RedHill Biopharma Ltd. Q3 FY2021 Earnings Call

Good day and thank you for standing by. Welcome to the RedHill Biopharma's Third Quarter 2021 Results Financial Conference Call. At this time, I would like to introduce to the conference call RedHill's CEO, Dror Ben-Asher; Micha Ben-Chorin, Chief Financial 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; Bob Gilkin, Senior VP, Market Access and Trade Relations; and Dr. June Almenoff, Chief Medical Officer. Before we begin, we will read from the RedHill's Safe Harbor statement. Please go ahead.

Thank you, Brian. 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 18th, 2021, and in its other filings with the Securities and Exchange Commission.

Thank you, Alexandra. Good day everyone and thank you for joining our third quarter earnings call. Today, we'll be presenting detailed R&D, commercial, and financial highlights. In light of the recent emergence of the Omicron variant and the risks presented by future variants of concern, we will elaborate on RedHill's strategy with opaganib and RHB-107 and our increasingly relevant mechanisms of action potential against the emerging variants. Our U.S. commercial business continues to drive growth, reiterating a second consecutive quarter of net revenue record of $21.6 million despite continuously challenging pandemic environments. Talicia generated another record quarter with 15% growth in new prescriptions, while Movantik continues to perform, adding a 1.1% increase to new prescriptions. Both products are also continuing to make strides in gaining both commercial and government formulary coverage. Rob Jackson, who is heading our Marketing and Sales, will further elaborate shortly. Turning to R&D, given the recent emergence of the heavily mutated Omicron or South African variant, as well as likely emergence of other variants of concern over time, the importance of drug candidates that are independent of the viral spike protein is growing. This makes both opaganib and RHB-107's host-targeted mechanism of action and expected maintenance of effects against new variants increasingly more relevant in the battle against COVID-19. The third quarter saw significant focus on completing opaganib's global Phase 2/3 COVID-19 study in hospitalized patients. Specifically, in the currently underserved hospitalized moderately severe patient group, which Pfizer and Merck do not address. A sub-population comprising more than 50% of our total study population, opaganib demonstrated a 62% reduction in mortality, as well as improved return to room air and area hospital discharge. This is consistent with what we have seen in our Phase 2 study and compassionate use experience. The consistency across multiple endpoints and territories provides us with a high degree of confidence in the results showing opaganib's effect in this patient population. We have now provided regulators in various countries with robust data packages to facilitate discussions on next steps and we'll continue to provide data to regulators in additional countries. Expedited review of the opaganib data has already been granted by EMA, the European Union's regulatory body equivalent to the FDA in the United States. In parallel, we continue to progress our Phase 2/3 program in non-hospitalized patients in the United States and South Africa, with our other novel once-daily oral COVID-19 drug candidate RHB-107. We expect topline results in the first quarter of 2022. Gilead, our Chief Operating Officer, will elaborate about the status of our COVID-19 programs shortly. Our Phase 3 study of RHB-204 in pulmonary NTM disease continues to enroll patients in the United States. Importantly, progress with Phase 3 stage RHB-104 for Crohn's disease is expected to speed up, thanks to a recent much-awaited potential progress in Mycobacterium avium subspecies paratuberculosis detection research. We're very excited about that. With steep reduction in quarterly operating and net loss, a quarterly record gross profit of $12.4 million with improved gross margin from net revenues and a potential commercial non-GAAP EBITDA breakeven before the end of the year, along with an advanced, exciting, and timely R&D pipeline, we are well-positioned for short, medium, and long-term success as an emerging specialty pharma company. Before turning to our Chief Business Officer, Guy Goldberg, and the rest of the team for our presentation, please remember to press the link to view our detailed slides to be followed by a Q&A session.

