RedHill Biopharma Ltd 6-K/A, filed Nov 7, 2022
RedHill Biopharma Ltd. (RDHL)
About this 6-K/A
RedHill Biopharma Ltd filed this 6-K/A on November 7, 2022.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the month of November 2022
Commission File No.:001-35773
REDHILL BIOPHARMA LTD.
(Translation of registrant’s name into English)
21 Ha'arba'a Street, Tel Aviv, 6473921, Israel
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F ⌧ Form 40-F ◻
Indicate by check mark if the Registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ____
Indicate by check mark if the Registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____
EXPLANATORY NOTE
RedHill Biopharma Ltd. (the “Registrant”) is furnishing this report on Form 6-K/A to amend its Form 6-K report furnished on June 23, 2022 to restate its financial results for the three months ended March 31, 2022 (the “March Report”). The Registrant elected to restate its unaudited condensed consolidated interim financial statements as of March 31, 2022 and for the three months then ended 2022 (the “Original Q1 Financials”) due to errors in the calculation of allowance for deductions from revenue which resulted in net revenues being overstated. Cost of revenues, gross profit and operating loss were adjusted accordingly.
Details on the restatement and its impact on the Original Q1 Financials, including the restated line items, are included in Note 2c – “Restatement of previously issued condensed consolidated financial statements” of the restated unaudited condensed consolidated interim financial information as of March 31, 2022 and for the three months then ended, which is attached hereto as Exhibit 99.2.
Management has reassessed its evaluation of the effectiveness of the design and operation of its controls and procedures as of March 31, 2022. As a result of that reassessment, management has concluded that the Registrant did not maintain effective disclosure controls and procedures due to the material weakness in internal control over financial reporting which existed at that date, relating to lack of sufficient controls which impacted the calculation of allowance for deductions from revenues. Management has started to implement measures in order to fully remediate the deficiencies resulting in the material weakness.
The restatement has no impact on the audited annual financial statements for 2021 and 2020. The information being furnished in this Form 6-K/A replaces and supersedes the same information which had been previously provided in the Original Q1 Financials, and such information which has been so replaced and superseded should no longer be relied upon.
For convenience of the reader, this Form 6-K/A sets forth the March Report in its entirety, as modified where necessary to reflect the restatement.
Attached hereto and incorporated by reference herein are the following:
Exhibit 99.1: Registrant's press release entitled “RedHill Biopharma Provides H1/22 Highlights and Q3/22 Estimates”.
Exhibits 99.1 (solely with respect to “Financial results for the six months ended June 30, 2022 (unaudited)”, “Liquidity and Capital Resources”, “Quarter Three, 2022, Estimates”, “Commercial Highlights”, “R&D Highlights”, "Q2/22 Condensed Consolidated Interim Statements of Comprehensive Loss", "Q2/22 Condensed Consolidated Interim Statements of Financial Position", "Q2/22 Condensed Consolidated Interim Statements of Cash Flows", "Q1/22 Condensed Consolidated Interim Statements of Comprehensive Loss", "Q1/22 Condensed Consolidated Interim Statements of Financial Position" and "Q1/22 Condensed Consolidated Interim Statements of Cash Flows") and 99.2 to this Report on Form 6-K are hereby incorporated by reference into the Registrants Registration Statements on Form S-8 filed with the Securities and Exchange Commission on May 2, 2013 (Registration No. 333-188286), on October 29, 2015 (Registration No. 333-207654), on July 25, 2017 (Registration No. 333-219441), on May 23, 2018 (Registration No. 333-225122), on July 24, 2019 (File No. 333-232776), on March 25, 2021 (File No. 333-254692), on May 3, 2021 (File No. 333-255710), on January 11, 2022 (File No. 333-262099) and on June 27, 2022 (File No. 333-265845), and its Registration Statements on Form F-3 filed with the Securities and Exchange Commission on March 30, 2021 (File No. 333-254848) and on July 29, 2021 (File No. 333-258259).
Forward-Looking Statements
This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may be preceded by the words “intends,” “may,” “will,” “plans,” “expects,” “anticipates,” “projects,” “predicts,” “estimates,” “aims,” “believes,” “hopes,” “potential” or similar words. Forward-looking statements are based on certain assumptions and are subject to various known and unknown risks and uncertainties, many of which are beyond the Company’s control and cannot be predicted or quantified, and consequently, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include the risk that the Company may not be successful in closing a strategic or other transaction with respect to Movantik®, risks relating to the restatement of the Company’s financial statements for the three months ended March 31, 2022, risks relating to the determination that a material weakness exists within the Company’s internal control over financial reporting, as well as risks and uncertainties associated with (i) the initiation, timing, progress and results of the Company’s research, manufacturing, preclinical studies, clinical trials, and other therapeutic candidate development efforts, and the timing of the commercial launch of its commercial products and ones it may acquire or develop in the future; (ii) the Company’s ability to advance its therapeutic candidates into clinical trials or to successfully complete its preclinical studies or clinical trials (iii) the extent and number and type of additional studies that the Company may be required to conduct and the Company’s receipt of regulatory approvals for its therapeutic candidates, and the timing of other regulatory filings, approvals and feedback; (iv) the manufacturing, clinical development, commercialization, and market acceptance of the Company’s therapeutic candidates and Talicia®; (v) the Company’s ability to successfully commercialize and promote Movantik®, Talicia® and Aemcolo®; (vi) the Company’s ability to establish and maintain corporate collaborations; (vii) the Company's ability to acquire products approved for marketing in the U.S. that achieve commercial success and build and sustain its own marketing and commercialization capabilities; (viii) the interpretation of the properties and characteristics of the Company’s therapeutic candidates and the results obtained with its therapeutic candidates in research, preclinical studies or clinical trials; (ix) the implementation of the Company’s business model, strategic plans for its business and therapeutic candidates; (x) the scope of protection the Company is able to establish and maintain for intellectual property rights covering its therapeutic candidates and commercial products and its ability to operate its business without infringing the intellectual property rights of others; (xi) parties from whom the Company licenses its intellectual property defaulting in their obligations to the Company; (xii) estimates of the Company’s expenses, future revenues, capital requirements and needs for additional financing; (xiii) the effect of patients suffering adverse events using investigative drugs under the Company's Expanded Access Program; and (xiv) competition from other companies and technologies within the Company’s industry. More detailed information about the Company and the risk factors that may affect the realization of forward-looking statements is set forth in the Company's filings with the Securities and Exchange Commission (SEC), including the Company's Annual Report on Form 20-F filed with the SEC on March 17, 2022. All forward-looking statements included in this report are made only as of the date of this report. The Company assumes no obligation to update any written or oral forward-looking statement, whether as a result of new information, future events or otherwise unless required by law.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| REDHILL BIOPHARMA LTD. | |
| (the “Registrant”) | |
| | |
Date: November 7, 2022 | By: | /s/ Dror Ben-Asher |
| Dror Ben-Asher | |
| Chief Executive Officer | |
Exhibit 99.1
Press Release
RedHill Biopharma Provides H1/22 Highlights and Q3/22 Estimates
Financial update: Q2/22: Net revenues of $18.3 million; Operating loss of $9.2 million; Cash balance1 of $43.2 million as of June 30, 2022; Restated Q1/22: Net revenues of $13.1 million; Q3/22: Net revenues estimated2 to be between $16.5 million to $18.5 million; Operating loss estimated to be in the range of $5.5 million to $7.5 million; Q3/22 cash flow from operating activities is estimated positive for U.S. operations, before interest payments3
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Commercial update: Upward trajectory continues with Talicia® and Movantik® new prescriptions up 11.2% and 4.0% over Q1/22, respectively; Commercial PBM win for Talicia improves coverage for 58 million more lives – Talicia on track to become the most prescribed branded H. pylori therapy in 2023; Market leader, Movantik, also anticipated to benefit from PAMORA class growth trends; With strong increases in gross sales, primary focus on improving gross-to-net yields
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Corporate update: Substantial impact from cost-reduction program expected in 2H/22, supporting planned improvement in cash from operations; Discussions advancing with HCR regarding default status and repayment of loan; Movantik sale process advancing rapidly aimed at satisfying outstanding obligations under the HCR credit agreement; Multiple RHB-204 out-licensing discussions progressing; Addition of significant revenue-generating GI products ongoing; Litigation against Kukbo initiated without counter-arguments from Kukbo and a favorable judgement is expected within weeks, strengthening the balance sheet significantly if collected
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R&D update: Opaganib and RHB-107 COVID-19 programs advancing; RHB-107 development funding and potential inclusion in a key platform trial, as well as other external non-dilutive financing, well advanced. Both broad-acting, host-directed, antiviral candidates subject of ongoing discussions with the U.S. government for pandemic preparedness and other government programs, and both demonstrated in vitro inhibition of Omicron BA.5 sub-variant. Opaganib granted new COVID-19 treatment patent and, separately, demonstrated in vitro efficacy against Influenza; RHB-204 for NTM disease granted EU Orphan Designation
1 | Including cash, cash equivalents, short-term bank deposits and restricted cash. |
2The Q3/22 update is an estimate for the quarter ended September 30, 2022, and reflects RedHill’s current preliminary review, which is still ongoing and could result in changes to the estimated revenues and operating loss figures.
3The Company currently estimates that its net cash used in operating activities for the three months ended September 30, 2022, was approximately $6.7 million, of which it is estimated that the net cash used in operating activities from the U.S operations in Q3/22 was positive, before interest payments.
TEL AVIV, Israel and RALEIGH, NC, November 7, 2022, RedHill Biopharma Ltd. (Nasdaq: RDHL) (“RedHill” or the “Company”), a specialty biopharmaceutical company, today reported its second quarter 2022 financial results and operational highlights, restatement of first quarter 2022 financial results and the provision of third quarter 2022 estimates.
