RedHill Biopharma Ltd. Q2 FY2021 Earnings Call

Good day, and welcome to the RedHill Biopharma Second Quarter 2021 Financial Results Conference Call. At this time, I would like to introduce RedHill's CEO, Dror Ben-Asher; Micha Ben-Chorin, Chief Financial Officer; Rick Scruggs, Chief Commercial Officer; Gilead Raday, Chief Operating Officer; Guy Goldberg, Chief Business Officer; Adi Frish, Chief Corporate and Business Development Officer; Rob Jackson, Senior Vice President, Sales and Marketing; and Bob Gilkin, Senior VP, Market Access and Trade Relations. Before we begin, we will read from RedHill's safe harbor statement. Please go ahead.

Thank you, Andrea. This conference call may contain projections or other forward-looking statements regarding future events or the future performance of RedHill, including statements with respect to the business promotion and other efforts related to RedHill's commercialization activities and the initiation, timing, progress, and results of RedHill's research, manufacturing, preclinical studies, clinical trials, marketing applications, and approvals, if any, including the clinical trials of opaganib and RHB-107 for the treatment of COVID-19. These statements are only predictions and RedHill cannot guarantee that they will, in fact, occur. RedHill does not assume any obligation to update that information. Actual events, performance, timing, results, or commercialization activities may differ materially from what RedHill projects today. Additional information concerning factors that could cause actual events, performance, timing, results, or commercialization activities to materially differ from those contained in the forward-looking statements can be found in the company's annual report on Form 20-F filed with the SEC on March 18, 2021, and in its other filings with the Securities and Exchange Commission. I will now transfer the call to Dror Ben-Asher, RedHill's CEO.

Thank you, Alexandra. Good day, everyone, and thank you for joining our second quarter earnings call. We hope that this call finds you and your loved ones safe and well despite the challenging times. Today, we will be presenting detailed R&D, commercial, and financial highlights. Starting with R&D. COVID-19 is a devastating disease. Delta and other variants of concern continue to rapidly spread havoc across the U.S. and the globe. Along with rising COVID-19 new cases, hospitalizations, and, unfortunately, death, there's a clear and immediate need for an effective COVID-19 therapeutic in an oral pill form, as outlined by many public health experts, including recently by the Director of the NIH. I'm proud of RedHill's small but agile and resilient team that rose to the challenge and remain relentlessly execution-focused. This morning, we announced data from the University of Louisville showing strong inhibition of the Delta variant with opaganib. Also this morning, we announced important potential support by Quantum Leap and BARDA, an arm of the U.S. government, for opaganib to be included in the I-SPY COVID-19 clinical trial as a promising drug candidate for severe COVID-19 patients. In parallel, our team and our partners are doing everything humanly possible to get to the finish line with opaganib's global 475 patient Phase 2/3 study in severe COVID-19. With the last patient out announced last month, we are nearly there. Remarkably, this study only commenced about a year ago. It was planned and executed by RedHill and its partners at the speed of light, in pharma terms, and it was driven by the urgent medical need all around. To put things in perspective, opaganib is probably the most advanced novel dual mode of action, oral pill candidate of its kind in development currently for hospitalized COVID-19 patients. Opaganib demonstrates strong antiviral activity, including key variants of concern such as Delta, and as well as strong anti-inflammatory activity, including recent data about Interleukin-6, IL-6 inhibition. This is an important inflammatory cytokine target highly relevant for COVID-19 disease. From a broader perspective, it is important to note that fighting viruses that lead to devastating epidemics or pandemics, in a globalized and interconnected world, does not stop with COVID-19. Opaganib's potential goes way beyond COVID-19, and it is therefore being explored in additional infectious diseases and models such as Ebola and others. A lot more is happening here at RedHill on the R&D front. For example, this morning, we reported that the primary endpoint was met in the ongoing Phase 2 study of opaganib in prostate cancer based on our preliminary review. Our second COVID-19 drug candidate, the antiviral and once-daily oral drug RHB-107, or upamostat, continues its Phase 2/3 study in non-hospitalized COVID-19 patients early in the course of the disease. For RHB-204, the Phase 3 study in the U.S. for NTM infection is also ongoing. Our Chief Operating Officer, Gilead, will add more color about select R&D programs shortly. Moving on to the commercial front. Earlier today, we announced the achievement of record quarterly revenues despite the challenging pandemic environment, particularly so for new drug launches such as Talicia. Talicia prescription volume continues to grow and new prescription growth from Movantik during the quarter has been strong, even beating pre-pandemic levels. New formulary wins with several of the nation's largest payors translate into an impressive 8 out of 10 commercially insured Americans now being covered for Talicia and 9 out of 10 commercially insured Americans now being covered for Movantik. Plans are also in place to build on the initial momentum that Aemcolo was generating pre-COVID travel restrictions. Rob, our Head of Sales and Marketing, will provide additional details in a moment. I will now turn to our Chief Business Officer, Guy, and the rest of the team for a presentation to be followed by a Q&A session.