Thank you, Dror. As we near the end of the year, RedHill is at a very important point. I will start with the bottom of the slide, focusing on RedHill's pandemic program with Omicron and the potential for future variants dominating the attention of public health officials. What they have been saying loud and clear is that a simple, scalable, effective, and safe therapeutic is desperately needed. As we all know, the hope that vaccines alone will get us out of this pandemic will most likely not become a reality. RedHill is uniquely positioned to make a difference with its two oral COVID therapeutic candidates. First, opaganib, our novel orally administrated first-in-class SK2 inhibitor addressing the moderately severe in-patient hospitalized population. With its method of action targeting the host cell rather than working on the virus directly, we believe we can cast a wider net of efficacy against emerging variants such as the Omicron variant. We have conducted two clinical studies, a Phase 2 and a Phase 2b study in hospitalized COVID patients, both demonstrating the potential of opaganib, and Gilead will provide more detail of the Phase 2/3 study that is the focus of our submissions in several countries around the world. These submissions open up a potentially milestone-rich upcoming few months as we get feedback from these regulatory agencies regarding next steps. Gilead will also provide important new updates later in the presentation on the timelines for regulatory feedback as well as new biomarker data supporting post-hoc analysis that identify the correct target population for opaganib. Second, we have RHB-107 or upamostat, an orally administered inhibitor targeting a specific family of trypsin-like serine protease, being developed as a treatment for non-hospitalized COVID patients. Upamostat has demonstrated protein inhibition of SARS-CoV-2 viral replication in a preclinical model of human bronchial tissue. And given its prior development in various indications, we also have a solid safety profile from approximately 200 patients. We are conducting a Phase 2/3 study involving non-hospitalized COVID-19 patients in the U.S. and South Africa, and we have completed recruitment for Part A of the study, expecting topline results in Q1 2022. Importantly, RHB-107 is also a once-daily oral pill and is host-mediated, which means that it should also potentially work against various mutations, such as Omicron. Additionally, patients in the study are tested for specific viral strains. Returning down to the top part of the slide in our financial highlights from Q3, we generated record quarterly revenues despite industry-wide challenges, and we believe we will see growth throughout the end of the year and into next year. As a small company, we continue to withstand the pressure from the pandemic and prove ourselves as a resilient organization. In this regard, we generated 50% quarter-over-quarter growth, commercial coverage continues to improve, and we continue to achieve important milestones that will be covered later in the presentation. We believe Talicia has enormous potential 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 among payers and potential prescribers. With Movantik, we continue to maintain our market leadership position. Movantik is well-liked by physicians due to its strong reimbursement, excellent efficacy and safety, as well as brand recognition satisfaction. There's still a large and underserved OIC patient population, and RedHill continues to enhance Movantik's status as the best unrestricted coverage in the PAMORA class. Finally, we've maintained a cash position of $51.5 million as of September 30th to support our R&D and commercial efforts. I would like to provide a brief overview of RedHill for those new to the story who may be on our call today. RedHill is a fully integrated specialty biopharmaceutical company focused on gastrointestinal and infectious diseases, with a robust pipeline of drugs and a world-class commercial operation right out of our U.S. headquarters in Raleigh, North Carolina. At the top of this slide, you see the three FDA approved drugs we promote: Movantik for opioid-induced constipation; Talicia for H. pylori infection; and Aemcolo for travelers’ diarrhea caused by non-invasive strains of E. coli. Rob Jackson, our Senior VP for Marketing and Sales, will provide further details on our commercial efforts. The second part of the slide shows the multiple late-stage programs in development addressing important unmet medical needs. Gilead Raday, our Chief Operating Officer, will review our two COVID programs that I just mentioned. I will then provide an update on RHB-204 for NTM disease and RHB-104 for Crohn's disease. I will now turn it over to Gilead.