Dror Ben-Asher, RedHill’s Chief Executive Officer, said: “Quarter two, and our expectations for the second half of the year, reflect significant operational and strategic progress by RedHill in the face of persistent negative biotech sector sentiment. Our commercial team is streamlined, with much reduced operational spend, and continues to rapidly grow new prescriptions. It is this growth, at this stage in its lifecycle, that is making Movantik such a valuable and saleable asset, and which has led Talicia to be the most prescribed branded agent by the Gastroenterology community, on track to become the most prescribed branded H. pylori therapy in 2023. With increased gross sales, we are applying substantial efforts to improving gross-to-net yields, using multiple parallel mechanisms. We are fully committed to refining our pre-pandemic debt structure in a way that helps us rapidly grow our business both organically and externally, through the intended sale of Movantik and the planned addition of new revenue-generating products currently under discussions. We continue to work relentlessly to maximize the value of our products and optimize our business. As such, the cost-reduction program we implemented is expected to deliver its major impact in the second half of the year.”
Mr. Ben-Asher continued: “With an urgent need to develop broad-spectrum, host-directed antivirals for pandemic preparedness, RedHill is driving forward its opaganib and RHB-107 COVID-19 and other antiviral programs. We are currently in advanced discussions regarding external non-dilutive development funding for RHB-107 and are in the process of finalizing RHB-107’s inclusion in a key platform study to be supported by a U.S. government arm. Both opaganib and RHB-107 continue to demonstrate the variant-agnostic value of being host-directed, demonstrating in vitro inhibition of the Omicron BA.5 sub-variant in testing conducted at the University of Tennessee. We are also delighted with the grant of a new COVID-19 treatment patent for opaganib. Beyond COVID-19, we have established several cooperative research projects, with both government and non-government entities, to evaluate opaganib and RHB-107 across multiple targets, including influenza, which opaganib recently demonstrated in vitro efficacy against, Ebola, and others. We are also pleased with the important recognition of EU Orphan Designation for RHB-204, currently in Phase 3 study as the first stand-alone standard of care first-line therapy for NTM disease, and for which prospective partnership discussions are advancing across multiple territories.”
2
Financial results for the six months ended June 30, 2022 (Unaudited)4
Net Revenues for the six months ended June 30, 2022, were $31.5 million, as compared to $42.1 million for the six months ended June 30, 2021. The increase in units sold in the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, was accompanied by increased gross-to-net allowances as the percentage of Medicare part D and Medicaid prescriptions increased.
The Company has restated its condensed consolidated interim financial statements as of and for the three months ended March 31, 2022, due to errors in the calculation of allowance for deductions from revenue. Cost of revenues, gross profit and operating loss were adjusted accordingly. This does not affect any other accounting period and is unlikely to impact the full-year outlook.
Cost of Revenues for the six months ended June 30, 2022, was $15.3 million, as compared to $20.8 million for the six months ended June 30, 2021.
Gross Profit for the six months ended June 30, 2022, was $16.2 million, as compared to $21.2 million for the six months ended June 30, 2021. The decrease was primarily attributed to the impact of increased gross-to-net allowances outlined above.
Research and Development Expenses for the six months ended June 30, 2022, were $4.5 million, as compared to $17.8 million for the six months ended June 30, 2021. The decrease was attributed to the ongoing optimization of R&D costs and completion of components of the opaganib and RHB-107 development programs.
Selling, Marketing and General and Administrative Expenses for the six months ended June 30, 2022, were $37.4 million, as compared to $46.5 million for the six months ended June 30, 2021. The decrease was mainly attributed to various cost-control measures implemented during the period.
Operating Loss for the six months ended June 30, 2022, was $25.8 million, as compared to $43 million for the six months ended June 30, 2021. The decrease was primarily attributed to reductions in operating expenses.
Net Cash Used in Operating Activities for the six months ended June 30, 2022, was $20.7 million, as compared to $31.2 million for the six months ended June 30, 2021. The decrease was attributed to the completion of components of the opaganib and RHB-107 development programs as well as various cost reduction measures.
Restated financial results for the three months ended March 31, 2022 (Unaudited)5
The Company has restated its condensed consolidated interim financial statements as of and for the three months ended March 31, 2022, due to errors in the calculation of allowance for deductions from revenue which resulted in net revenues being overstated. Cost of revenues, gross profit and operating loss were adjusted accordingly. This does not affect any other accounting period and is unlikely to impact the full-year outlook. The comparison below reflects this restatement.
4All financial highlights are approximate and are rounded to the nearest hundreds of thousands. The comparisons in this section reflect the restated condensed consolidated interim financial statements as of and for the three months ended March 31, 2022, described below.
5All financial highlights are approximate and are rounded to the nearest hundreds of thousands.
3
Net Revenues for the first quarter of 2022 were $13.1 million, as compared to $22.1 million in the fourth quarter of 2021, the difference being attributable to typical cyclical trends in Movantik sales and increased gross-to-net deductions related mainly to increased formulary coverage.
Cost of Revenues for the first quarter of 2022 was $6.3 million, as compared to $19.3 million in the fourth quarter of 2021. The decrease was attributed to recognition of an approximately $9 million impairment related to the intangible asset of Aemcolo® for travelers’ diarrhea in the fourth quarter of 2021.
Gross Profit for the first quarter of 2022 was $6.8 million, as compared to $2.7 million in the fourth quarter of 2021. The increase was attributed to the impairment recognized in the fourth quarter of 2021, as detailed above.
Research and Development Expenses for the first quarter of 2022 were $3.1 million, as compared to $5.9 million in the fourth quarter of 2021. The decrease was attributed to the ongoing optimization of R&D costs and completion of elements of the opaganib and RHB-107 development programs.
Selling, Marketing and General and Administrative Expenses for the first quarter of 2022 were $20.4 million, as compared to $17.6 million in the fourth quarter of 2021. The increase was mainly attributed to a one-off positive adjustment in the fourth quarter of 2021 and expenses related to professional services and other related expenses in the first quarter of 2022.
Operating Loss for the first quarter of 2022 was $16.6 million, as compared to $20.7 million in the fourth quarter of 2021. The decrease was mainly attributed to the impairment recognized in the previous quarter, as detailed above.
Net Cash Used in Operating Activities for the first quarter of 2022 was $4.2 million, as compared to $14.9 million in the fourth quarter of 2021. The decrease was mainly due to changes in working capital and continued implementation of cost-reduction measures.
Net Cash Used in Financing Activities for the first quarter of 2022 was $4.9 million, as compared to Net Cash Provided by Financing Activities of $17.6 million in the fourth quarter of 2021, comprised mostly from proceeds of equity offerings completed in the fourth quarter of 2021. The additional decrease of $5 million was due to a reduction of Movantik acquisition liabilities.
With respect to the Q1/22 restatement, the Company determined that a material weakness existed within its internal control over financial reporting as it related to recognition of certain allowances for deductions from revenues. Management, with the oversight of the audit committee and external advisors, has implemented additional processes and controls with respect to recognition of certain allowances for deduction from revenues to address this deficiency.
4
Liquidity and Capital Resources
Cash Balance1 as of June 30, 2022, was $43.2 million, as compared to $45 million as of March 31, 2022, and $54.2 million as of December 31, 2021.
On May 9, 2022, the Company announced that it had entered into a definitive agreement with a single leading healthcare investor for the purchase and sale of 10,563,380 of the Company's American Depositary Shares ("ADSs") (or ADS equivalents) in a registered direct offering at a price per ADS of $1.42. The gross proceeds to the Company from this offering were approximately $15 million, before fees and expenses. RedHill also agreed to issue to the investor unregistered private warrants to purchase up to an aggregate of 13,204,225 ADSs in a concurrent private placement. The warrants have an exercise price of $1.48 per ADS, are exercisable six months after the issuance date and have a term of five and one-half years.
On June 17, 2022, the Company and HCR entered into an amendment to the HCR Credit Agreement reducing the minimum net sales requirement to $75.0 million for the trailing four quarter periods ending on June 30, 2022, and September 30, 2022, with a 0.5% increase in interest rate in these quarters. Redhill Inc. shall also be required to maintain minimum net sales of $14 million for Movantik each fiscal quarter starting the fiscal quarter ending June 30, 2022.
On September 13, 2022, the Company received a notice from HCR asserting certain events of default under the Credit Agreement, resulting in the outstanding obligations under the Credit Agreement now bearing interest at the default rate under the Credit Agreement. The Company disagrees with the assertions made by HCR and is engaged with HCR in good faith in order to establish a consensual business resolution to this dispute. RedHill continues operating its business as usual, while also concurrently evaluating strategic alternatives to satisfy its outstanding obligations under the Credit Agreement through the potential sale of Movantik.
In addition to the previously reported breach of the 60 days quarterly reporting covenant in connection with the second quarter financial statements, the possibility of also being in default of the $75.0 million net sales covenant for the trailing four fiscal quarter period ending on September 30, 2022, remains. We are working with our creditor toward an agreement on constructive solutions and repayment of debt, including the potential sale of Movantik in order to satisfy the outstanding loan obligations.
On November 3, 2022, the Company received a termination notice from SVB Securities LLC (“SVB Securities”), with respect to itself, in connection with the Sales Agreement dated July 29, 2022, by and among the Company, SVB Securities and Cantor Fitzgerald & Co.
On September 2, 2022, the Company filed a lawsuit against Kukbo Co. Ltd. (“Kukbo”) in the Supreme Court of the State of New York, County of New York, Commercial Division, as a result of Kukbo’s default in delivering to the Company $5.0 million under the Subscription Agreement, dated October 25, 2021, in exchange for ADSs, and a further payment of $1.5 million due under the Exclusive License Agreement, dated March 14, 2022. Kukbo has not raised counter-arguments and we believe a favorable judgement is expected within weeks, strengthening the balance sheet significantly if collected.