Thank you, Dror. As we conclude the first half of the year, RedHill is at a very exciting point. Top line results are expected shortly from our opaganib global Phase 2/3 study in hospitalized COVID patients, and this could potentially be a transformative event for the company. As we all know, the dream that vaccines alone will get us out of this pandemic will most likely not become reality. This is why public health officials have been saying that a simple, scalable, effective, and safe therapeutic is the key to return to normalcy. RedHill foresaw this need from day one of the pandemic and has worked diligently to complete several nonclinical and clinical studies to bring us to the point where we are today. And this is why our announcements this morning are so important and so exciting. First, we announced positive preclinical data of opaganib in the Delta variant. This is important because the Delta variant is currently the predominant strain of the virus in the United States and elsewhere. The Delta variant is highly contagious, more than twice as contagious as previous variants. Some data suggests that the Delta variant might cause more severe illness than previous strains in unvaccinated persons. Having a drug that may work specifically against the Delta variant would be a major breakthrough. Second, we are in the final stages of selection by Quantum Leap Healthcare Collaborative and BARDA for inclusion in the I-SPY COVID-19 platform. The I-SPY COVID trial is designed to rapidly screen and confirm high-impact treatments to reduce mortality and time on ventilators. Opaganib's inclusion is very important for 2 reasons: First, this is a great validation for our science, and second, this is a great platform to test opaganib against other leading candidates out there utilizing existing clinical trial infrastructure. There have been very few, if any, breakthroughs on the treatment front and many failures to date. There have been no novel oral therapeutics developed successfully. As we are all beginning to accept, even with the most optimistic and aggressive vaccination scenarios, COVID is likely to be an endemic global health problem, which will be around for a long time. There is an acute need for effective treatment, especially given the growing concerns around mutations. Third and finally, we announced, and this is not COVID related, that we met the primary endpoint in an ongoing prostate cancer Phase 2 study of opaganib in combination with androgen inhibitors based on the preliminary review of the data. Opaganib was originally developed as an oncology agent well before COVID, and these results show that it continues to be a promising agent targeting multiple indications, and we will continue to develop opaganib where it holds the most promise. I would like to briefly provide an overview of RedHill to those new to the story who may be on the call today. RedHill is a fully integrated specialty biopharmaceutical company focused on gastrointestinal and infectious diseases with a robust pipeline of drugs in a world-class commercial operation run out of our U.S. headquarters in Raleigh, North Carolina. At the top of the slide, you see the 3 FDA-approved drugs we promote: Movantik for opioid-induced constipation, Talicia for H. pylori infection, and Aemcolo for travelers' diarrhea caused by noninvasive strains of E. coli. Rob Jackson, our Senior Vice President for Marketing and Sales, will go into detail on our commercial efforts. The second part of this slide shows the multiple late-stage programs in development, addressing important unmet medical needs. Gilead Raday, our Chief Operating Officer, will review our COVID programs in RHB-204. So I will briefly update where we are with our other programs, notably RHB-104 for Crohn's disease. As a reminder, RHB-104 for Crohn's builds on the growing evidence from various studies that intracellular microbacteria play a crucial role in Crohn's disease. Testing this theory, we conducted a Phase 3 study in Crohn's disease that successfully met our primary and key secondary endpoints. We continue to advance the program in various ways and hope to have some news later this year. Right now, given the intense effort we are making as a small company to fight this pandemic, our R&D efforts are focused on running COVID studies in parallel with opaganib and RHB-107, and we are also focused on RHB-204 for NTM disease as there's nothing approved first line, and we could be the first. This slide highlights our progress since our last earnings call. On the commercial side, we generated record quarterly revenues despite industry-wide challenges, and we believe we will see growth throughout the second half of the year. As a small company with a relatively new commercial operation, we continue to stand the test of the pandemic and prove we are a resilient organization. Talicia generated over 10% quarter-over-quarter growth, commercial coverage continues to improve and now covers 8 out of 10 lives. We continue to achieve important launch milestones. We believe Talicia has enormous potential both for patients and as a value driver for RedHill as a company. As with almost all launches, especially during these challenging times, we continue to advise that it takes time to build awareness and acceptance, both with payors and also with physicians. With Movantik, we grew over 5% in the second quarter, which is impressive for an established market leader in a relatively consistent PAMORA market. Movantik is well liked by physicians. It has great reimbursement, great efficacy and safety, and great brand recognition and satisfaction. We continue to protect our leadership position in the PAMORA space and we believe we will see a great second half of the year. There's still a very large and underserved OIC patient population, and RedHill continues to improve Movantik's status of best unrestricted coverage in the PAMORA class. We maintained a comfortable cash position of approximately $71.5 million as of June 30 to support our R&D and commercial efforts. On the R&D side, we are laser-focused on our opaganib Phase 2/3 results. We announced on July 19 the last patient out and then follows a process that involves collecting, cleaning, unlocking the database and then analyzing data from the various sites worldwide. When we announced top line results, we plan on announcing efficacy and safety endpoints, including primary endpoint and secondary endpoint covering clinical improvement measures such as reaching air oxygen and time to hospital discharge and incidents of intubation and mortality. We are also progressing RHB-107, our second COVID program, which addresses the non-hospitalized, symptomatic patient population at the early stage of disease and we are planning to expand that study outside the U.S. Another central program for us is our ongoing study for RHB-204 for NTM disease, an important indication with no approved first-line standalone treatment. RHB-204 could be the first drug approved to treat this important orphan disease. We have begun enrolling patients, though it is still early going. Clinical activity for pulmonologists has been affected by COVID and continues to be and certainly so for respiratory studies. This slide shows our vision to become a leading specialty pharmaceutical company. The key to success is to grow both organically and inorganically by developing drugs in-house and also opportunistically bringing in commercial stage products from other companies. We've been successful so far with this approach as we acquired Movantik from AstraZeneca and also when we developed Talicia all the way through 2 clinical studies, approval, and launch. We will continue with that strategy into the future. I will now turn the presentation over to Gilead to discuss our R&D in more detail.