Thank you, Guy. In the following slides, I will provide an overview of our advanced COVID-19 programs, specifically with respect to the promise for addressing the Omicron variant and the growing concerns due to potential emergence of resistance to current vaccines and antibodies. I will also provide further data and analyses from the global Phase 2/3 study, some of which has not been shared before, which bolster our previous reporting of an apparent meaningful benefit of opaganib in the survival of moderately severe hospitalized COVID-19 patients. As a reminder, opaganib is an oral pill, which is a first-in-class proprietary selective sphingosine kinase-2 inhibitor. Through inhibiting this host factor enzyme, opaganib exerts a dual action against COVID-19, inhibiting viral replication on one hand and reducing the body's excess immune response to the infection on the other hand. Preclinical efficacy has been demonstrated in numerous anti-inflammatory and anti-viral models, including demonstrating the blocking of SARS CoV-2 viral replication across several variants in human bronchial tissue. Multiple Phase 2 studies and compassionate use in COVID and non-COVID indications have shown promising signals of activity and safety in hospitalized patients. The recently completed global Phase 2/3 study in COVID-19 shows opaganib's apparent benefit for the survival of hospitalized COVID-19 patients in moderately severe condition. These are patients with COVID-19 pneumonia who require supplemental oxygen of up to 60% fraction of inspired oxygen, or FIO2 for short. This patient population represents a large underserved COVID-19 patient group, which the Pfizer and Merck pills do not address. The hospitalized patient population that opaganib benefited in the study was far more advanced in disease progression than the early stage outpatients who participated in the Pfizer and Merck studies. Opaganib has demonstrated efficacy in a population of hospitalized patients in moderately severe condition, with a median of 11 days from the onset of symptoms. While the Pfizer and Merck studies were limited to outpatient cases with a maximum duration of five days from the onset of symptoms. This distinguishes opaganib as a potential game-changer for advanced COVID-19 patients who have a high risk of death from the condition and are already beyond the realm that the Pfizer and Merck pills can target. Importantly, opaganib's mechanism of action is independent of the Omicron variant spike protein mutations, which raise global concerns regarding its potential to evade vaccines and antibodies. Opaganib's anti-viral effect targets the intracellular processes of viral replication at the replication transcription complex, which occurs downstream from the viral attachment to cell membranes and viral entry into the cell. Therefore, opaganib's activity that blocks the replication of the virus inside the cells is not impacted by changes in the viral envelope. Specifically, changes in the spike protein have no direct consequence on opaganib's pathway. Opaganib's proposed anti-viral activity is hence expected to be fully maintained against the Omicron variant and against other future foreseeable spike protein variants of concern. Similarly, opaganib's proposed anti-inflammatory activity is also independent of Omicron variant spike protein mutations. The reduction in inflammation due to opaganib's inhibition of SK-2 is related not directly to the SARS CoV-2 virus, but rather to the body's immune response. Therefore, opaganib's anti-inflammatory activity is likewise expected to be fully maintained against the Omicron variant and against other possibly emerging variants of concern. Opaganib's capacity to work against Omicron and other future variants through its anti-viral and anti-inflammatory modalities places it in a unique and high-priority position as a potential COVID-19 therapy. The reason we are excited about opaganib's role in treating COVID-19 is the apparent benefit of opaganib in reducing mortality in advanced hospitalized COVID-19 patients in moderately severe condition, specifically those needing supplemental oxygen up to 60% FIO2. In our global Phase 2/3 study, this patient population consisting of 251 subjects demonstrated a significant 62% reduction in mortality with a nominal P value of 0.019. The mortality rate in the control arm was recorded at 15.7%, indicative of the high risk of death for these patients. Treatment of these patients with opaganib reduced that mortality risk to just 6%, signifying a meaningful opportunity to save lives. The Kaplan-Meier curves illustrating the time to mortality event among this hospitalized patient population show a clear separation beginning from just a few days after treatment initiation, continuing through to the end of the follow-up period at day 42. Supporting the critical benefits of opaganib in patient survival, another set of key clinical outcomes illustrates consistent benefits for this patient population. Notably, 76.9% of opaganib-treated patients were weaned from their oxygen support, allowing them to breathe room air by day 14 compared to 63.4% in the placebo group, demonstrating a nominal P value of 0.033. Consistent with these findings, other key secondary endpoints also reflected an apparent benefit of opaganib in this population of hospitalized patients with nominally significant P values. A clinical improvement of two or more points on the WHO ordinal scale by day 14 indicated a notable contrast with about 80% clinical improvement observed in the opaganib-treated arm versus 66% in the control arm, verified by a nominal P value of 0.023. Similarly, the time to clinical improvement to a score of three or lower from a baseline score of five on the WHO ordinal scale was shorter for patients treated with opaganib, with a median time of eight days versus ten days, with a P value of 0.01. Patients treated with opaganib were also discharged from the hospital earlier, with a mean difference of approximately four and a half fewer hospital days and a nominal P value of 0.022. The consistency of opaganib's positive effects across various clinical outcomes boosts confidence that these clinical benefits are not a mere statistical anomaly resulting from a specific measurement. Further validation comes from the consistency of opaganib's effects across the different regions participating in the study, encompassing Europe, Latin America, Israel, and Russia, demonstrating that the survival benefit seen was not driven by any singular territorial outlier. To ensure the clinical benefits observed aren’t confounded by potential risk factors, we undertook comprehensive analyses to control for these factors. An exhaustive list of some potential confounders was analyzed, confirming that the survival benefits hold firm and demonstrate a range of a 59% to 66% survival improvement, irrespective of controllable risk factors like age, sex, diabetes, BMI, or if dexamethasone was applied as standard care. Our recent analysis of inflammatory biomarkers in opaganib study subjects, which we are sharing publicly today for the first time, underscores the value of FIO2 as a valuable indicator of COVID-19 disease severity and as a potential predictor for treatment benefits when applying opaganib in our targeted patient group. This table illustrates that recognized and accepted disease severity indicators such as CRP levels, lymphocyte counts, and D-Dimer levels closely correlate with FIO2. This assertion is bolstered by meaningful nominal P values as shown in the rightmost column. Patients requiring lower FIO2 levels at baseline, meaning up to 60% FIO2, indicate they are a unique group exhibiting less severe disease markers compared to those demanding higher than 60% FIO2 at baseline. This contemporary analysis, previously unpublished, further reinforces the validity of utilizing FIO2 based analyses of study outcomes. It affirms that managing FIO2 as a clinical severity marker can serve to identify the patient group that may derive significant benefits from treatment with opaganib. The safety outcomes analysis confirms that adverse events were comparable between treatment arms, with no new safety concerns arising during this study. The majority of treatment-emergent adverse events (TEAEs) were noted to be mild to moderate in severity. Serious TEAEs were experienced by 52 out of 230 patients in the opaganib arm versus 52 out of 233 patients in the placebo arm, representing similar ratios. TEAEs that culminated in patient death occurred in 15.7% versus 17.2% in the opaganib and placebo arms, respectively. The positive safety outcomes lend credence to the overall risk-benefit evaluation of opaganib in this patient demographic and are anticipated to become an essential aspect during regulatory discussions moving forward. It should be noted that the analysis showcasing opaganib’s benefits in moderately severe patients was conducted in a post-hoc manner, hence, it's important to clarify why we are confident that this outcome is not merely a statistical artifact. The foundational aspect central to the post-hoc analysis is the use of FIO2 as a relevant clinical parameter, capturing the oxygen requirements of patients and reflecting the overall disease severity. This consideration is now being fortified with evidence of correlation between FIO2 and accepted inflammatory disease markers. Consistency in opaganib's benefits across different clinical endpoints further strengthens the supposition that any isolated endpoint finding is not a fleeting statistical occurrence. The uniformity of opaganib's benefits observed across different study territories also provides crucial support, demonstrating that outcomes are not skewed by outliers from specific regions. Additionally, while not explicitly detailed in this presentation, we have examined the consistency of opaganib's added benefits utilizing varied FIO2 cutoff points, like 50% instead of 60%. This examination confirmed that the benefits for patients with lower oxygen supplementation mirrors decreased severity of illness, irrespective of the precise cutoff point chosen, again, diminishing the likelihood that the analysis is merely statistical chance and corroborating the belief that a correlation exists between decreased illness severity and opaganib's ability to help patients. Given all this, despite the post-hoc analysis nature, the depth of this study provides significant confidence that the displayed benefits are not artifacts of statistical methods and that opaganib could be safe and effective for this underserved population. The rising concerns surrounding the Omicron variant's potential to resist vaccines and antibodies underline the urgency and advantages of opaganib’s potential effectiveness against these variants. Regarding regulatory updates, we have filed the opaganib data package in key territories globally and are continuing to file in other countries. We anticipate timely regulatory guidance for next steps in targeting the hospitalized COVID-19 patients where currently no effective treatment is available. The EMA has indicated rapid procedures, with preliminary feedback expected by year-end. Preliminary feedback from the U.S. FDA is expected in January 2022. Additional territories we are pursuing include the U.K., Russia, Brazil, Israel, Switzerland, Colombia, India, and South Africa. We are also making arrangements for a confirmatory study utilizing opaganib in the targeted moderately severe hospitalized patients. Subject to regulatory feedback, we’re considering adjustments to the current standards for classifications based on the World Health Organization Ordinal Scale, which employs the type of oxygen delivery device to determine COVID-19 pneumonia severity based on FIO2 as the primary parameter. Moving to a brief update on RHB-107 or upamostat, our second COVID-19 novel oral program currently under evaluation in a Phase 2/3 study involving non-hospitalized COVID-19 patients in both the U.S. and South Africa. RHB-107 is a once-daily oral capsule administered early in the course of the disease to outpatients. Its target, serine proteases, are human enzymes aiding the entry of SARS CoV-2 into target cells. Cleaving the spike protein by human serine proteases is a necessity for viral attachment and entry into the cells, which operates independently of the observed alterations in the spike protein due to mutations. Therefore, RHB-107 is expected to withstand mutations related to the spike protein as it operates via host-mediated mechanisms. RHB-107 has successfully demonstrated inhibition of SARS CoV-2 viral replication in preclinical models of human bronchial tissue and is currently subject to evaluation in symptomatic COVID-19 outpatients in the U.S. and South Africa. Recruitment for Part A of the study has concluded, and we expect topline results in Q1 2022. We plan to incorporate variant analyses and will ensure to include the Omicron variants of concern in the future study analyses. I will now turn it back over to Guy Goldberg for updates on additional R&D programs that are not COVID-related.