5
Discussions regarding the potential sale of Movantik, RHB-204 out-licensing in multiple territories and the in-licensing of a new revenue-generating GI product are advancing.
Quarter Three, 2022, Estimates:
Based on unaudited and preliminary estimates, total net revenues for the quarter ended September 30, 2022, were in the range of $16.5 million to $18.5 million.
The Company further estimates that its operating loss for the quarter ended September 30, 2022, was in the range of $5.5 million to $7.5 million.
The Company’s current estimate for Q3/22 cash flow from operating activities is approximately $6.7 million and positive for U.S operations3.
As of September 30, 2022, RedHill’s cash, short-term investments and restricted cash were approximately $31.4 million, compared to $54.2 million as of December 31, 2021.
The above-estimated revenue and operating loss figures for the quarter ended September 30, 2022, reflect RedHill’s current preliminary review, which is still ongoing and could result in changes to the estimated revenues and operating loss figures. These estimates were not reviewed by our independent accountants.
Commercial Highlights
Movantik® (naloxegol)6
| ● | Movantik delivered a 4% growth in new prescriptions in Q2/22, compared to Q1/22, representing the highest quarterly prescribing volume for Movantik since RedHill acquired the product rights |
| ● | Movantik continues to hold a firm grip on its PAMORA class leadership position, with more than 70% market share. As market leader, Movantik is anticipated to benefit further from positive PAMORA class growth trends - up 7% for the three months ending August 2022 as compared to the same period in the previous year |
| ● | Two new Movantik analyses, from pooled data from two Phase 3 studies, were presented at PAINWeek in September, demonstrating that Movantik (naloxegol) provides healthcare-related quality of life (HR- QOL) and clinically meaningful symptom improvements, compared to placebo, in patients with opioid-induced constipation (OIC) |
| ● | Movantik retains best-in-class coverage with Preferred Status in two of the three largest Commercial PBMs and 92% Preferred Status within Medicare Part D7 |
6 | Movantik® (naloxegol) is indicated for opioid-induced constipation (OIC). Full prescribing information see: www.movantik.com. |
7 | Managed Markets Insight & Technology, LLC, June 2022. |
6
| ● | New updated Centers for Disease Control and Prevention (CDC) guidelines, issued November 2022, provided for increased flexibility in opioid prescribing |
Talicia® (omeprazole magnesium, amoxicillin and rifabutin)8
| ● | An 11.2% increase in Talicia prescriptions in Q2/22, compared to Q1/22, builds on the record quarterly prescription levels seen in Q1/22 and Q4/21 and represents 86.4% growth in Talicia prescriptions compared to Q2/21 |
| ● | Talicia is the most prescribed branded agent by the Gastroenterology community and is on track to become the most prescribed branded H. pylori therapy in 2023. |
| ● | New Talicia data analyses were presented at Obesity Week (November 2022) and the World Gastro 2022 congress (August 2022) support the efficacy and safety of Talicia as empiric first-line treatment for H. pylori infection in patients regardless of obesity, body mass index (BMI) or diabetic status and demonstrating that: |
| o | Talicia’s efficacy in the pooled data from two Phase 3 studies was unaffected by presence of diabetes, obesity or BMI |
| o | Intragastric rifabutin exposure was unaffected by patient BMI, and that Talicia provides favorable intragastric rifabutin concentrations compared to generically available rifabutin |
| o | The safety profile of Talicia in these patients was generally similar to the overall population and no cases of hypoglycemia were reported. This is clinically relevant as clarithromycin has a risk of drug interactions with commonly used diabetes medications such as insulin and metformin, as well as potential for increased risk of hypoglycemia |
| ● | The addition of Florida Medicaid unrestricted preferred coverage increased Medicaid coverage of Talicia by 4.9% to 23%. An additional 1.9 million lives gained coverage in May 2022. A commercial PBM win improved coverage to “preferred” for an additional 58.0 million lives starting July 1, 2022. As of August 2022, total Talicia coverage stood at almost 200 million American lives, equating to seven out of ten commercial lives and six out of ten Government lives |
Aemcolo® (rifamycin)9
| ● | The first post-pandemic prescriptions for Aemcolo are beginning to be seen and the Company is planning additional commercialization initiatives focused on driving growth in the primary care segment |
8Talicia® (omeprazole magnesium, amoxicillin and rifabutin) is indicated for the treatment of H. pylori infection in adults. For full prescribing information see: www.Talicia.com.
9Aemcolo® (rifamycin) is indicated for the treatment of travelers’ diarrhea caused by noninvasive strains of Escherichia coli in adults. For full prescribing information see: www.aemcolo.com.
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R&D Highlights
Opaganib (ABC294640)10 & RHB-107 (upamostat)11 – COVID-19, variants and other viruses
| ● | With an urgent need to develop broad-spectrum, host-directed antivirals for pandemic preparedness, RedHill is: |
| o | Currently in late-stage discussions regarding funding for a pivotal Phase 3 study for RHB-107 and close to finalizing inclusion in a key platform study |
| o | Working on several cooperative projects, with government and non-government bodies, on a range of preclinical studies with opaganib and RHB-107 (upamostat) against multiple viral targets, including influenza and Ebola (amongst others) |
| ● | Both once-daily RHB-107 (upamostat) and twice-daily opaganib demonstrated in vitro inhibition of Omicron BA.5 sub-variant in testing conducted by the University of Tennessee in October 2022 |
| ● | The United States Patent and Trademark Office (USPTO), in October 2022, granted a new method of use patent for opaganib for the inhibition of a disease caused by a coronavirus in patients having pneumonia and receiving supplemental oxygen at a fraction of inspired oxygen (FiO2) up to and including 60% |
| ● | In July 2022, opaganib’s suggested host-directed mechanism of action was published in the journal Drug Design, Development and Therapy, describing opaganib's multi-faceted potential to: inhibit multiple pathways, induce autophagy and apoptosis, and disrupt the viral RTC (replication-transcription complex) through simultaneous inhibition of three sphingolipid-metabolizing enzymes in human cells (SK2, DES1 and GCS) |
| ● | In June 2022, opaganib demonstrated potent in vitro inhibition of influenza A H1N1, at low concentrations and with no evidence of toxicity at these levels in a Normal Human Bronchial Epithelial Cells (NHBE) assay, the natural human target of the virus, making it a realistic model |
RHB-204 - Pulmonary Nontuberculous Mycobacteria (NTM) Disease12
| ● | In August 2022, the European Commission granted Orphan Drug Designation to RHB-204, which is in an ongoing U.S. Phase 3 study, for the treatment of nontuberculous mycobacteria (NTM) disease, providing 10 years of post-approval EU market exclusivity |
| ● | The Company is advancing discussions with prospective partners for RHB-204 across multiple territories including the EU and others. |
10Opaganib is an investigational new drug, not available for commercial distribution.
11RHB-107 (upamostat) is an investigational new drug, not available for commercial distribution.
12 | RHB-204 is an investigational new drug, not available for commercial distribution. |
8
About RedHill Biopharma
RedHill Biopharma Ltd. (Nasdaq: RDHL) is a specialty biopharmaceutical company primarily focused on gastrointestinal and infectious diseases. RedHill promotes the gastrointestinal drugs, Movantik® for opioid-induced constipation in adults6, Talicia® for the treatment of Helicobacter pylori (H. pylori) infection in adults8, and Aemcolo® for the treatment of travelers’ diarrhea in adults9. RedHill’s key clinical late-stage development programs include: (i) RHB-204, with an ongoing Phase 3 study for pulmonary nontuberculous mycobacteria (NTM) disease; (ii) opaganib (ABC294640), a first-in-class oral broad-acting, host-directed SK2 selective inhibitor targeting multiple indications, with potential for pandemic preparedness, with a Phase 2/3 program for hospitalized COVID-19, a Phase 2 program in oncology and a radiation protection program ongoing; (iii) RHB- 107 (upamostat), an oral broad-acting, host-directed, serine protease inhibitor with potential for pandemic preparedness and is in a Phase 3-stage study as treatment for non-hospitalized symptomatic COVID- 19, and targeting multiple other cancer and inflammatory gastrointestinal diseases; (iv) RHB-104, with positive results from a first Phase 3 study for Crohn's disease; and (v) RHB-102 , with positive results from a Phase 3 study for acute gastroenteritis and gastritis and positive results from a Phase 2 study for IBS-D. More information about the Company is available at www.redhillbio.com/ twitter.com/RedHillBio.