Thank you, Guy. I'm pleased to provide an overview of RedHill's R&D progress. COVID-19 has been a major R&D focus for RedHill in Q2 and continues to be so going into Q3. The latest pandemic waves in countries with a high proportion of their population vaccinated are challenging the sufficiency of vaccines for keeping the pandemic at bay. Health agencies are now looking to oral antiviral therapies as the next step, and the U.S. government is now directing billions of dollars to support the development of an effective oral pill therapy, which is our current holy grail. To illustrate where the COVID-19 field is currently, here are 2 quotes from a recent interview with Dr. Anthony Fauci on August 3. The first quote reads, 'While vaccines, including boosters, remain vitally important, we increasingly recognize that therapies that are safe, effective, scalable, and affordable are no less essential to any lasting solutions to the pandemic.' When asked about the ideal COVID therapeutic drug profile, Dr. Fauci replied, 'Already administered single pill given for 7 to 10 days, little drug-drug interaction, and low toxicity. Give me that, and I'll be really happy.' Remarkably, both of RedHill's therapeutic candidates, opaganib and upamostat, come as close as it gets to this ideal drug profile. With that, RedHill is currently developing 2 leading candidates that are positioned at the forefront of this high-priority category of potential game-changing COVID-19 therapies. Opaganib, which is our first advanced oral pill therapeutic candidate for COVID-19, is in an exciting phase. Our global Phase 2/3 study of 475 severe COVID-19 patients has completed the enrollment, treatment, and follow-up stages, and the much-anticipated top line results are just around the corner. Opaganib is a first-in-class inhibitor of SK2, which is an intracellular human enzyme with distinct functions spanning regulation of transcription, proliferation, and inflammation. Opaganib acts against COVID-19 dually. On the one hand, it suppresses viral replication, and on the other hand, it reduces the tissue damaging excess inflammation caused by the viral infection. Importantly, by targeting a human host cell factor, opaganib upholds its antiviral activity against the emerging variants of concern independently of the spike protein mutations. In particular, new data reported earlier today demonstrated the potent activity of opaganib against the worrisome and highly infective Delta variant. This is a highly encouraging outcome, which supports the proposition of a potential long-term and enduring benefit of opaganib even as situated against continuously emerging variants of concern. As an oral pill, opaganib has clear and important advantages in terms of its ease of distribution and administration. Coupled with its good safety profile, opaganib is very closely aligned with the ideal COVID-19 drug profile as was recently defined by Dr. Fauci and could potentially treat a very broad range of COVID-19 patients from mild outpatients to severe hospitalized patients. Given the broad utilization of opaganib, we have embarked on setting up a robust supply chain for its scaled-up manufacturing. As previously mentioned, the global Phase 2/3 study has completed the follow-up of all study subjects, and top line readout is upcoming. To recap, this slide shows the encouraging milestones already obtained with opaganib, which underlie its promising potential efficacy, safety, and enduring benefit against the variants of concern. Opaganib successfully completed a randomized controlled Phase 2 study in the U.S. in 40 patients, which demonstrated positive safety and efficacy signals. These outcomes serve to align the powering of the global Phase 2/3 study that we are now anticipating the results of. Opaganib's safety database is growing quickly. The ongoing global Phase 2/3 study has passed 4 independent safety monitoring reviews of unblinded data. We also obtained positive compassionate use experience with opaganib from Israel and Switzerland. Recently, opaganib was selected by Quantum Leap Healthcare and BARDA for BARDA-funded inclusion in the I-SPY COVID-19 platform trial. Execution of the opaganib arm is subject to FDA approval. As announced earlier today, opaganib showed strong inhibition of the Delta variant of concern in a preclinical model of the disease in human lung bronchial tissue. This excellent outcome further supports the proposition that opaganib's antiviral activity is maintained irrespective of worrisome mutations in the spike protein that may create resistance to deployed vaccines and antibodies. As previously reported and illustrated in the figures at the bottom of this slide, opaganib compared favorably with remdesivir in inhibiting the replication of SARS-CoV-2 Washington strain while preserving cell viability. At the same time, opaganib also demonstrated a marked reduction in the levels of IL-6 in the infected lung tissue, again, supporting its combined anti-inflammatory and antiviral dual action. These accumulated achievements and others not detailed on this slide illustrate the promising profile of opaganib as a potential ideal COVID-19 therapeutic, underlying the hopes and expectations from the program now advancing toward top line data readout from the global Phase 2/3 study. To recap highlights of clinical outcomes to date, opaganib showed encouraging results from the successfully completed randomized, double-blind, placebo-controlled Phase 2 study in hospitalized patients with severe COVID-19. The study's patients required supplemental oxygen supported baseline, corresponding to Levels 4 and 5 on the WHO ordinal scale of disease severity. Opaganib showed a benefit in reducing the need for supplemental oxygen on top of standard care. Specifically, a greater proportion of patients treated with opaganib no longer required supplemental oxygen by day 14, 50% versus 22% in the control arm, respectively. Opaganib also showed a benefit in time to discharge from hospital. And in terms of safety, opaganib was overall safe and well tolerated. For a few additional details about the global Phase 2/3 COVID-19 study with opaganib for which we are anticipating top line data. As mentioned, we have completed the enrollment, treatment, and follow-up of 475 COVID-19 patients who were hospitalized with severe COVID-19 and required high-flow oxygen support at baseline, corresponding to Level 5 on the WHO ordinal scale of disease severity. The primary endpoint of the study evaluates the proportion of patients that improved clinically to breathing room air without oxygen support by day 14. The study will capture additional important clinical outcome measures in the follow-up period of up to 6 weeks, such as the incidence of intubation and mortality. As mentioned, 4 independent DSMB recommendations to continue the study were already provided following unblinded safety and futility reviews. In addition, the study's blinded blended mortality rates are encouraging as compared to what might be expected in the study's patient population based on reported rates of mortality from large platform studies such as RECOVERY and other studies in similarly severe patient populations. Our expectation, fair discussions with senior expert consultants, is that the strength of clinical safety and efficacy data from the global Phase 2/3 study will be key to determining next steps and regulatory strategy. RHB-107, also called upamostat, is our second COVID-19 oral pill therapeutic candidate. It is currently in an ongoing Phase 2/3 study in mild to moderate COVID-19 outpatients, which is the largest category of COVID patients. Upamostat is given orally once daily, early in the course of COVID-19. It has demonstrated good clinical safety, which is important for treating patients in this relatively early stage of infection with mild to moderate symptoms. Upamostat targets human serine proteases, which are involved in SARS-CoV-2 attachments and entry into human cells. It has shown potent anti-SARS-CoV-2 activity in the preclinical disease model of human bronchial tissue. As a simple to distribute and administer once daily oral pill, which is safe and potentially effective, upamostat fits the profile of a potentially ideal COVID-19 therapeutic as characterized by Dr. Fauci. A Phase 2/3 study of upamostat in COVID-19 outpatients in the U.S. is ongoing, and we are in the process of expanding it globally to territories in which the infection is widespread. The study is targeting 310 patients to be enrolled in a 2-part randomized, double-blind, placebo-controlled Phase 2/3 study. The endpoints of the study include time to sustain recovery and the incidence of hospitalization and disease progression. Patients will also be tested for their specific viral strain. On non-COVID-19 R&D programs, opaganib has been advancing through 2 oncology Phase 2 studies. As reported today, the ongoing investigator-initiated open-label Phase 2 study of opaganib in advanced prostate cancer met its primary endpoint of at least 6 subjects demonstrating disease control, defined as stable disease or better after 16 weeks on treatment among at least 27 evaluable subjects. In this study, opaganib is administered to patients who failed androgen inhibitor therapy on top of their baseline therapy. Data entry is ongoing, and results are based on preliminary review of partial data and remain subject to further review and analysis. Submission of the data for presentation at a major oncology conference is planned for early 2022. The second Phase 2 study, which is evaluating the activity of opaganib in advanced cholangiocarcinoma, is also ongoing. As previously reported, preliminary data from the first cohort of 39 patients indicated a signal of activity in a number of subjects with advanced cholangiocarcinoma. Enrollment is currently ongoing for a second cohort, which is evaluating opaganib in combination with hydroxychloroquine and anti-autophagy agents. Another of our non-COVID programs is RHB-204, which is being evaluated in a Phase 3 study as a novel first-line therapy for nontuberculous mycobacterial infection. Nontuberculous mycobacterial infection is a rare disease with chronic debilitating manifestations and with no FDA-approved first-line therapy. RHB-204 is a promising potential first-line standalone oral therapy. It has been granted Orphan Drug designation, Qualified Infectious Disease Product designation, and Fast Track designation. With these designations, it is eligible for priority review of the NDA and 12 years of market exclusivity. The randomized placebo-controlled Phase 3 study is ongoing and is planned to enroll 125 subjects. We continue to experience low screening and enrollment due to the constraints imposed by the pandemic on site physicians and patients, and we are planning to expand the study to additional territories outside the U.S. The key study endpoints of sputum culture conversion and patient-reported clinical outcomes will be evaluated at month 6 with ensuing longer-term follow-up, including the post-treatment maintenance of conversion. I will now turn it to Rob, our Senior VP of Sales and Marketing, to update on our commercial progress.