Thanks Gilead. So, we'll start with RHB-204. RHB-204 is a novel combination therapy of three antibiotic drugs that are active against non-tuberculous mycobacteria infection or NTM disease. We're currently in a Phase 3 study as a first-line therapy. This is an important and value-driving study because NTM is a hard-to-treat infection with no FDA-approved first-line standard-of-cure treatment. Additionally, this is an orphan disease with an estimated 110,000 pulmonary NTM patients in the United States. RHB-204 has received 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. This slide outlines the study design. We are testing RHB-204 as a potential standalone oral therapy. This randomized, placebo-controlled Phase 3 study will enroll 125 subjects. Key study endpoints include sputum culture conversion and patient-reported critical outcomes assessed over six months with extended follow-up to evaluate post-treatment benefits of conversion. Recently, we made a significant adjustment — adding an interim sample size estimate at roughly 50% enrollment. To expedite recruitment, we’re planning to expand the study to additional territories outside the United States, including the U.K. and Japan. I'll now provide an update on RHB-104, our innovative treatment for Crohn's disease. As Dror mentioned, recent published research indicates potential progress in Mycobacterium avium paratuberculosis (MAP) diagnostic technology, which may enable us to advance our program towards a confirmatory study — pending regulatory input. As a reminder about this program, there's growing evidence suggesting that intracellular mycobacteria play a critical role in Crohn's disease, and MAP has been identified as a potential causative agent. Testing this theory, we conducted a Phase 3 study in Crohn's disease that successfully met our primary and key secondary endpoints, including remission at 26 weeks, response at week 26, early remission at week 16, durability, maintenance, and others. Overall, RHB-104 has exhibited meaningful, consistent, and statistically significant clinical activity. Additionally, the apparent benefit in patients using anti-TNF agents suggests that RHB-104 can be effectively and safely used as adjunct treatment to standard-care medications. Since completing the Phase 3 study, we've seen considerable developments regarding a companion diagnostic to identify MAP infection, albeit a challenging endeavor. However, we believe there’s promising progress based on new public research, and we’ll update investors as soon as we validate this method. Should we succeed in diagnostic testing, we foresee conducting another confirmatory clinical study where entry criteria include MAP positive status, with primary endpoints including mucosal healing. Obviously, we’ll need the FDA’s feedback; however, we envision that such a study could be relatively small, encompassing perhaps 100 to 150 patients. The market for Crohn's disease is enormous, in the multi-billion-dollar range, with a significant unmet medical need due to the limited benefit of monoclonal antibodies and other immune-suppressive drugs, alongside safety concerns inadvertently associated with those treatments. I will now turn it over to Rob to discuss our commercial progress.