This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may be preceded by the words “intends,” “may,” “will,” “plans,” “expects,” “anticipates,” “projects,” “predicts,” “estimates,” “aims,” “believes,” “hopes,” “potential” or similar words and include statements regarding anticipated continued growth in prescriptions, the sale of Movantik, the addition of new revenue generating products, non-dilutive development funding from RHB-107 and its inclusion in a key platform study. Forward-looking statements are based on certain assumptions and are subject to various known and unknown risks and uncertainties, many of which are beyond the Company’s control and cannot be predicted or quantified, and consequently, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, without limitation, the risk that the growth in prescriptions will not continue, that the sale of Movantik and the addition of new generating products will not occur, that we will not be successful in obtaining non-dilutive development funding for RHB- 107, that the obligations of the term loan will not be met and that HCR will take steps to accelerate our payment obligations under our credit agreement with HCR, that we will not be successful in increasing sales of our commercial products, including due to market conditions, that the Phase 2/3 COVID-19 study for RHB-107 may not be successful and, even if successful, such studies and results may not be sufficient for regulatory applications, including emergency use or marketing applications, and that additional COVID-19 studies for opaganib and RHB-107 are likely to be required, as well as risks and uncertainties associated with the risk that the Company will not successfully commercialize its products; as well as risks and uncertainties associated with (i) the initiation, timing, progress and results of the Company’s research, manufacturing, pre-clinical studies, clinical trials, and other therapeutic candidate development efforts, and the timing of the commercial launch of its commercial products and ones it may acquire or develop in the future; (ii) the Company’s ability to advance its therapeutic candidates into clinical trials or to successfully complete its pre-clinical studies or clinical trials or the development of a commercial companion diagnostic for the detection of MAP; (iii) the extent and number and type of additional studies that the Company may be required to conduct and the Company’s receipt of regulatory approvals for its therapeutic candidates, and the timing of other regulatory filings, approvals and feedback; (iv) the manufacturing, clinical development, commercialization, and market acceptance of the Company’s therapeutic candidates and Talicia®; (v) the Company’s ability to successfully commercialize and promote Talicia®, and Aemcolo® and Movantik®; (vi) the Company’s ability to establish and maintain corporate collaborations; (vii) the Company's ability to acquire products approved for marketing in the U.S. that achieve commercial success and build its own marketing and commercialization capabilities; (viii) the interpretation of the properties and characteristics of the Company’s therapeutic candidates and the results obtained with its therapeutic
9
candidates in research, pre-clinical studies or clinical trials; (ix) the implementation of the Company’s business model, strategic plans for its business and therapeutic candidates; (x) the scope of protection the Company is able to establish and maintain for intellectual property rights covering its therapeutic candidates and its ability to operate its business without infringing the intellectual property rights of others; (xi) parties from whom the Company licenses its intellectual property defaulting in their obligations to the Company; (xii) estimates of the Company’s expenses, future revenues, capital requirements and needs for additional financing; (xiii) the effect of patients suffering adverse experiences using investigative drugs under the Company's Expanded Access Program; (xiv) competition from other companies and technologies within the Company’s industry; and (xv) the hiring and employment commencement date of executive managers. More detailed information about the Company and the risk factors that may affect the realization of forward-looking statements is set forth in the Company's filings with the Securities and Exchange Commission (SEC), including the Company's Annual Report on Form 20-F filed with the SEC on March 17, 2022. All forward-looking statements included in this press release are made only as of the date of this press release. The Company assumes no obligation to update any written or oral forward-looking statement, whether as a result of new information, future events or otherwise unless required by law.
Company contact:
Adi Frish
Chief Corporate and Business Development Officer
RedHill Biopharma
+972-54-6543-112
adi@redhillbio.com
Category: Financials
10
REDHILL BIOPHARMA LTD.
Q2/22 CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
| | Three Months Ended | | Six Months Ended | ||||
| | June 30, | | June 30, | ||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| | U.S. dollars in thousands | ||||||
NET REVENUES | | 18,346 | | 21,502 | | 31,450 | | 42,077 |
COST OF REVENUES | | 8,995 | | 10,590 | | 15,288 | | 20,843 |
GROSS PROFIT | | 9,351 | | 10,912 | | 16,162 | | 21,234 |
RESEARCH AND DEVELOPMENT EXPENSES | | 1,472 | | 10,328 | | 4,534 | | 17,812 |
SELLING AND MARKETING EXPENSES | | 9,273 | | 15,235 | | 21,833 | | 29,130 |
GENERAL AND ADMINISTRATIVE EXPENSES | | 7,765 | | 10,235 | | 15,583 | | 17,330 |
OPERATING LOSS | | 9,159 | | 24,886 | | 25,788 | | 43,038 |
FINANCIAL INCOME | | 1,662 | | 15 | | 1,672 | | 31 |
FINANCIAL EXPENSES | | 4,214 | | 4,250 | | 8,123 | | 8,977 |
FINANCIAL EXPENSES, net | | 2,552 | | 4,235 | | 6,451 | | 8,946 |
LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD | | 11,711 | | 29,121 | | 32,239 | | 51,984 |
| | | | | | | | |
LOSS PER ORDINARY SHARE, basic and diluted (U.S. dollars): | | 0.02 | | 0.06 | | 0.06 | | 0.12 |
WEIGHTED AVERAGE OF ORDINARY SHARE (in thousands) | | 568,308 | | 466,801 | | 546,616 | | 448,411 |
11
REDHILL BIOPHARMA LTD.
Q2/22 CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
(Unaudited)
| | June 30, | | December 31, |
|
| 2022 |
| 2021 |
| | U.S. dollars in thousands | ||
CURRENT ASSETS: | | | | |
Cash and cash equivalents | | 26,988 | | 29,474 |
Bank deposits | | 15 | | 8,530 |
Restricted cash | | 16,000 | | — |
Trade receivables | | 33,755 | | 31,677 |
Prepaid expenses and other receivables | | 2,789 | | 4,661 |
Inventory | | 11,719 | | 14,810 |
| | 91,266 | | 89,152 |
NON-CURRENT ASSETS: | | | | |
Restricted cash | | 150 | | 16,169 |
Fixed assets | | 616 | | 572 |
Right-of-use assets | | 7,191 | | 3,651 |
Intangible assets | | 68,744 | | 71,644 |
| | 76,701 | | 92,036 |
TOTAL ASSETS | | 167,967 | | 181,188 |
| | | | |
| | | | |
CURRENT LIABILITIES: | | | | |
Account payable | | 4,373 | | 11,664 |
Lease liabilities | | 1,472 | | 1,618 |
Allowance for deductions from revenue | | 39,223 | | 30,711 |
Accrued expenses and other current liabilities | | 20,212 | | 20,896 |
Borrowing | | 85,506 | | — |
Payable in respect of intangible assets purchase | | 15,629 | | 16,581 |
| | 166,415 | | 81,470 |
| | | | |
NON-CURRENT LIABILITIES: | | | | |
Borrowing | | — | | 83,620 |
Payable in respect of intangible assets purchase | | — | | 3,899 |
Lease liabilities | | 6,668 | | 2,574 |
Derivative financial instruments | | 6,074 | | — |
Royalty obligation | | 750 | | 750 |
| | 13,492 | | 90,843 |
TOTAL LIABILITIES | | 179,907 | | 172,313 |
| | | | |
EQUITY: | | | | |
Ordinary shares | | 1,827 | | 1,495 |
Additional paid-in capital | | 383,414 | | 375,246 |
Accumulated deficit | | (397,181) | | (367,866) |
TOTAL EQUITY | | (11,940) | | 8,875 |
TOTAL LIABILITIES AND EQUITY | | 167,967 | | 181,188 |
12
REDHILL BIOPHARMA LTD.
Q2/22 CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(Unaudited)
|
| Three Months Ended |
| Six Months Ended | ||||
| | June 30, | | June 30, | ||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| | U.S. dollars in thousands | ||||||
OPERATING ACTIVITIES: | | | | | | | | |
Comprehensive loss | | (11,711) | | (29,121) | | (32,239) | | (51,984) |
Adjustments in respect of income and expenses not involving cash flow: | | | | | | | | |
Share-based compensation to employees and service providers | | 618 | | 5,274 | | 2,924 | | 6,146 |
Depreciation | | 617 | | 465 | | 1,154 | | 957 |
Amortization and impairment of intangible assets | | 1,299 | | 1,830 | | 2,900 | | 3,657 |
Non-cash interest expenses related to borrowing and payable in respect of intangible assets purchase | | (310) | | 1,217 | | 2,813 | | 3,856 |
Fair value (gains) on derivative financial instruments | | (1,981) | | — | | (1,981) | | — |
Fair value losses on financial assets at fair value through profit or loss | | — | | — | | — | | 6 |
Issuance costs in respect of warrants | | 334 | | — | | 334 | | — |
Exchange differences and revaluation of bank deposits | | (67) | | 17 | | (63) | | 63 |
| | 510 | | 8,803 | | 8,081 | | 14,685 |
Changes in assets and liability items: | | | | | | | | |
Increase in trade receivables | | (7,821) | | (6,792) | | (2,078) | | (1,443) |
Decrease (increase) in prepaid expenses and other receivables | | 718 | | (199) | | 1,872 | | 1,229 |
Decrease (increase) in inventories | | 2,553 | | 507 | | 3,091 | | (2,237) |
Increase (decrease) in accounts payable | | (1,333) | | 6,770 | | (7,291) | | 1,753 |
Increase (decrease) in accrued expenses and other liabilities | | (2,198) | | (2,284) | | (684) | | (920) |
Increase in allowance for deductions from revenue | | 2,701 | | 3,418 | | 8,512 | | 7,753 |
| | (5,380) | | 1,420 | | 3,422 | | 6,135 |
Net cash used in operating activities | | (16,581) | | (18,898) | | (20,736) | | (31,164) |
INVESTING ACTIVITIES: | | | | | | | | |
Purchase of fixed assets | | (163) | | (3) | | (176) | | (91) |
Change in investment in current bank deposits | | — | | (3,500) | | 8,500 | | (3,500) |
Proceeds from sale of financial assets at fair value through profit or loss | | — | | — | | — | | 475 |
Net cash (used in) provided by investing activities | | (163) | | (3,503) | | 8,324 | | (3,116) |
FINANCING ACTIVITIES: | | | | | | | | |
Proceeds from issuance of ordinary shares and warrants, net of issuance costs | | 15,508 | | 273 | | 16,221 | | 58,214 |
Exercise of options into ordinary shares | | — | | 114 | | — | | 3,341 |
Repayment of payable in respect of intangible asset purchase | | (236) | | (1,754) | | (5,778) | | (3,879) |
Payment of principal with respect to lease liabilities | | (355) | | (402) | | (470) | | (785) |
Net cash provided by (used in) provided by financing activities | | 14,917 | | (1,769) | | 9,973 | | 56,891 |
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | (1,827) | | (24,170) | | (2,439) | | 22,612 |
EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS | | (32) | | 14 | | (47) | | (91) |
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | | 28,847 | | 75,972 | | 29,474 | | 29,295 |
BALANCE OF CASH AND CASH EQUIVALENTS AT THE END OF PERIOD | | 26,988 | | 51,816 | | 26,988 | | 51,816 |
| | | | | | | | |
SUPPLEMENTARY INFORMATION ON INTEREST RECEIVED IN CASH | | — | | 52 | | 11 | | 71 |
SUPPLEMENTARY INFORMATION ON INTEREST PAID IN CASH | | 4,511 | | 3,026 | | 5,283 | | 5,016 |
SUPPLEMENTARY INFORMATION ON NON-CASH INVESTING AND FINANCING ACTIVITIES: | | | | | | | | |
Acquisition of right-of-use assets by means of lease liabilities | | — | | — | | 4,767 | | — |
13
REDHILL BIOPHARMA LTD.
