria surrounding covid-19, which was pushing the stock up until bad news came, and it collapsed. The company's covid candidate is opaganib, which began by showing promising results in animal studies, where it demonstrated a reduction of thrombosis in acute respiratory distress syndrome or ARDS in animal models. In December 2020, the company announced positive top-line safety and efficacy data from a Phase 2 study with opaganib in 40 patients with COVID-19 pneumonia. This was followed by a number of Data Safety Monitoring Board (DSMB) recommendations to continue the Phase 2/3 study with orally-administered opaganib in patients hospitalized with severe COVID-19 trial, as planned. I note four of these DSMB reviews and recommendations.
Then in August the stock jumped hugely after preliminary results of a new preclinical study showed "strong inhibition by opaganib (ABC294640) of Delta variant replication while maintaining cell viability at relevant concentrations." However, that rally didn't last. This was just a preclinical study, however, in the real world phase 2/3 study, opaganib disappointed. In late August, early data from this study showed that ??opaganib treatment led to patients requiring less oxygen and earlier hospital discharge compared to those on placebo. However, by mid-September, topline data showed that the trial failed to reach statistical significance despite showing an efficacy trend. Key highlights:
Preliminary top-line data showed that the study did not meet its primary endpoint. Analysis of the study efficacy endpoints did show trends in favor of the opaganib arm vs. placebo across multiple endpoints, including the primary endpoint, despite not achieving statistical significance.
Top-line safety data showed good tolerability of opaganib, with balanced adverse events between the study arms. These findings, together with preliminary analysis pointing to increased benefit in a subset of patients requiring less oxygen, could support the potential utilization of opaganib in earlier stages of the disease and are in line with the previously announced results from the U.S. Phase 2 study and the previously observed antiviral activity of opaganib.
The stock had started falling ever since the release of data on the medRxiv journal in late August. On this topline data failure, the stock price nearly halved. The company did try to find benefits "earlier in the course of the disease," however, the market seemed not to be buying that.
Going back to dilution, RDHL stock fell badly in November after the Israeli company announced an offering of American Depositary Shares. The stock fell 25% after announcing 4.7 million ADS valued at $15.5mn. There's no doubt they needed funds, but they announced a dilution from a position of weakness - after poor performance in the phase 2 trial. The market did not appreciate that. While RDHL has a solid business in its Moventik and legacy franchise, most of the euphoria surrounding the stock was from the covid-19 study. The failure of that trial took the stock down, and then there was the dilution - the stock hasn't recovered since, and I do not expect a quick recovery anytime soon.
Financials
RDHL has a market cap of $138mn and a cash balance of $51mn as of the September quarter. They also have a $80mn debt balance. Since then, they have raised an additional $15.5mn, but Research and Development expenses were $5.8 million for the third quarter of 2021, and SG&E was $24mn, so if that trend has continued, their current cash position would be somewhere in the range of $45mn.
The company, being an ADR, does not have insider transaction data available in the US. However, they did make two separate announcements about insider purchases. First was in September and mid-Oct, when the company's board and management together purchased 180,000 ADS. Then, just this month, insiders purchased another 66,000 ADS in the open market.
Besides, the company also raised more funds through a collaboration:
In November 2021, the Company announced that it had entered into a strategic agreement with Kukbo Co. Ltd., a South Korean corporation, for the sale of RedHill's American Depositary Shares (ADSs) in a private placement of up to $10 million, of which the first tranche of $5 million has been paid. As part of the agreement, the Company granted Kukbo a six month right of first offer for a license with respect to one or more of opaganib, RHB-107 (upamostat) and Talicia® for South Korea and other Asian territories.
Bottomline
RDHL is a complicated company with too many things going on at the same time, making it difficult for investors to figure out where to focus. They have their legacy products, they have the covid-19 program, and they have the rest of their pipeline. Taking all of these together, I think it is kind of dull that the market values it so low. RDHL looks like an aimless business with no defining characteristic, and what little it had in stability last year has been lost to the effort with covid-19 therapy. Right now, RDHL looks like a cul-de sac.
This article was written by
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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. 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.