Thank you, and good morning. Over the next few minutes, I'm going to summarize our second quarter 2021 sales, marketing, and market access achievements. In the second quarter, we achieved record quarterly revenue despite a very challenging pandemic environment. RedHill achieved growth with both Movantik and Talicia, and we're confident in our ability to capitalize on an improving selling environment during the second half of this year. In the second quarter, RedHill grew Movantik volume by 5.6% over the first quarter of this year. We achieved this by taking a disciplined approach to focusing on the pain segment. In tandem, we are also executing marketing strategies that focus on growing the PAMORA market. This is a key objective for Movantik as the established market leader. We've heavily invested in digital marketing tactics to: First, raise opioid-induced constipation awareness with patients and prescribers; and second, to educate these potential customers about how Movantik can help provide relief from the symptoms of opioid-induced constipation. During the second quarter, we also achieved significant market access successes with major payors that we hope will yield growth for Movantik during the second half of the year. Opioid-induced constipation represents a large and underserved growth opportunity for RedHill. The overwhelming majority of the 6 million to 12 million opioid users who may suffer from OIC report little to no benefit from non-PAMORA constipation treatments. Movantik is very well positioned to meet the needs of these patients. And as I mentioned earlier, the PAMORA market is stabilizing. This is a significant change for the therapeutic class. On a moving annual total basis, PAMORA prescribing volume bottomed out in February and has remained steady since. This is a very good sign for our Movantik business and reflects our efforts and investments to return the PAMORA class to growth. Simultaneously, we also see that the rate of decline in U.S. opioid prescribing shows signs that it is also beginning to taper off. The downward trend in opioid prescribing has been occurring for many years. And if the trend continues to stabilize, it will provide an additional layer of support for the PAMORA market and Movantik. On the payor front, our market access team has continued to improve our very competitive position with both commercial and Part D payors. In April, Movantik was included on the Cigna Medicare Part D formulary with no restrictions. In July, Movantik was also added to the Prime Therapeutics Net Results A Series formularies, which serve more than 30 million members, again, with no restrictions. Nine out of ten commercial and government lives are covered from Movantik, and we are confident that we can continue to improve our coverage. Prescribers routinely refer to Movantik as the PAMORA drug with the best overall insurance coverage. And this is a key point of differentiation and a major reason why prescribers write Movantik today and will continue to prescribe Movantik in the future. RedHill is committed to ensuring consistent cost-effective insurance coverage for our brand and further strengthening our position as the market leader in this class. In the second quarter, Talicia achieved more than 10% growth, and we are hopeful that this growth will accelerate in the second half of the year as recent payor wins take effect, new payor wins come to fruition, and field execution continues to improve. Antimicrobial stewardship is an important issue. And when the most effective antibiotics are used first line, they provide the best chance for cure while eliminating the need for second, third, and even fourth lines of treatment. As the Delta variant took hold in the second quarter, we employed live, digital, and traditional print tactics to continue to reach our key prescribers. And in the second half of this year, we will continue to increase our focus on Talicia and plan to further accelerate our growth heading into 2022. Talicia also continues to achieve new milestones, and in the second quarter, Talicia achieved its best ever performance in terms of weekly prescription volume and quarterly prescription volume. Talicia also achieved a new high in commercial payor coverage. As with Movantik, Talicia commercial coverage also continues to improve and now covers 8 out of 10 commercial lives. In July, Talicia was added to the OptumRx commercial formulary with no restrictions, expanding access to another 26 million Americans. H. pylori infection is the leading risk factor for the development of gastric cancer and the rapidly growing issue of clarithromycin resistance is very real for clinicians, payors, and patients. And as more payors realize this important fact and they realize how clarithromycin resistance has a negative impact on prescribers and patients' abilities to eradicate H. pylori infections, they are becoming even more favorable to Talicia and even more resistant to clarithromycin-containing therapies to treat H. pylori infections. The American College of Gastroenterology recognizes this in their guidelines for H. pylori therapy. And as we educate payors and prescribers, more of them understand the need to steer clear of the significant and growing challenge with clarithromycin-based therapies and instead embrace the proven clinical benefits of Talicia. We expect the trend of improving coverage to continue throughout 2021 and into 2022, providing even stronger support for accelerated growth. We also continue to promote Aemcolo to consumers, PCPs, and gastroenterologists. The COVID-19 pandemic has negatively impacted international travel, especially non-essential travel outside the continental United States where travelers' diarrhea risk is greatest. Our midterm expectations are tempered by this reality. However, when travel returns, we are well prepared with excellent commercial coverage. Eight in ten commercial patients now have access to Aemcolo. In summary, we finished the second quarter on a strong note in the month of June. We achieved numerous commercial milestones for Talicia, including our highest weekly prescription volume, highest quarterly prescription volume, and our highest level of commercial payor coverage. And as the market leader in the PAMORA class, we demonstrated our ability to continue to grow new Movantik prescriptions, stabilize prescription volume in the PAMORA class, and further improve on our already strong Movantik payor coverage. We're looking forward to building on our performance in the second half of this year. Thank you for your time, and I'll turn the call back to our CFO, Micha Ben-Chorin.