Q1/22 CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
| | Three Months Ended | ||
| | March 31, | ||
|
| 2022 |
| 2021 |
| | U.S. dollars in thousands | ||
NET REVENUES | | 13,104 | | 20,575 |
COST OF REVENUES | | 6,293 | | 10,253 |
GROSS PROFIT | | 6,811 | | 10,322 |
RESEARCH AND DEVELOPMENT EXPENSES | | 3,062 | | 7,484 |
SELLING AND MARKETING EXPENSES | | 12,560 | | 13,895 |
GENERAL AND ADMINISTRATIVE EXPENSES | | 7,818 | | 7,095 |
OPERATING LOSS | | 16,629 | | 18,152 |
FINANCIAL INCOME | | 10 | | 42 |
FINANCIAL EXPENSES | | 3,909 | | 4,753 |
FINANCIAL EXPENSES, net | | 3,899 | | 4,711 |
LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD | | 20,528 | | 22,863 |
| | | | |
LOSS PER ORDINARY SHARE, basic and diluted (U.S. dollars): | | 0.04 | | 0.05 |
WEIGHTED AVERAGE OF ORDINARY SHARE (in thousands) | | 525,186 | | 429,603 |
14
REDHILL BIOPHARMA LTD.
Q1/22 CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
(Unaudited)
| | March 31, | | December 31, |
|
| 2022 |
| 2021 |
| | U.S. dollars in thousands | ||
CURRENT ASSETS: | | | | |
Cash and cash equivalents | | 28,847 | | 29,474 |
Bank deposits | | 17 | | 8,530 |
Trade receivables | | 25,934 | | 31,677 |
Prepaid expenses and other receivables | | 3,507 | | 4,661 |
Inventory | | 14,272 | | 14,810 |
| | 72,577 | | 89,152 |
NON-CURRENT ASSETS: | | | | |
Restricted cash | | 16,165 | | 16,169 |
Fixed assets | | 528 | | 572 |
Right-of-use assets | | 7,736 | | 3,651 |
Intangible assets | | 70,043 | | 71,644 |
| | 94,472 | | 92,036 |
TOTAL ASSETS | | 167,049 | | 181,188 |
| | | | |
| | | | |
CURRENT LIABILITIES: | | | | |
Accounts payable | | 5,706 | | 11,664 |
Lease liabilities | | 1,431 | | 1,618 |
Allowance for deductions from revenue | | 36,522 | | 30,711 |
Accrued expenses and other current liabilities | | 22,410 | | 20,896 |
Payable in respect of intangible assets purchase | | 11,223 | | 16,581 |
| | 77,292 | | 81,470 |
| | | | |
NON-CURRENT LIABILITIES: | | | | |
Borrowing | | 86,397 | | 83,620 |
Payable in respect of intangible assets purchase | | 4,061 | | 3,899 |
Lease liabilities | | 7,183 | | 2,574 |
Royalty obligation | | 750 | | 750 |
| | 98,391 | | 90,843 |
TOTAL LIABILITIES | | 175,683 | | 172,313 |
| | | | |
EQUITY: | | | | |
Ordinary shares | | 1,506 | | 1,495 |
Additional paid-in capital | | 375,948 | | 375,246 |
Accumulated deficit | | (386,088) | | (367,866) |
TOTAL EQUITY | | (8,634) | | 8,875 |
TOTAL LIABILITIES AND EQUITY | | 167,049 | | 181,188 |
15
REDHILL BIOPHARMA LTD.
Q1/22 CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(Unaudited)
| | Three Months Ended | ||
| | March 31, | ||
|
| 2022 |
| 2021 |
| | U.S. dollars in thousands | ||
OPERATING ACTIVITIES: | | | | |
Comprehensive loss | | (20,528) | | (22,863) |
Adjustments in respect of income and expenses not involving cash flow: | | | | |
Share-based compensation to employees and service providers | | 2,306 | | 872 |
Depreciation | | 537 | | 492 |
Amortization and impairment of intangible assets | | 1,601 | | 1,827 |
Non-cash interest expenses related to borrowing and payable in respect of intangible assets purchase | | 3,123 | | 2,639 |
Fair value losses on financial assets at fair value through profit or loss | | — | | 6 |
Exchange differences and revaluation of bank deposits | | 4 | | 46 |
| | 7,571 | | 5,882 |
Changes in assets and liability items: | | | | |
Decrease in trade receivables | | 5,743 | | 5,349 |
Decrease in prepaid expenses and other receivables | | 1,154 | | 1,428 |
Decrease (increase) in inventories | | 538 | | (2,744) |
Decrease in accounts payable | | (5,958) | | (5,017) |
Increase in accrued expenses and other liabilities | | 1,514 | | 1,364 |
Increase in allowance for deductions from revenue | | 5,811 | | 4,334 |
| | 8,802 | | 4,714 |
Net cash used in operating activities | | (4,155) | | (12,267) |
INVESTING ACTIVITIES: | | | | |
Purchase of fixed assets | | (13) | | (88) |
Change in investment in current bank deposits | | 8,500 | | — |
Proceeds from sale of financial assets at fair value through profit or loss | | — | | 475 |
Net cash provided by investing activities | | 8,487 | | 387 |
FINANCING ACTIVITIES: | | | | |
Proceeds from issuance of ordinary shares, net of issuance costs | | 713 | | 57,941 |
Exercise of options into ordinary shares | | — | | 3,227 |
Repayment of payable in respect of intangible asset purchase | | (5,542) | | (2,125) |
Payment of principal with respect to lease liabilities | | (115) | | (383) |
Net cash (used in) provided by financing activities | | (4,944) | | 58,660 |
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | (612) | | 46,780 |
EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS | | (15) | | (103) |
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | | 29,474 | | 29,295 |
BALANCE OF CASH AND CASH EQUIVALENTS AT THE END OF PERIOD | | 28,847 | | 75,972 |
| | | | |
SUPPLEMENTARY INFORMATION ON INTEREST RECEIVED IN CASH | | 11 | | 19 |
SUPPLEMENTARY INFORMATION ON INTEREST PAID IN CASH | | 772 | | 1,990 |
SUPPLEMENTARY INFORMATION ON NON-CASH INVESTING AND FINANCING ACTIVITIES: | | | | |
Acquisition of right-of-use assets by means of lease liabilities | | 4,767 | | — |
16
Exhibit 99.2
REDHILL BIOPHARMA LTD.
CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
(UNAUDITED)
March 31, 2022
REDHILL BIOPHARMA LTD.
CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
(UNAUDITED)
March 31,2022
TABLE OF CONTENTS
| Page |
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS AS OF MARCH 31, 2022, IN U.S. DOLLARS: | |
| |
Condensed consolidated interim statements of comprehensive loss | 3 |
| |
Condensed consolidated interim statements of financial position | 4 |
| |
Condensed consolidated interim statements of changes in equity | 5 |
| |
6 | |
| |
Notes to the condensed consolidated interim financial statements | 7-13 |
2
REDHILL BIOPHARMA LTD.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
| | Three Months Ended | ||
| | March 31, | ||
|
| 2022 |
| 2021 |
| | U.S. dollars in thousands | ||
NET REVENUES | | 13,104 | | 20,575 |
COST OF REVENUES | | 6,293 | | 10,253 |
GROSS PROFIT | | 6,811 | | 10,322 |
RESEARCH AND DEVELOPMENT EXPENSES | | 3,062 | | 7,484 |
SELLING AND MARKETING EXPENSES | | 12,560 | | 13,895 |
GENERAL AND ADMINISTRATIVE EXPENSES | | 7,818 | | 7,095 |
OPERATING LOSS | | 16,629 | | 18,152 |
FINANCIAL INCOME | | 10 | | 42 |
FINANCIAL EXPENSES | | 3,909 | | 4,753 |
FINANCIAL EXPENSES, net | | 3,899 | | 4,711 |
LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD | | 20,528 | | 22,863 |
| | | | |
LOSS PER ORDINARY SHARE, basic and diluted (U.S. dollars): | | 0.04 | | 0.05 |
WEIGHTED AVERAGE OF ORDINARY SHARE (in thousands) | | 525,186 | | 429,603 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
REDHILL BIOPHARMA LTD.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
(Unaudited)
| | March 31, | | |
|
| 2022 |
| December 31, |
| | U.S. dollars in thousands | ||
CURRENT ASSETS: | | | | |
Cash and cash equivalents | | 28,847 | | 29,474 |
Bank deposits | | 17 | | 8,530 |
Trade receivables | | 25,934 | | 31,677 |
Prepaid expenses and other receivables | | 3,507 | | 4,661 |
Inventory | | 14,272 | | 14,810 |
| | 72,577 | | 89,152 |
NON-CURRENT ASSETS: | | | | |
Restricted cash | | 16,165 | | 16,169 |
Fixed assets | | 528 | | 572 |
Right-of-use assets | | 7,736 | | 3,651 |
Intangible assets | | 70,043 | | 71,644 |
| | 94,472 | | 92,036 |
TOTAL ASSETS | | 167,049 | | 181,188 |
| | | | |
| | | | |
CURRENT LIABILITIES: | | | | |
Accounts payable | | 5,706 | | 11,664 |
Lease liabilities | | 1,431 | | 1,618 |
Allowance for deductions from revenue | | 36,522 | | 30,711 |
Accrued expenses and other current liabilities | | 22,410 | | 20,896 |
Payable in respect of intangible assets purchase | | 11,223 | | 16,581 |
| | 77,292 | | 81,470 |
| | | | |
NON-CURRENT LIABILITIES: | | | | |
Borrowing | | 86,397 | | 83,620 |
Payable in respect of intangible assets purchase | | 4,061 | | 3,899 |
Lease liabilities | | 7,183 | | 2,574 |
Royalty obligation | | 750 | | 750 |
| | 98,391 | | 90,843 |
TOTAL LIABILITIES | | 175,683 | | 172,313 |
| | | | |
EQUITY: | | | | |
Ordinary shares | | 1,506 | | 1,495 |
Additional paid-in capital | | 375,948 | | 375,246 |
Accumulated deficit | | (386,088) | | (367,866) |
TOTAL EQUITY | | (8,634) | | 8,875 |
TOTAL LIABILITIES AND EQUITY | | 167,049 | | 181,188 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
REDHILL BIOPHARMA LTD.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
| | | | | | Accumulated | | Total |
| | Ordinary | | Additional | | deficit | | equity |
|
| shares |
| paid-in capital |
| (Restated - Note 2(c)) |
| (Restated - Note 2(c)) |
| | U.S. dollars in thousands | ||||||
BALANCE AT JANUARY 1, 2022 | | 1,495 | | 375,246 | | (367,866) | | 8,875 |
| | | | | | | | |
CHANGES IN THE THREE-MONTHS PERIOD ENDED MARCH 31, 2022: | | | | | | | | |
Share-based compensation to employees and service providers | | — | | — | | 2,306 | | 2,306 |
Issuance of ordinary shares, net of expenses | | 11 | | 702 | | — | | 713 |
Comprehensive loss | | — | | — | | (20,528) | | (20,528) |
BALANCE AT MARCH 31, 2022 | | 1,506 | | 375,948 | | (386,088) | | (8,634) |
| | | | | | | | |
BALANCE AT JANUARY 1, 2021 | | 1,054 | | 293,144 | | (280,334) | | 13,864 |
CHANGES IN THE THREE-MONTHS PERIOD ENDED MARCH 31, 2021: | | | | | | | | |
Share-based compensation to employees and service providers | | — | | — | | 872 | | 872 |
Issuance of ordinary shares, net of expenses | | 242 | | 57,699 | | — | | 57,941 |
Exercise of options into ordinary shares | | 13 | | 3,214 | | | | 3,227 |
Comprehensive loss | | — | | — | | (22,863) | | (22,863) |
BALANCE AT MARCH 31,2021 | | 1,309 | | 354,057 | | (302,325) | | 53,041 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
REDHILL BIOPHARMA LTD.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(Unaudited)
| | Three Months Ended | ||
| | March 31, | ||
|
| 2022 |
| 2021 |
| | U.S. dollars in thousands | ||
OPERATING ACTIVITIES: | | | | |
Comprehensive loss | | (20,528) | | (22,863) |
Adjustments in respect of income and expenses not involving cash flow: | | | | |
Share-based compensation to employees and service providers | | 2,306 | | 872 |
Depreciation | | 537 | | 492 |
Amortization and impairment of intangible assets | | 1,601 | | 1,827 |
Non-cash interest expenses related to borrowing and payable in respect of intangible assets purchase | | 3,123 | | 2,639 |
Fair value losses on financial assets at fair value through profit or loss | | — | | 6 |
Exchange differences and revaluation of bank deposits | | 4 | | 46 |
| | 7,571 | | 5,882 |
Changes in assets and liability items: | | | | |
Decrease in trade receivables | | 5,743 | | 5,349 |
Decrease in prepaid expenses and other receivables | | 1,154 | | 1,428 |
Decrease (increase) in inventories | | 538 | | (2,744) |
Decrease in accounts payable | | (5,958) | | (5,017) |
Increase in accrued expenses and other liabilities | | 1,514 | | 1,364 |
Increase in allowance for deductions from revenue | | 5,811 | | 4,334 |
| | 8,802 | | 4,714 |
Net cash used in operating activities | | (4,155) | | (12,267) |
INVESTING ACTIVITIES: | | | | |
Purchase of fixed assets | | (13) | | (88) |
Change in investment in current bank deposits | | 8,500 | | — |
Proceeds from sale of financial assets at fair value through profit or loss | | — | | 475 |
Net cash provided by investing activities | | 8,487 | | 387 |
FINANCING ACTIVITIES: | | | | |
Proceeds from issuance of ordinary shares, net of issuance costs | | 713 | | 57,941 |
Exercise of options into ordinary shares | | — | | 3,227 |
Repayment of payable in respect of intangible asset purchase | | (5,542) | | (2,125) |
Payment of principal with respect to lease liabilities | | (115) | | (383) |
Net cash (used in) provided by financing activities | | (4,944) | | 58,660 |
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | (612) | | 46,780 |
EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS | | (15) | | (103) |
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | | 29,474 | | 29,295 |
BALANCE OF CASH AND CASH EQUIVALENTS AT THE END OF PERIOD | | 28,847 | | 75,972 |
| | | | |
SUPPLEMENTARY INFORMATION ON INTEREST RECEIVED IN CASH | | 11 | | 19 |
SUPPLEMENTARY INFORMATION ON INTEREST PAID IN CASH | | 772 | | 1,990 |
SUPPLEMENTARY INFORMATION ON NON-CASH INVESTING AND FINANCING ACTIVITIES: | | | | |
Acquisition of right-of-use assets by means of lease liabilities | | 4,767 | | — |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
REDHILL BIOPHARMA LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
a. | General |
1) | RedHill Biopharma Ltd. (the “Company”), incorporated on August 3, 2009, together with its wholly-owned subsidiary, RedHill Biopharma Inc. (“RedHill Inc.”), incorporated in Delaware, U.S. on January 19, 2017, is a specialty biopharmaceutical company primarily focused on gastrointestinal (“GI”) diseases and infectious diseases. |
The Company’s ordinary shares were traded on the Tel-Aviv Stock Exchange (“TASE”) from February 2011 to February 2020, after which the Company voluntarily delisted from trading on the TASE, effective February 13, 2020. The Company’s American Depositary Shares (“ADSs”) were traded on the Nasdaq Capital Market from December 27, 2012 and have been listed on the Nasdaq Global Market (“Nasdaq”) since July 20, 2018.
The Company’s registered address is 21 Ha’arba’a St, Tel-Aviv, Israel.
2) | Since the Company established its commercial presence in the U.S. in 2017, it has promoted or commercialized various GI-related products that were either developed internally or acquired through in-licensing agreements. As of the date of approval of these condensed consolidated interim financial statements, the Company commercializes in the U.S., mainly Talicia®, for the treatment of Helicobacter pylori infection in adults, the first product approved by the U.S. Food and Drug Administration (“FDA”) being developed primarily internally by the Company, and Movantik®, for the treatment of opioid-induced constipation. |
3) | Through March 31, 2022, the Company has an accumulated deficit and its activities have been funded primarily through public and private offerings of the Company’s securities and senior secured borrowing. There is no assurance that the Company’s business will generate sustainable positive cash flows to fund its business and support its indebtedness. |
The Company plans to further fund its future operations through commercialization and out-licensing of its therapeutic candidates, commercialization of in-licensed or acquired products and raising additional capital through equity or debt financing or through non-dilutive financing. The Company’s current cash resources are not sufficient to complete the research and development of all of its therapeutic candidates and to fully support its commercial operations until generation of sustainable positive cash flows. Management expects that the Company will incur additional losses as it continues to focus its resources on advancing the development of its therapeutic candidates, as well as advancing its commercial operations, based on a prioritized plan that will result in negative cash flows from operating activities.
According to the Credit Agreement with HCR Collateral Management, LLC (“HCRM”), the Company needs to deliver to HCRM its condensed consolidated interim financial statements within 60 days after the end of the Company’s fiscal quarter. The Company did not deliver its condensed consolidated interim financial statements as of June 30, 2022 within 60 days after the end of the second fiscal quarter (see also note 9 below). In addition, there is an uncertainty regarding RedHill Inc’s ability to comply with other covenants required under the Credit Agreement, including Minimum Net Sales and Minimum Cash covenants for the next 12 months. For more information regarding the covenants, see note 15 to the annual financial statements and note 9 below.
Per the Credit Agreement, failure to perform or meet any covenant, which continues for 30 days after the earlier of the date on which (i) such failure occurred and (ii) written notice thereof shall have been given to RedHill Inc, shall constitute an Event of Default. If any Event of Default occurs and is continuing, HCRM may declare all amounts owing or payable under the Credit Agreement to be immediately due and payable. As of the date of the approval of these financial statements, there is no certainty that HCRM will grant waivers or alterations for any covenant in breach under the credit agreement, or conceivably in breach in the next 12 months. Consequently, these conditions raise substantial doubt about the Company’s ability to continue as a going concern.
In response to these conditions, management has entered discussions with HCRM regarding a consensual business solution (see also note 9 below). In addition, management is evaluating strategic alternatives to satisfy its outstanding obligations under the Credit Agreement, including a potential strategic transaction with respect to Movantik®, as well as management is in discussions with third parties to refinance the HCRM loan, in addition to raise additional capital through equity
7
REDHILL BIOPHARMA LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
financings, M&As or through other forms of financing. However, these plans are subject to market conditions and are not within the Company’s control, and therefore cannot be deemed probable.
