RedHill Biopharma Ltd (RDHL)

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Raleigh pharma sheds debt in exchange for top-selling drug. Now what?

https://www.bizjournals.com/triangle/news/2023/02/10/redhill-exchanges-movantik-to-healthcare-royalty.html?utm_source=sy&utm_medium=nsyp&utm_campaign=yh

By Zac Ezzone – Staff writer, Triangle Business Journal

Feb 10, 2023

A Raleigh pharmaceutical company is moving forward after exchanging the rights to its top commercial asset for the cancelation of more than $100 million in debt obligations.

RedHill Biopharma (Nasdaq: RDHL) announced Monday it has reached an agreement to transfer its drug Movantik to Connecticut-based HealthCare Royalty Partners. The deal extinguishes all of RedHill's debt obligations from a credit agreement the two parties signed three years ago.

That agreement was worth up to $115 million, of which RedHill received $30 million to support its commercial operations and another $50 million to fund the acquisition of Movantik in early 2020 from the global biotech AstraZeneca (NYSE: AZN).

But the emergence of the Covid-19 pandemic hindered RedHill's launch of the drug – a treatment for constipation caused by prescription pain medicines. As a result, the company struggled to meet its pre-Covid sales projections and its debt became burdensome, said CEO Dror Ben-Asher.

RedHill's stock has dropped more than 90 percent from a year ago and closed Thursday at $0.22 a share.

RedHill and HealthCare Royalty in November initially reached a non-binding agreement that would extinguish RedHill's debt obligations — which included $80 million the company borrowed and other items, such as exit and royalty fees — in exchange for the rights to Movantik. With the deal finalized, RedHill transferred its rights in the drug to Movantik Acquisition Co., an affiliate of HealthCare Royalty. HealthCare Royalty will also pay RedHill for up to a year for services that support the transition of Movantik to ensure patient access to the drug isn't interrupted.

Sales from Movantik made up the bulk of RedHill's revenue during the first nine months of last year. From January through September, revenue from sales of the drug totaled about $41.5 million, ahead of licensing revenue at $2 million and sales of other products at about $5.5 million, according to RedHill's third quarter earnings report. The company ended the quarter with a cash balance of $31.4 million.

Despite losing its top revenue source, Ben-Asher says the deal puts the company in a good position. RedHill emerges from the deal debt free, with two commercial products and a pipeline of drug candidates.

RedHill plans to replace the revenue lost from Movantik by ramping up commercial efforts of its two approved products.

The U.S. Food and Drug Administration approved the company's product Talicia — a treatment for Helicobacter pylori infection — in November 2019. But the drug never received the launch it deserved, Ben-Asher says. During the Covid-19 pandemic, the number of colonoscopies performed decreased significantly, which is how the infection is diagnosed.

The company's other product, Aemcolo — a treatment for traveler's diarrhea — was similarly affected by the pandemic. RedHill initiated its U.S. promotion of the drug in December 2019, shortly before the the travel industry began experiencing sharp declines related to the pandemic.

But both of these issues seem to be lessening, with the travel industry gradually recovering and patients again seeking health care services they may have put off during the pandemic, Ben-Asher said.

"We are confident that we can grow (the products) much faster," Ben-Asher said.

RedHill, which bases its corporate headquarters in Israel and its commercial headquarters in Raleigh, is also looking to bring in revenue-generating products through acquisitions. Ben-Asher said the company is engaged in discussions for several drugs that are synergistic with RedHill's existing products.

RedHill in December closed an $8 million public offering, the proceeds of which will cover services related to the HealthCare Royalty agreement, while also providing the company with working capital and funds to support potential drug acquisitions.

The company isn't making any changes to the size of its commercial team after moving on from Movantik. RedHill cut about 50 jobs last summer as part of a cost reduction plan, leaving the company with just under 100 people based out of its Raleigh office. This team is critical in RedHill promoting its existing products and the new ones the company hopes to add, Ben-Asher said.

As it moves forward with its commercial plans, RedHill is also in discussions with various governments as it searches for partners to support late stage studies of drug candidates in the company's pipeline, Ben-Asher says. This includes opaganib, an oral small molecule drug that RedHill aims to develop in multiple indications.

The company is seeking to include the drug in a government-funded platform study as a potential treatment for hospitalized Covid-19 patients. RedHill is also discussing with government agencies potential development pathways of the drug as a treatment for nuclear radiation injury.

In addition to opaganib, RedHill is focusing its clinical development efforts on two other drug candidates, RHB-107 and RHB-204. But further advancement of these programs would also likely rely on partnerships or additional resources. The company is looking to partner with a government agency to evaluate the former as a treatment for nonhospitalized Covid-19 patients in a late-stage study, while the latter is being evaluated in a phase 3 trial as a treatment for pulmonary nontuberculous mycobacteria, or NTM, disease. RedHill is funding this study on its own, but is in discussions with other companies about a potential partnership.

Despite a difficult period, Ben-Asher is optimistic about the company's prospects.

"We had a setback ... launching three drugs during Covid," Ben-Asher said. "But being a debt free company now, and with these products, and the additional products we're bringing in, with this kind of pipeline, we're emerging out of this crisis in a very interesting way."