Thank you, Rob. Good morning. RedHill is delivering on a clear growth strategy designed to enable us to achieve planned potential commercial operational breakeven by the end of this year. We achieved a quarterly record of net revenues and gross profit in this quarter. And we also maintained a cash balance of $71.5 million as of June 30, 2021. Net revenues were $21.5 million for the second quarter of 2021, an increase of $0.9 million compared to the first quarter of this year. The increase was attributable to an increase in revenues from Talicia and Movantik despite the challenging pandemic environment. The record net revenues also enabled quarterly record gross margin of $10.9 million, which represents more than 50% of net revenues. On the expenses side. We had higher expenses in the second quarter than in the first quarter related mainly to the progress of our COVID-19 development programs, the Phase 3 study of RHB-204 for pulmonary NTM disease, and share-based compensation, mostly one-off expenses relating to the option exchange. Operating loss and net loss were approximately $24.9 million and $29.1 million, respectively, for the second quarter of this year compared to $18.2 million and $22.9 million, respectively, in the first quarter of this year. The increase was mainly attributable to expenses related to the progression of our COVID-19 development programs, marketing programs, and expenses related to share-based compensation, as just discussed. Net cash used in operating activities increased by $6.6 million compared with the first quarter of 2021. The increase was attributable to anticipation of revenue collection in the first quarter. Cash expenses in the second quarter were actually lower than in the first quarter. Net cash used in financing activities for the second quarter was approximately $1.8 million, comprised primarily of deferred payments with respect to the Movantik acquisition in the prior year. Through financial discipline, we have ended the quarter with a cash position of $71.5 million, which allows us to continue to drive our core business forward. I will now turn the discussion back to Dror.

Thank you, Micha. We are happy to take questions.

We're now taking our first question from Ram Selvaraju at H.C. Wainwright.