Thank you, Guy, and good morning. Over the next few minutes, I'm going to summarize the excellent progress we made during the third quarter in our sales, marketing, and market access activities, so that you can understand how we've developed our business and why we feel increasingly confident about the fourth quarter and 2022. In the third quarter, RedHill achieved record quarterly prescription volume for Talicia despite the continuously challenging pandemic environment. Talicia’s prescription volume grew by 117% over Q3 2020 and by 15%, reflecting a five-point improvement over the second quarter growth rate of 10%. Simultaneously, we observed growth of Movantik relative to the second quarter of 2021. RedHill continues to maintain clear market leadership in the PAMORA class, and we are optimistic about the improving selling landscape throughout the fourth quarter. In the second quarter, RedHill grew Movantik volume by 5.6% over the first quarter of 2021, and we added an additional 1% growth in the third quarter. This growth stems from a disciplined focus on the pain segment. In tandem, we're executing marketing strategies aimed at expanding the PAMORA market, a crucial goal for Movantik as the established market leader. We've heavily invested in digital marketing tactics to raise awareness of opioid-induced constipation among patients and prescribers, and to educate potential consumers about how Movantik can alleviate OIC symptoms. During Q3, we also achieved significant market access success with key payers, which we believe will yield further growth for Movantik in Q4 and 2022. A key predictor for the health of the OIC market is the stable or declining rate of opioid prescribing. As you can see, opioid prescribing has stabilized throughout 2021, a substantial improvement over the downward trend that began in 2012. There is a strong correlation between opioid prescribing and Movantik volume; a stable opioid prescribing trend supports Movantik and the entire PAMORA class. On this next slide, two significant outcomes are apparent: first, prescribing volume in the PAMORA class has stabilized — similar to the trend in the opioid class — which is a positive indicator for Movantik. Second, PAMORA prescribing trends exhibit a return to growth. This positive shift indicates that our efforts are yielding results, as PAMORA prescribing volume reached a low point in June and has since remained steady or improved slightly. This signifies favorable conditions for Movantik's business and reinforces our determination to restore growth in the PAMORA class. In summary, Movantik continues to attain new milestones, with over 2.5 million prescriptions dispensed since launch. Overall, Movantik has secured approximately 90% coverage across all payers, with new prescriptions and total writers showing year-on-year growth during the third quarter of 2021. Concurrently, Talicia has also achieved new milestones, with prescription volume growth in Q3 reaching a record high. Talicia saw significant improvements in commercial payer coverage that facilitated greater trial and usage of the brand. Given our observations this quarter, we anticipate that this upward trend will accelerate in Q4. During Q3, Talicia experienced 15% growth, and we are hopeful this growth rate will continue to improve as recent payer agreements are implemented and new payer alliances develop. Awareness concerning antimicrobial stewardship is paramount, and utilizing the most effective antibiotics as first-line treatments provides the best possibility for cure, preventing the necessity for second, third, or fourth-line treatments. Growing recognition among prescribers regarding these critical points has enabled Talicia to achieve record performance in Q3 across weekly, monthly, and quarterly volumes. In Q4, we will keep focusing on Talicia to further boost our growth as we approach 2022. On the payer side, our market access team has continuously improved our edge with commercial payers. Notably, Talicia was granted a significant contract by Medi-Cal, the California State Medicaid program, effective January 1, 2022, which will make Talicia accessible to 14 million Medi-Cal beneficiaries as a preferred brand without restrictions. As all managed Medicaid plans align with the state contract drug list, we are confident this will enhance Talicia's uptake, especially in a state with a substantial prevalence of H. pylori infections and treatments. These developments signify that prescribers are becoming increasingly aware first of the challenges posed by clarithromycin resistance, as emphasized in the American College of Gastroenterology’s 2017 guidelines, and second, the drawbacks of stubbornly relying on clarithromycin-based therapy as the first-line treatment choice. Reiterating for clarity: the Talicia brand continues to break new barriers. Our team has achieved record weekly, monthly, and quarterly prescription volumes, and we expect these positive trajectories will persist into the next year. In the third quarter, Talicia experienced 117% prescription growth compared to Q3 2020. We also continue to promote Aemcolo to consumers, PCPs, and gastroenterologists. The COVID-19 pandemic has indeed had a significant negative impact on international travel, particularly non-essential travel outside of the continental United States, where the risk of travelers' diarrhea is greatest. Therefore, our mid-term expectations for Aemcolo are tempered by this reality. To summarize, we wrapped up the third quarter with a robust and growing trend of Talicia growth. We have achieved several commercial milestones for Talicia, and as the dominant player in the PAMORA class, we showcased our ability to continue growing new Movantik prescriptions, stabilize prescription volume in the PAMORA class, and enhance our Movantik payer coverage. We look forward to continuing to bolster our performance in Q4 and beyond throughout 2022. Thank you for your time; I will turn the call back to our CFO, Micha Ben-Chorin.