The current COVID-19 pandemic has presented substantial public health and economic challenges around the world and specifically in the Company’s target markets in the U.S., affecting employees, patients, medical clinics, medical diagnosis, communities, and business operations. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations, the terms of the Credit Agreement and financial condition will depend on future developments that are bit certain and still cannot be predicted at this stage. The Company took actions designed to mitigate the potential impact of the COVID-19 pandemic on its business operations and to date, the COVID-19 pandemic has not caused significant disruptions to the supply chain and the Company has sufficient supply on hand to meet U.S. commercial demand and clinical study’s needs.
A number of the Company’s commercial activities have been materially impacted by the COVID-19 pandemic, including some launch sales and marketing activities for Talicia® for H. pylori infection and significant impact on sales of Aemcolo® for travelers’ diarrhea as well as on the Company’s sales force turnover.
b. | Approval of the condensed consolidated interim financial statements: |
These condensed consolidated interim financial statements were approved by the Board of Directors (the "BoD") on November 7, 2022.
NOTE 2 - BASIS OF PREPARATION OF THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS:
The Company’s condensed consolidated interim financial statements for the three months ended March 31, 2022 (the "Condensed Consolidated Interim Financial Statements"), have been prepared in accordance with International Accounting Standard IAS 34, “Interim Financial Reporting”. These Condensed Consolidated Interim Financial Statements, that are unaudited, do not include all the information and disclosures that would otherwise be required in a complete set of annual financial statements and should be read in conjunction with the annual financial statements as of December 31, 2021, and their accompanying notes, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as published by the International Accounting Standards Board (“IASB”). The results of operations for the three months ended March 31, 2022, are not necessarily indicative of the results that may be expected for the entire fiscal year or for any other interim period.
a. | The accounting policies applied in the preparation of the Condensed Consolidated Interim Financial Statements are consistent with those applied in the preparation of the annual financial statements as of December 31, 2021, except for the following addition: |
Revenues from licensing
The Company accounts for licenses of intellectual property (“IP”) rights and manufacturing and supply services as distinct performance obligations if the customer can benefit from the good or services either on its own or together with other resources that are readily available to the customer (i.e. – the good or service is capable of being distinct) and if the Company’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e. – the promise is distinct within the context of the contract).
If the promise to grant the license is distinct, the Company determines whether the nature of the promise in granting the license to the customer is to provide the customer with either a right to access the entity’s IP as it exists throughout the license period or a right to use the entity’s IP as it exists at the point in time at which the license is granted. Accordingly, revenue from a license providing a right of use to the Company’s is recognized at the point in time when control of the distinct license is transferred to the customer. Revenue from a license providing a right of access to the Company’s IP is recognized over the access period.
Variable consideration, such as sales-based royalties and milestones that are allocated to license of IP are recognized only when (or as) the later of the following occurs: (a) the subsequent sale occurs; and (b) the performance obligation to which some or all the sales-based royalty has been allocated has been satisfied (or partially satisfied).
8
REDHILL BIOPHARMA LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
Revenue from achieving additional milestones is recognized only when it is highly probable that a significant reversal of cumulative revenues will not occur, usually upon achievement of the specific milestone, in accordance with the relevant agreement.
b. | The following clarification to standards issued by the IASB has not yet been adopted by the Company: |
IFRIC Agenda Decision on Demand Deposits with Restrictions on Use arising from a Contract with a Third Party (IAS 7 - Statement of Cash Flows)
In April 2022, the International Financial Reporting Interpretations Committee (IFRIC) issued an agenda decision clarifying that an entity should present a demand deposit with restrictions on use arising from a contract with a third party as cash and cash equivalents in the statements of financial position and cash flows, unless those restrictions change the nature of the deposit such that it no longer meets the definition of cash in IAS 7.
As of March 31,2022, the Company was assessing the impact of this IFRIC agenda decision on its financial statements.
c. | Restatement of previously issued condensed consolidated financial statements |
The Company has restated its condensed consolidated interim financial statements as of and for the three months ended March 31, 2022, due to errors in the calculation of allowance for deductions from revenue which resulted in net revenues being overstated. Cost of revenues was adjusted accordingly.
As a result of these errors, the following is the impact of the restatement:
Restated line items on the Condensed Consolidated Interim Statements of Comprehensive Loss: |
| Three Months Ended March 31, 2022 | ||||
|
| As |
| Adjustments |
| Restated |
Net revenues | | 18,236 | | (5,132) | | 13,104 |
Cost of revenues | | 8,034 | | (1,741) | | 6,293 |
Gross profit | | 10,202 | | (3,391) | | 6,811 |
Operating loss | | 13,238 | | 3,391 | | 16,629 |
Loss and comprehensive loss for the period | | 17,137 | | 3,391 | | 20,528 |
Loss per ordinary share basic and diluted (U.S dollars) | | 0.03 | | 0.01 | | 0.04 |
Restated line items on the Condensed Consolidated Interim Statements of Financial Position: | | As of March 31, 2022 | ||||
|
| As |
| Adjustments |
| Restated |
Allowance for deductions from revenue | | 31,390 | | 5,132 | | 36,522 |
Accrued expenses and other current liabilities | | 24,151 | | (1,741) | | 22,410 |
Total liabilities | | 172,292 | | 3,391 | | 175,683 |
Accumulated deficit | | (382,697) | | (3,391) | | (386,088) |
Total equity | | (5,243) | | (3,391) | | (8,634) |
9
REDHILL BIOPHARMA LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
Restated line items on the Condensed Consolidated Interim Statements of Changes in Equity: | | Three Months Ended March 31, 2022 | ||||
|
| As |
| Adjustments |
| Restated |
Comprehensive loss | | (17,137) | | (3,391) | | (20,528) |
Accumulated deficit as of March 31, 2022 | | (382,697) | | (3,391) | | (386,088) |
Total equity as of March 31, 2022 | | (5,243) | | (3,391) | | (8,634) |
Restated line items on the Condensed Consolidated Interim Statements of Cash Flows: | | Three Months Ended March 31, 2022 | ||||
|
| As |
| Adjustments |
| Restated |
Operating activities | | | | | | |
Comprehensive loss | | (17,137) | | (3,391) | | (20,528) |
Increase in accrued expenses and other liabilities | | 3,255 | | (1,741) | | 1,514 |
Increase in allowance for deductions from revenue | | 679 | | 5,132 | | 5,811 |
NOTE 3 - SIGNIFICANT EVENTS DURING THE CURRENT REPORTING PERIOD:
a. | During the three months ended March 31, 2022, the Company sold 333,533 ADSs under the “at-the-market” equity offering program (“ATM program”) at an average price of $2.07 per ADS, for aggregate net proceeds of approximately $0.7 million, net of an immaterial amount of issuance expenses. |
b. | In March 2022, the Company entered into an exclusive license agreement with Kukbo Co. Ltd ("Kukbo") for oral opaganib for the treatment of COVID-19, in South Korea. Under the terms of the license agreement, which follows the strategic investment by Kukbo noted in note 18(c) to the annual financial statements as of December 31, 2021, RedHill is to receive an upfront payment of $1.5 million and is eligible for up to $5.6 million in milestone payments as well as low double-digit royalties on net sales of oral opaganib in South Korea. Kukbo will receive the exclusive rights to commercialize opaganib in South Korea for COVID-19 (for lawsuit information see also note 9 below). |
c. | In October 2021, the Company entered into an exclusive license agreement (the “License Agreement”) with Gaelan Medical Trade LLC ("Gaelan") for Talicia in the United Arab Emirates (UAE). Under the terms of the License Agreement, the Company received in April 2022 an upfront payment of $2 million. In addition, the Company is eligible for additional milestone payments as well as tiered royalties up to mid-teens on net sales of Talicia in the UAE. Gaelan will receive the exclusive rights to commercialize Talicia in the UAE, as well as a right of first refusal to commercialize Talicia in the Gulf Cooperation Council region (Saudi Arabia, Kuwait, Qatar, Bahrain, and Oman) for a pre-determined period. Gaelan shall be responsible for obtaining and maintaining regulatory approvals, as well as to conduct any and all required clinical and other studies. In March 2022, the Company and Gaelan signed an amendment to the License Agreement, according to which Gaelan may sublicense or assign any of its rights or obligations under the License Agreement. |
In connection with the License Agreement, the Company and Gaelan entered into a supply agreement, according to which, the Company will exclusively manufacture (by a third party CMO) and supply to Gaelan during the term of the agreement.