This is Boobalan dialing in for Ram Selvaraju. The first one, last quarter, you mentioned evaluating the clinical data from Cosmo's Phase 2 study involving rifamycin in IBS-D patients. So I'm just curious whether the analysis has been done and what would be the next possible steps.

Thank you, Boobalan. We're glad to have you with us. We are still evaluating the data together with our partners and friends at Cosmo.

Okay. That's understood. And with respect to your opaganib inclusion in the I-SPY COVID trial, so what are your thoughts and expectations? And assuming your ongoing Phase 2/3 study involving hospitalized COVID patients are positive, what are the next steps for the upcoming 12 to 24 months?

The I-SPY BARDA funded study remains subject obviously to FDA clearance, just like any other study. We hope and expect that it will start soon. It's a parallel study. As we mentioned, we will be announcing the Phase 2/3 data soon. And we'll then evaluate what the next steps are. A lot depends on the data, not to say everything depends on the data. Because in our industry, data is key, and we plan on pursuing discussions with regulators, some of them ongoing, to show them the data, hear them out, and see what we do next. Everything depends on the data. The I-SPY BARDA funded study will go on. All goes well, regardless.

Along the lines, do you plan to study opaganib specifically in Delta variant infected patients in the future?

All data from variants tested with opaganib has been consistent and very encouraging including today's news about strong inhibition of the Delta variant. The assumption right now, the work or assumption here at RedHill is that all goes well and subject to regulatory discussions and approvals eventually in the U.S. and elsewhere. We will follow the label that is dictated by the regulators. In our study, there were no subsets that we planned on. We treated everybody. When we started the study, there was no Delta or little Delta. Right now, it's mostly Delta in the U.S., but who knows where it is 6 months from now or 3 months from now. It could be a Lambda. It could be AY.3. It could be a lot of things. But I imagine that it's spreading across the U.S., which we are all following closely. And of course, the medical community is following closely. So the label will be dictated by the regulators. We have not planned for any narrowing down of the label for a specific variant if and when a label is granted.

Great. One final question from me. So if you could comment on the current status of RHB-104, that will be great. And do you plan to do a confirmatory Phase 3 trial in Crohn's disease patients? Will it involve a partnership?

Yes. Great question. I'm really happy you asked about that. A confirmatory Phase 3 study was planned all along and will be done. As far as next steps, we are making up our minds about how that study should look like. We have some regulatory input regarding where it should be conducted and how it should look. What I can tell you is that right now, it seems that the primary endpoint will be based on imaging because mucosal healing is the holy grail. And if we are able to show that RHB-104 is the first drug that shows the primary endpoint met in a significant manner, statistically significant manner, we should be able to make a lot of healthcare providers and of course, patients and their families happy about the prospect of this investigational drug. Again, everything remains subject to regulatory discussion.

We are now taking our next question from the line of Bert Hazlett at BTIG.

Yes. I've got just a couple more clarifying on opaganib. Is there a scenario where the Phase 2/3 study results that are upcoming here in short order could actually lead to an EUA? And could you comment on the manufacturing status of opaganib just in that context? Then I've got 1 or 2 others.

Thank you, Bert. I'll refer this to Gilead.

Thank you, Dror. As mentioned, the key is the data from the study. The results of the study, the efficacy and safety across the various endpoints that are being evaluated will determine the next steps in terms of regulatory process, in terms of emergency use authorizations in the U.S. and in other territories. So that will be what we're looking out for. And in terms of manufacturing, I can say that because opaganib has the potential for broad utilization in the population and in the patients from mild to eventually mild but currently in severe patients, we are already deep in preparation to support scaled-up manufacturing that will support broad use.

And just one other on opaganib. Do you have any sense of timing with regard to data in terms of the I-SPY trial?

It's too early to say. We will be looking first for FDA clearance together with our intended partners at Quantum Leap and the I-SPY platform. Assuming this happens soon, we believe the study will commence very quickly and will enroll very quickly, because a study that is supported and conducted in conjunction with such a reputable and strong platform, the I-SPY platform of the Quantum Leap organization, and funded by a very important arm of the U.S. government, by BARDA, is a study that healthcare providers, the prescribers, all the clinics that are being approached are likely to look at it favorably. It's not only RedHill, as a small company, conducting a study. This is a study that is on a different scale when it comes to who is backing it. So we cannot put timelines on it, but our belief is that the enrollment will be finalized once the study starts.

Okay. I have a couple of questions regarding R&D. The R&D spending significantly increased this quarter. Based on your remarks, I'm assuming this was primarily due to the initiation of the NTM study. If there are any other factors involved, could you explain them and how we should view R&D spending? And then second...

Bert, so this was a quarter that we had a lot of progress on our COVID-19 program, which obviously took most of the R&D investment. And as we mentioned also in the press release, we also had a significant investment in the RHB-204 for the NTM study.

That's helpful. And just a brief question on the prostate cancer data for opaganib as well. So does that create more enthusiasm regarding your development in that indication? Should we expect additional investment there for opaganib in the prostate cancer setting?

I refer this to Gilead.

Thank you, Dror. Yes, we are very pleased with where we are now in the study. The data is encouraging, preliminary, of course, and subject to further data gathering. Opaganib has been in development in the oncology indications for quite a while now, given all the supportive information that we have about its activity and signals of activity both in prostate cancer and what we saw previously in cholangiocarcinoma. So, taken together, we are continuing to develop opaganib in the oncology arena and continue to follow up on the existing ongoing studies. Once we have full data, we will aim to announce those in scientific presentations and conferences. And based on the final data, we will take decisions on next steps.