Thank you, Rob. Good morning. Good afternoon. I will provide a short financial summary of the quarter. Revenue is executing on a consistent growth and value creation strategy, enabling us to approach quarterly commercial non-GAAP EBITDA breakeven by year-end. We achieved another quarterly record for net revenues and gross profits, which were accompanied by a reduction in operating and net loss. Our cash position of $51.5 million as of September 30th, 2021, has been supplemented by more than $20 million in equity financing during this month of November. Net revenues totaled $21.6 million for Q3 2021, marking a second consecutive quarter of record net revenues attributed to increased revenues from both Talicia and Movantik, as outlined by Rob. The record net revenues contributed to a quarterly record gross profit of $12.4 million, reflecting a 14% increase from the prior quarter, representing a 57% gross margin from net revenues compared to 51% in the previous quarter. On the expense side, we noted significantly reduced expenses in Q3, totaling $29.8 million, down from $35.8 million in Q2, mainly due to completing our global COVID-19 Phase 2/3 study with opaganib. Operating loss approximated $17.4 million, compared to $24.9 million in the previous quarter, with a decrease of 30% attributed primarily to revenue growth, increased gross profit, completion of most COVID-19 programs, and reduced share-based compensation expenses. Net cash utilized for operating activities was around $19 million for Q3, on par with Q2 2021. We find ourselves in a solid position for potential quarterly commercial non-GAAP EBITDA breakeven by year-end. I will now turn it over to Dror for Q&A.

Thank you. Your first question comes from Brandon Folkes from Cantor Fitzgerald. Your line is now open; you may ask your question.

Hi, thanks for taking my questions, and congratulations on all the progress in both the pipeline and the commercial front. Maybe just firstly on opaganib, I appreciate all the additional data there. Should we think about the EMA as being the most receptive here and potentially, I know you said we're going to expect feedback from them first, is that indicative of that opaganib is probably going to be in the lead in the EMA compared to the U.S.? Maybe secondly, just staying on the pipeline on 204, you talked about expanding the territories in the Phase 3; is that just to speed up the pace of enrollments and the program, or should we think of something else driving the potential expansion there? And then lastly, if I may just slip in all three up front, on the Talicia coverage, obviously, congratulations, great coverage there. Should we expect additional wins here or improvements in coverage going forward, or do you believe you're in a very strong steady state now, and it's really just executing on existing coverage points? Thank you.

Thank you. It's Dror here. Starting with the question about EMA and whether this is likely to be the most important response in the short-term. So, you're right in saying that this is likely to be the first responder, as Gilead said, before the end of the year. It's an expedited review, which we’re very happy about, but it does not necessarily mean that this is the territory where we expect the fastest progress. We are applying in many more countries, some with a high and increasing need for treatment for this patient population in Latin America, Europe, Israel, Switzerland, India, South Africa, and others. Unfortunately, we do not know at this point which country or countries will hold the most promise for advancing to the market. Your question about RHB-204 for NTM infections; yes, the speed of enrollment is the main rationale for expanding the study to additional territories. We also see a strong need for RHB-204 for NTM infections in other countries, such as Japan, where there are actually more patients than in the U.S. Regarding your final question about Talicia coverage and whether we should anticipate additional coverage improvements, coverage is currently excellent, but it can still be better. I will refer this to Bob Gilkin, who leads our Market Access team. Bob, would you like to elaborate on Talicia coverage and what we can expect moving forward?

Sure. Thank you, Dror. I appreciate that. So, first, Rob and I are committed to maximizing the great coverage we have for Talicia; eight out of ten commercially insured patients have access to Talicia. Most of those patients have access without restrictions. We aim to further expand that coverage. Our national account executive team is diligently pursuing this goal, and we have many plans in action right now. While I cannot elaborate at this time, you should definitely expect to see more wins as we head into 2022. We are not finished yet. If our past performance is any indication of our capabilities, just take a look at Movantik and what we managed to accomplish post-acquisition from AstraZeneca. Our team has continually improved coverage and we intend to replicate this success with Talicia. As I mentioned, Rob and I are fully committed to maximizing our existing coverage through our efforts in the field. Thank you.

Great. Thank you very much. I appreciate all the detail.

Thank you. We will now be taking our next question that comes from the line of Ram Selvaraju from H.C. Wainwright. Your line is now open, you may ask your question.

This is Boobalan dialing in for Ram Selvaraju. Can you hear me okay?

Yes, we can.

All right. Awesome, great. Great presentation, congrats on your progress. Just a few questions from our end. So, your Phase 2b post-hoc analysis looks solid and convincing. So, with respect to using FIO2 as a medically relevant parameter, so just curious, have you spoken to KOL and received any preliminary thoughts regarding its feasibility in current medical practice? Also, are there any limitations that you're aware of in using FIO2 as a relevant parameter in treating COVID patients?

Thank you. Certainly, we have interacted with KOLs and will have further interaction as we indicated with regulators. This is a change from what the standard World Health Organization Ordinal Scale characterizes as severity, but certainly FIO2 is a well-known and utilized measure and parameter embraced by treating physicians and KOLs, and we have received feedback that it is indeed a feasible parameter to utilize going forward. However, we will wait for regulatory feedback regarding additional information.

Okay, thanks for the clarity. So, with respect to the RHB-107 Phase 2/3 study, the data readout is expected in the first quarter of 2022. So, can you remind us whether you expect to report any preliminary efficacy data in addition to the safety?