The Company accounted for the license of the Talicia IP rights and manufacturing and supply services as distinct performance obligations, mainly due to the manufacturing not being specialized or unique and can be manufactured by others (i.e. – the good or service is capable of being distinct), as well as due to that the License Agreement and the manufacturing and supply services do not significantly affect each other (i.e. – the promise is distinct within the context of the contract). During the three months ended March 31, 2022, the Company provided Gaelan substantially all the documentation which represents the right to use the Licensed IP, as well the paperwork relating to the IP itself and its regulatory documents. Accordingly, and since the manufacturing services are priced at their Standalone Selling Price, the Company recognized the $2 million upfront consideration as revenues in the Statement of Comprehensive Loss for the three months ended March 31, 2022.
d. | In March 2022, the Company entered into an operating lease agreement for the U.S. offices it uses. The agreement will expire on July 31, 2034. The projected yearly rental for the first four years expenses are approximately $400,000 per year and for the next 8 years are approximately $900,000 per year. The Company recognized right-of-use asset and lease liability of approximately $4.8 million. The weighted average lessee’s incremental annual borrowing rate applied to the lease liabilities was 9.9%. |
10
REDHILL BIOPHARMA LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - ALLOWANCE FOR DEDUCTIONS FROM REVENUES:
a. | The following table shows the movement of the allowance for deductions from revenues: |
|
| Rebates and patient |
| Product returns |
| Total |
|
| | U.S. dollars in thousands | | ||||
| | (Restated - Note 2(c)) | | ||||
As of January 1, 2022 | | 29,742 | | 969 | | 30,711 | |
Increases | | 22,889 | | 1,015 | | 23,904 | |
Decreases (utilized) | | (17,343) | | (946) | | (18,289) | |
Adjustments | | 271 | | (75) | | 196 | |
As of March 31, 2022 | | 35,559 | | 963 | | 36,522 | |
|
| Rebates and patient |
| Product returns |
| Total |
|
| | U.S. dollars in thousands | | ||||
As of January 1, 2021 | | 16,380 | | 1,963 | | 18,343 | |
Increases | | 17,804 | | 460 | | 18,264 | |
Decreases (utilized) | | (13,028) | | (243) | | (13,271) | |
Adjustments | | (659) | | — | | (659) | |
As of March 31, 2021 | | 20,497 | | 2,180 | | 22,677 | |
b. | The Company believes it will be entitled to reimbursement related to duplicates and erroneous rebates. However, the likelihood of a significant reversal of revenue recognized not occurring with the uncertainty associated with the potential reimbursement cannot be considered highly probable, and therefore the Company has not recognized revenue related to potential reimbursement relating to duplicates and erroneous rebates. |
NOTE 5 - SHARE-BASED PAYMENTS:
a. | The following is information on options granted during the three months ended March 31, 2022: |
|
| Number of options granted |
| ||||
| | | | | | Fair value of | |
| | | | Exercise | | options on date of | |
| | According to the Award Plan | | price for 1 | | grant in U.S. dollars | |
Date of Grant | | of the Company (1) |
| ADS ($) |
| in thousands (2) | |
January 2022 | | 5,000 | | 2.45 | | 7 | |
March 2022 | | 6,000 | | 1.67 | | 6 | |
| | 11,000 | | | | 13 | |
1) | The options will vest as follows: for directors, employees and consultants of the Company and the Company's subsidiary who had provided services exceeding one year as of the grant date, options will vest in 16 equal quarterly installments over a four-year period. For directors, employees and consultants of the Company and the Company's subsidiary who had not provided services exceeding one year as of the grant date, the options will vest as follows: 1/4 of the options will vest one year following the grant date and the rest over 12 equal quarterly installments. During the contractual term, the options will be exercisable, either in full or in part, from the vesting date until the end of 10 years from the date of grant. |
2) | The fair value of the options was computed using the binomial model and the underlying data used was mainly the following: price of the Company's ADS: $1.67-2.45, expected volatility: 66.94%-67.21%, risk-free interest rate: 1.73%-1.78% and the expected term was derived based on the contractual term of the options, the expected exercise behavior and expected post-vesting forfeiture rates. |
b. | During the three months ended March 31, 2022, the Board of Directors of the Company approved grants of 2,016,500 RSUs to employees and consultants of the Company under the Company’s Award plan. The RSUs vest as follows: 50% |
11
REDHILL BIOPHARMA LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
of RSUs will vest one year following grant and 50% will vest two years following grant. The fair value of the RSUs on the date of grant was $5.7 million.
In addition, the general meeting of the Company’s shareholders held on May 13, 2022 (the “May 2022 AGM”), subsequent to approval of the Company’s BoD, approved the grant of 140,000 RSUs under the Company’s Award plan to directors and to the Company's Chief Executive Officer in the same terms. The fair value of these RSUs on the date of grant was $0.1 million.
NOTE 6 - NET REVENUES:
|
| Three Months Ended March 31, |
| ||
| | 2022 |
| 2021 | |
| | U.S dollars in thousands | | ||
Licensing revenues | | 2,000 | | — | |
Movantik revenues | | 9,329 | | 18,898 | |
Sales of other products | | 1,775 | | 1,677 | |
| | 13,104 | | 20,575 | |
NOTE 7 - FINANCIAL INSTRUMENTS:
The carrying amount of cash equivalents, bank deposits, restricted cash, receivables, account payables and accrued expenses approximate their fair value due to their short-term characteristics.
The fair value of the borrowing and Payable in respect of intangible assets purchase is approximately $98 million and $16 million as of March 31, 2022, respectively.
NOTE 8 - SEGMENT INFORMATION:
The Chief Executive Officer is the Company’s Chief Operating Decision Maker (“CODM”). The CODM allocates resources and assesses the Company’s performance based on the following segmentation: Commercial Operations and Research & Development.
Effective December 31, 2021, the Company changed its operating segments to reflect the manner in which the Company's CODM reviews and assesses performance. Accordingly, the Company reports on revenue and segment Adjusted EBITDA. Disclosures regarding the Company’s reportable segments for prior periods have been adjusted to conform to the current period presentation. Adjusted EBITDA represents net loss before depreciation, amortization, and financial expenses (income), adjusted to exclude share-based compensation.
The following table presents segment profitability and a reconciliation to the consolidated net loss and comprehensive loss for the periods indicated:
|
| Three Months Ended March 31, |
| ||
| | 2022 |
| 2021 | |
| | U.S. dollars in thousands | | ||
Commercial Operations Segment Adjusted EBITDA | | (9,272) | | (5,011) | |
Research And Development Adjusted EBITDA | | (2,913) | | (9,950) | |
Financial expenses (income), net | | 3,899 | | 4,711 | |
Share-based compensation to employees and service providers | | 2,306 | | 872 | |
Depreciation | | 537 | | 492 | |
Amortization and impairment of intangible assets | | 1,601 | | 1,827 | |
Consolidated Comprehensive loss | | 20,528 | | 22,863 | |
12
REDHILL BIOPHARMA LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
Except for $2 million licensing revenues reported in the three months ended March 31, 2022, which are allocated to the Research and Development segment, all of the Company’s revenues are allocated to the Commercial Operations segment.
NOTE 9 - EVENT SUBSEQUENT TO MARCH 31, 2022:
| a. | In May 2022, the Company entered into a definitive agreement with a single investor. In accordance with the agreement, the Company issued to the investor 10,563,380 ADSs (or ADS equivalents), as well as granted unregistered private warrants to purchase up to 13,204,225 ADSs, for a total net consideration of $14.4 million. |
The warrants have an exercise price of $1.48 per ADS, are exercisable six months after the issuance date, and have a term of five and one-half years. The warrants may be exercised either for cash or on a cashless basis.
b. | On June 17, 2022, RedHill Inc. signed an amendment to the Credit Agreement. Under the Amendment, RedHill Inc. shall be required to maintain minimum net sales of $75 million for the trailing four fiscal quarter periods ending June 30, 2022, and September 30, 2022, and $90 million each fiscal quarter thereafter. Redhill Inc. shall also be required to maintain minimum net sales of $14 million for Movantik® each fiscal quarter starting the fiscal quarter ending June 30, 2022. The Amendment further sets the interest on the outstanding term loan for the quarters ending June 30, 2022, and September 30, 2022, at 3-month LIBOR rate (“LIBOR”), subject to a 1.75% floor rate, plus 7.2% fixed rate, which will be decreased to 6.7% thereafter. |
c. | On September 13, 2022 the Company and RedHill Inc. received a notice of events of default and reservation of rights letter (the “Notice”) from HCRM. The Notice asserts that certain events of default occurred as a result of alleged breaches by RedHill Inc. of its representations and warranties and financial covenants under the Credit Agreement. As a result of the alleged events of default, the Notice provides that the outstanding obligations under the Credit Agreement now bear interest at the default rate prescribed therein and that the lenders may accelerate the obligations under the Credit Agreement. While not asserted in the Notice, the Company acknowledges that it has not satisfied its obligation to deliver to HCRM its condensed consolidated interim financial statements as of June 30, 2022 within 60 days after the end of the Company’s fiscal quarter. The Company disagrees with the assertions made by HCRM as the basis for the Notice and, accordingly, the validity of the Notice. Moreover, the Company disputes the alleged events of default asserted by HCRM and, on September 15, 2022, the Company sent a response letter to HCRM to this effect. The Company is engaged with HCRM in good faith in order to establish a consensual business resolution to this dispute. RedHill INC. continues operating its business as usual while also concurrently evaluating strategic alternatives to satisfy its outstanding obligations under the Credit Agreement, including a potential strategic transaction with respect to Movantik®. |
d. | On September 29, 2022, HCRM exercised its rights under a Deposit Account Control Agreement to take control of RedHill Inc.’s account at PNC Bank, National Association (“PNC”). HCRM then instructed PNC to wire $16 million (the “Funds”), which is equivalent to the minimum cash required under the Credit Agreement, from the PNC account to an account held by HCRM. RedHill Inc.’s control over the PNC account has since been restored. HCRM has acknowledged that, despite receipt of the Funds in an account held in HCRM’s name, the Funds remain the property of RedHill Inc. and are held merely as security for RedHill Inc.’s obligations under the Credit Agreement. The Funds are classified as Restricted Cash in the condensed consolidated interim statements of financial position as of March 31. |
e. | On September 2, 2022, the Company filed a lawsuit against Kukbo and in the process of seeking a default judgment against Kukbo in a United States court, as a result of Kukbo’s default in delivering to the Company $5 million under the Subscription Agreement, dated October 25, 2021, in exchange for ADSs, and a further payment of $1.5 million due under the Exclusive License Agreement, dated March 14, 2022. In parallel, the lawsuit is being translated into Korean and planned to be sent to the Korean Central Authority for filing in South Korea. The Company believes a summary judgment will be entered against Kukbo in the United States within several weeks. |
13