We look forward to seeing the detail upcoming.

We are taking our next question from the line of David Hoang at SMBC.

Yes. My first question is about Talicia. As we move into the latter half of the year, could you comment on whether you believe the key factor for continued growth is mainly due to positive trends with payor access or more related to the interactions between your sales team and prescribers as we emerge from the pandemic?

Thank you, David. Not to forget, before I refer this to Rick, that it depends also, to a large extent, on the state of the pandemic. The pandemic is affecting drug launches. It affects clinics, patients, diagnostic labs, everything that has to do with Talicia. Yet we are seeing healthy growth, regardless. I'll refer this to Rick and the team.

Yes, thank you, Dror. That's a great question. To put it simply, COVID has negatively impacted our ability to sell Talicia. Physician offices have been closed, and we have experienced lockdowns in the past. However, we are currently operating at full sales force capacity and have excellent payor coverage. We expect that the third and fourth quarters will be very positive for us. All of this really depends on the situation with COVID. Our access to physicians is currently good, but that may change depending on the developments regarding COVID. That concludes my comments, Dror.

I have a question regarding another molecule, 107, which is being researched for COVID. If I remember correctly, it is more focused on outpatient treatment. I would like to know if the development plan dictates that opaganib is intended solely for inpatient hospitalized patients while the other molecule targets outpatient individuals, or is there some overlap in the eligible populations for both products?

Thank you, David. It's a wonderful question. When COVID hit towards the spring or late winter 2020, all of us knew very little. RedHill is a small company, and we have to allocate our resources very carefully. The rational decision for opaganib was to go for hospitalized patients and not for non-hospitalized patients. Because non-hospitalized patients require an entirely different type of study. And because non-hospitalized patients mean the endpoints are relatively complicated to define. The costs of a study and monitoring patients outside a clinical setting complicate things. The discussions with the regulators made very clear where the need was, which was severe patients, hospitalized, who are at very serious risk of deteriorating. So this is where we headed with opaganib. We tested both opaganib and RHB-107 against SARS-CoV-2, and both of them yielded very exciting inhibition results. 107, we went for the outpatient or non-hospitalized population because opaganib was already in non-hospitalized patients since it is once daily, which is ideal for symptomatic patients who are not at a hospital or at home and because we managed to figure out how to monitor them properly at home. And this took time. It's very complicated. Very few companies are actually trying to do it, and I believe very few have managed to successfully do so. We commenced the study, the first patient in of the RHB-107 study was announced in February. So not that long ago. It's a U.S. study, but as Gilead said, we are expanding it to other places. The beauty of having both opaganib and RHB-107, both of them are novel oral molecules that are expected to be effective against existing and emerging variants because both act on the host cell as opposed to directly on the virus. The beauty of a small company having 2 shots on goal, so to speak, with novel oral molecules, is that it allows us right now with existing studies, assuming they're successful and subject to discussions with regulators, to cover the whole spectrum of the disease. So the vast majority of patients, of course, are not hospitalized. That's by far the biggest market. Right now, what we have there are antibodies that require a clinical setting and are expensive. Some of them have been shown to be highly sensitive or showed weakness against the emerging variants, even pulled out of the market. And we have something that's very different. Novel oral small molecule once daily with RHB-107. If we are successful, time will tell. This is a paradigm changing situation for non-hospitalized patients, which are probably 90% or more of the symptomatic patients. So it's a very exciting situation for us. And the turn of events chronologically was simply the more we learn, the more we were able to direct our programs according to what the status of the disease was, according to what the medical community was looking for, and according to our available resources. It's a long answer. I hope I answered your questions.

Yes, certainly. Thanks so much for taking the questions and the really detailed response and all the color. Super helpful. And looking forward to seeing the data soon.

We are now taking our next question from the line of Matt Kaplan at Ladenburg Thalmann.

I would like to focus on the opaganib Phase 2/3 trial. Can you provide an estimate of how long it will take to analyze the data now that the key parts of the trial are completed and when we can expect to see the data?

Thank you, Matt. It's an important question. We have stated in our filings and also repeatedly today, that the data is upcoming, and we will keep it at that.

Okay. Fair enough. With respect to the Phase 2/3 trial, can you provide insight into the primary endpoint and some of the secondary endpoints for these severe patients? What are your powering assumptions regarding the proportion of patients reaching room air by day 14? How should we interpret that as the data approaches?

Thank you, Matt. I'll refer this to Gilead.

Thanks, Dror. So Matt, we powered the Phase 2/3 global study for the primary endpoint for reaching room air by day 14 based on what we already saw from the Phase 2 study in the U.S. where we saw a difference of 50% versus 22% in the U.S. Phase 2 study. We took a conservative powering approach and looked for a 15% delta in that Phase 2/3 study globally. And that's how we arrived at the study size that we completed of 475 patients. So that covers the primary endpoint. And we also are looking for additional secondary endpoints, which are clinically meaningful and important, of course, and those include mortality and intubation and other clinical outcomes that are being captured in the global Phase 2/3 study.

Okay, that's very helpful, Gilead. Now that the Phase 2 study has met its primary endpoint, could you share your thoughts on the next steps for the continued development of opaganib in the prostate cancer program?