Sure. So, the RHB-107 study is a two-stage study. Part A is the segment we have completed enrollment for and expect topline readouts in Q1. This part encompasses 60 patients and predominantly evaluates the safety aspects of the two doses being assessed, which will stand as the principal outcome. We will capture efficacy endpoints and parameters, but given the relatively small size of the cohort, we don’t anticipate clear efficacy indications. However, we may still receive insights that aid in selecting an optimal dose for the main part, Part B of the study.

Thanks for the clarity. So, regarding RHB-107, are there any benefits or limitations from a safety and efficacy perspective in targeting serine proteases for COVID treatment? Additionally, are you aware of any competitors pursuing similar approaches in this space?

Regarding the safety aspect, RHB-107 has been researched extensively prior to COVID and in various indications with a total of over 400 patients studied, thus ensuring that the safety profile is well-established and suitable for treating early-stage outpatients with COVID-19. In fact, RHB-107 has been provided over longer periods in other indications, alleviating concerns on safety. As for your second query, while some competitors are targeting protease inhibitors or other similar compounds, the serine proteases that our viral targeted treatments focus on are from distinct classes and aim at different targets.

All right. Thanks for taking my questions, congrats again.

Thank you.

Thank you. We will now be taking our next question that comes from the line of David Hoang from SMBC. Your line is now open; you may ask your question.

Hey. Thank you for taking the questions. So, I had a few here. First one, just on, I guess, the scenario expectations for your discussions with regulators regarding the opaganib post-hoc analysis, you talked about running a confirmatory trial utilizing FIO2 to select patients. Is that occurring definitely, or is that still subject to regulatory feedback or any other factors influencing your decision to pursue another trial?

Sure. Thank you, David. Certainly, everything we’ve discussed remains dependent on the regulatory input that we anticipate getting based on the outlined timelines for initial feedback. It is evident that further studies targeting the correct patient population will likely be necessary for full approval processes. The factors influencing the timing will be whether these additional studies run alongside any other potential emergency applications we may consider. Moreover, the application of FIO2 as a parameter for patient selection is indeed feasible and presents sound logic that will be supported by regulatory feedback.

Okay, got it. Thanks for that. And then on Talicia, I just had a question maybe you can help me understand a bit regarding the excellent script growth you're witnessing in Talicia versus the revenues reported for the quarter. Could you offer insights into the rebate situation for this product? Specifically, has there been any substantial changes to gross-to-net for Talicia in recent quarters?

Thank you, David. It's Dror here. Specific figures regarding rebates are not typically disclosed by any company. However, I can make some general comments, and I'll defer to Bob on further elaboration.

Yes, thank you, Dror. We are operating well within industry standards and possibly better than average concerning rebate contracting with our payer customers. Employing a conservative approach to discounting, we diligently manage our gross-to-net. With Talicia, we have been fortunate to resonate strongly due to its clinical attributes that significantly outperform clarithromycin-based therapies. Payors recognize the value of the product, allowing us to maintain that rebate line. One challenge is that we notice payers constantly increasing the rates of rebates and recurring deductibles, which we endeavor to manage while ensuring that our products remain affordable for patients. Thank you.

Great, really appreciate you sharing that. And then just one final question on RHB-104 and Crohn's disease. I wonder if you could furnish more details regarding the anticipated timelines for further development and your level of confidence in securing the companion diagnostic tests?

Thank you, David. It's Dror. I'm glad you inquired because we remain as committed as ever to RHB-104 for Crohn's disease. We receive daily inquiries from investors and numerous patients worldwide regarding the status of this program. How can we access this product for compassionate use? We understand the substantial interest in this potential breakthrough treatment. The Phase 3 results mentioned by Guy point to robust and promising data. In the last three or four years, we've approached the possibility of entering a confirmatory Phase 3 study cautiously to ensure we accurately select the right patient population defined by our proposed mechanism of action, i.e., Crohn’s patients infected with Mycobacterium avium paratuberculosis (MAP), rather than broadening our focus to include all-comers. Fortunately, a recent peer-reviewed publication disclosed critical progress in the detection of MAP, providing a plausible framework for advancing our study. Regarding timelines, we anticipate gaining insights into validating the test within weeks and are wholeheartedly committed to moving this program forward expeditiously, as patient needs are acute. We aspire to approach the regulators swiftly with our proposed study design and take it from there. I'll remind everyone that the Holy Grail in Crohn's treatment lies in achieving mucosal healing. Our Phase 3 study yielded very promising findings regarding mucosal healing, despite having a relatively small patient volume. So, we remain enthusiastic about this program and are resolved to expedite its development, as patients await it, and at last, we have a pathway to move forward.

Okay, thanks for the additional detail, Dror. I really appreciate it. That's it for me.

Thank you. We will now be taking our next question that comes from the line of Bert Hazlett from BTIG. Your line is now open. You may ask your question.

Yes, thank you. Congratulations on the progress, especially impressed with Talicia and the efforts you're making there. Do you have any anecdotal evidence or circumstances you can present regarding field force engagement? How's the traction growing or not with your sales effort? Additionally, could you describe the market’s condition, particularly whether diagnosis of the condition is improving?