Thank you, Matt. Glad you asked. We are very excited about this study. It's conducted at the American University of South Carolina. Phase 2 data with a novel molecule in prostate cancer is something that a lot of people are looking at. We as a company are very excited about. We know a lot about opaganib in oncology, be it cholangiocarcinoma, prostate cancer, and other indications. The plan is to complete the analysis, the review, and everything that needs to be completed. We are looking to present it at a major oncology conference the way Gilead described and take it from there. I have to say there are several possibilities here, including pharma partnerships, or we could continue it alone. Either way, it's fine with us. The more we learn about opaganib's promise in various indications, including oncology, including specifically prostate cancer, the more excited we get about the prospect of helping patients. I will also remind you that we have been supplying opaganib to numerous oncology patients on a compassionate use basis subject to regulatory exemption in the U.S. and elsewhere. So it's not as if we are starting from scratch when it comes to our experience with compassionate use, with actual use both in the studies and outside the study subject to the regulatory exemption.

Okay. And then 2 more questions, one on pipeline and one on commercial. RHB-204 progress in the Phase 3 for NTM. You mentioned that enrollment has continued to be slow. Can you give us a sense in terms of what your thoughts are for the timeline for that program kind of going forward as hopefully some enrollment picks up?

Thank you. Yes, COVID has been harsh on enrollment, especially in respiratory indications and studies in respiratory indications. And yes, our enrollment has been slow. However, we have already activated many sites. We are confident that enrollment will continue to pick up especially as the COVID situation clears gradually over time. And even if it stays, both ourselves and the sites learn to live with it and conduct the study to the best of our ability regardless. Timeline, it's too early to say. Initially, we estimated about 1 year for enrollment to last patients out. But right now, given COVID, it changes so fast, so it's better to park it and maybe discuss during the next earnings call.

Okay. Fair enough. And then last question. Congratulations on the record revenues for the quarter. Can you give us a breakdown of the Movantik and Talicia revenues for the quarter?

Yes, sure. So the great majority of the revenues are with Movantik, obviously. And we have, obviously, Talicia as well with some additional revenues for Aemcolo. But the great majority is with Movantik.

And Movantik is about 90%.

We are now taking our next question from the line of Scott Henry at ROTH Capital.

Just a couple questions. First, on the R&D spend. I understand why it was high in 2Q, but it looks like it was about $7.5 million in Q1 and $10.3 million in Q2. When we think about the second half of the year, do you think it will look more like Q1 or Q2?

We refer this to Micha.

This is a good question. And I believe it will be somewhere between Q1 and Q2. So I would expect lower expenses than Q2, but it could be in the level or a little bit higher than Q1.

Okay. Fair enough. G&A also increased in the second quarter from $7.1 million to $10.2 million. Were there any one-time events that contributed to this? I’m just trying to understand why the number was so high in the second quarter.

We incurred significant one-time expenses related to an option stock exchange, which led to a notable increase in our expenses. However, these expenses are not anticipated to occur again in the future and were the main factor in the rise.

Okay. So we should expect that to kind of revert back to that Q1 level? Is that fair?

Yes. This is fair to say.

Okay. Great. You mentioned that you anticipate commercial operations to be breakeven by the end of 2021. I assume this definition of commercial operations means gross profit exceeding selling and general administrative expenses, excluding research and development from that calculation. However, it seems like you might be separating some of your general administrative expenses from commercial operations as well. Do you believe that gross profit could surpass the combined total of general and selling expenses? It would be helpful to get some clarity on this.

Yes. We are considering all relevant commercial expenses, which also include some general and administrative costs related to sales and marketing, while excluding research and development. Our analysis is based on a non-GAAP framework, meaning we do not factor in share-based compensation and other non-GAAP elements. We are specifically referring to the most recent portion of the year. This outlines our plan.

Okay. So you want to finish Q4 with positive commercial operations as you mentioned earlier? That is helpful. I have a couple of quick clarification questions about the opaganib program. Dror, I'm not sure if you want to address this, but you've mentioned terms like shortly and upcoming regarding the data presentation. I won't press you for specifics, but do you anticipate that data by the end of September, by the end of the third quarter? That generally seems like a reasonable expectation, but I thought I’d give you the opportunity to confirm.

Yes, absolutely. There's nobody that wants to announce the data more than the team here with us right here. So we will make sure that the upcoming results reach the market as soon as possible. And yes, to answer your question, certainly, before the date that you mentioned.

Okay. And just the final question, which I know you've kind of been asked this from a couple of different angles. But I just wanted to get your take on if the data is statistically significant and strongly significant. With regards to the U.S. market, you've kind of said on one hand that the ability to file will depend on the data, but then in the press release, it specifically says that the FDA has indicated we will need to complete additional studies. My question is, is the language in the press release, is that firm? Is it definitely you will need to do additional studies in the U.S.? Or is that always up to interpretation of the final dataset?

It's a very important point you raised. Everything that is stated is carefully worded up to the letter. This is exactly where we are with the FDA. And our consultants who are ex-FDA and other experts are very clear that the data will dictate everything. Now this is correct not only for the U.S. but ex-U.S. as well. I remind you that the vast majority of the market is outside the U.S. including Europe and many other countries. The disease is hitting right now pretty much everywhere. And we plan to evaluate the data with the regulators outside the U.S. as well as the FDA once it's available.

There are no more questions on the line. I will hand it over back to Dror for closing remarks.

Thank you, Andrea, and thank you, all, for joining the call. Please feel free to reach out to us if you have any additional questions. Keep safe, and we wish you all a pleasant day.

That concludes the call for today. Thank you for participating. You may all disconnect.