Thank you very much, Bert. Wonderful questions. I’ll direct these inquiries to Rob.

Thank you, Dror. Great questions. We're witnessing considerable improvement in the field. Our team is executing effectively, and we are also witnessing consistent growth, reflected across various metrics. To conclude, I would assert that traction in the field is indeed strengthening for Talicia. Regarding diagnostics, I believe conditions have certainly improved compared to early COVID peaks when many prescribers refrained from proceeding with breath tests and endoscopic biopsies for evident reasons. Improvements are noticeable, albeit the ongoing impacts of COVID.

Okay, thank you for that. And then, if I missed it, I apologize. Is it possible to receive a revenue breakdown in percentage terms for Movantik versus Talicia this quarter? Thank you for that, and I apologize if I've overlooked it.

Sure. Thank you, Bert. This is Micha. So, we received a little over $19 million from Movantik and almost $2.25 million from Talicia. Terrific. Looking forward to hearing about the continued growth of Talicia. Thanks.

Thank you. We will now be taking our next question from Scott Henry from ROTH Capital. Your line is now open; you may ask your question.

Thank you, and good morning or afternoon over there. I have a couple questions related to the commercial operations, and I may adopt a more critical perspective to grasp what’s happening. Observing the sequential data, revenues only grew by approximately $100,000 from Q2 to Q3. Therefore, I must maintain that Movantik was down sequentially; is that an accurate assessment? Should we consider this seasonal, or how should we be interpreting it?

Thank you. It’s Dror here. No, it's not correlated at all. Doctor referrals and prescriptions often manifest differently.

To add to that, Scott, both Movantik and Talicia revenues experienced increases, while we did incur a minor negative impact from Aemcolo. So, both Talicia and Movantik are showing positive growth.

Could you provide some insight into how substantial Aemcolo’s negative impact has been?

It's not very large; it's in the neighborhood of $100,000.

Understood. Regarding Aemcolo, what are your views? Is it consuming considerable cash with scant revenues, which I understand given COVID? However, how long can you sustain this?

Thank you, Scott. I'll give the floor to Rob. Before I do, it’s worth noting that the pandemic has severely impacted travel to high-risk locations. Hence, while we originally pursued Aemcolo's growth before the pandemic, that positive trend has completely stalled.

Thank you, Dror. To answer your question, we are currently allocating very few resources to Aemcolo. It's typically positioned as second or third in our detailing process when time allows. Thus, I would advise against concerns regarding an overweighting of effort or expenditure on Aemcolo relative to what we can manage to deliver at this time during the pandemic.

Okay, thank you, Rob. I understand you're expressing enthusiasm regarding the direction of the commercial division. However, when I assess the framework, it appears that while the loss has significantly decreased in Q3 compared to Q2, it's primarily because it escalated between Q1 and Q2. Meaning, when we compare Q3 to Q1, the narrative becomes less appealing. Hence, I’m keen on understanding when we'll witness an inflection point leading to a consistently declining loss, rather than the current scenario of fluctuating from one quarter to the next. When can we anticipate sustainable improvements? Thank you.

Rob, would you like to take that?

Certainly, in terms of Talicia, we are observing sustainable momentum. Notably, our presentation contains a slide breaking down the prescription volume by month, which shows consistent growth since the conclusion of the second quarter. We've redirected our focus towards Talicia in the latter part of the year, resulting in increased uptake. I'm confident this trend will continue, allowing us to achieve strong performance in Q4 as well. We’ll maintain this trajectory through the upcoming year, spurred on by our recent Medi-Cal win, set to take effect January next year.

I hope to see that commercial breakeven soon. Observing the trends, I acknowledge that the Talicia scripts are promising, but it's imperative to monitor the course of the losses as they still remain substantial. Shifting gears, the gross margin for the quarter appeared quite favorable. How should we expect that to hold in the future?

You are correct; we experienced a substantial increase this quarter. Comparing this with the previous two quarters, in which our margins were curtailed due to the shorter file expiration of Talicia that constituted part of the inventory and distribution channels, our recent FDA extension of that file from two years to three has allowed us greater operational flexibility and has aided in yielding a higher margin. Therefore, we can reasonably expect to see an increased margin pattern going forward relative to Q1. However, you might see a small drop in Q4 versus Q3, but definitely above the margins observed in Q1 and Q2.

So, to clarify, do you believe the Q3 gross margin can be sustained moving forward?

Q4 might drop slightly below Q3 but will still outperform Q1 and Q2 gross margins.

That's helpful, thank you. One final question — if a confirmatory trial is necessary for opaganib, how long do you anticipate this would require from initiation to completion?

Thanks, Scott. Gilead here. The last study enrolling over 450 patients was finalized in close to a year. We believe we can do better this time, especially given the positive data relating to the targeted moderately severe hospitalized patients. We could possibly complete the study within less than a year, especially if we leverage resources and external support as needed across various sites for broader reach.

Excellent, thank you for that insight. I appreciate your willingness to answer my questions.

Thank you.

Thank you. No further questions came through. Sir, please continue.

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

Thank you. That does conclude the conference for today. Thank you all for participating. You may all disconnect.