RedHill Biopharma Ltd
RedHill Biopharma Ltd. (Form: 6-K, Received: 11/13/2017 07:31:24)
 

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 2017
Commission File No.: 001-35773 

REDHILL BIOPHARMA LTD.
(Translation of registrant's name into English)

21 Ha'arba'a Street, Tel Aviv, 64739, Israel
(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F [ X ]      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): __   

Attached hereto and incorporated by reference herein is a press release issued by the Registrant entitled:  " RedHill Biopharma Reports 2017 Third Quarter Financial Results”

Exhibit 1: Registrant's press release entitled " RedHill Biopharma Reports 2017 Third Quarter Financial Results ”.

Exhibit 2: Registrant’s condensed consolidated interim unaudited financial information as of September 30, 2017 and for the three months then ended.

This Form 6-K and related exhibits are incorporated by reference into the Company's 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) and on July 25, 2017 (Registration No. 333-219441) and its Registration Statement on Form F-3 filed with the Securities and Exchange Commission on February 25, 2016 (Registration No. 333- 209702).


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.
    (Registrant)
     
   
Date: November 13, 2017   By: /s/ Dror Ben-Asher
    Dror Ben-Asher
    Chief Executive Officer
   

Exhibit 1

RedHill Biopharma Reports 2017 Third Quarter Financial Results

Select recent and potential milestones:

TEL-AVIV, Israel and RALEIGH, N.C., Nov. 13, 2017 (GLOBE NEWSWIRE) -- RedHill Biopharma Ltd. (NASDAQ:RDHL) (Tel-Aviv Stock Exchange:RDHL) (“RedHill” or the “Company”), a specialty biopharmaceutical company primarily focused on late clinical-stage development and commercialization of proprietary drugs for gastrointestinal and inflammatory diseases and cancer, today reported its financial results for the quarter ended September 30, 2017.

The Company will host a conference call today, November 13, 2017 at 9:00 am EST to review the financial results and business highlights. Dial-in details are included below. 

Financial highlights for the quarter ended September 30, 2017 2

Net Revenues for the third quarter of 2017 were approximately $1.5 million, compared to $0.5 million in the second quarter of 2017. The increase was due to the promotional activities of Donnatal ®3  and the sale of EnteraGam ®4  and the initial promotion of Esomeprazole Strontium Delayed-Release Capsules 49.3 mg 5 in mid-September 2017.

Cost of Revenues for the third quarter of 2017 was $0.9 million, due to the sale of EnteraGam ® , compared to $0.3 million in the second quarter of 2017, also due to the sale of EnteraGam ® and reflecting the cost of goods sold and royalties.

Gross Profit for the third quarter of 2017 was $0.6 million, compared to $0.2 million in the second quarter of 2017. The increase was due to higher revenues from the sale of EnteraGam ® and from the promotion of Donnatal ® and due to the initial promotion of Esomeprazole Strontium Delayed-Release Capsules 49.3 mg in mid-September 2017.

Research and Development Expenses   for the third quarter of 2017 were $8.1 million, an increase of $1.1 million or 15% compared to the third quarter of 2016. The increase was mainly due to the ongoing confirmatory Phase III study with TALICIA (RHB-105) for H. pylori infection, the Phase III and Phase II studies with BEKINDA ®  (RHB-102) for gastroenteritis and IBS-D, respectively, and the ongoing and planned studies with YELIVA ® (ABC294640) 7 for multiple indications. Research and Development Expenses for the third quarter of 2017 decreased by $0.3 million or 4% compared to the second quarter of 2017.

General and Administrative Expenses   for the third quarter of 2017 were $2.3 million, an increase of $1.2 million compared to the third quarter of 2016. General and Administrative Expenses   for the third quarter of 2017 increased by $0.3 million compared to the second quarter of 2017. The increase from the comparable periods was mainly due to the establishment and advancement of the Company’s U.S. commercial operations in the first quarter of 2017.

Selling, Marketing and Business Development Expenses for the third quarter of 2017 were $4.2 million, an increase of $3.8 million compared to $0.4 million in the third quarter of 2016, comprised only of Business Development Expenses. Selling, Marketing and Business Development Expenses for the third quarter of 2017 increased by $0.8 million or 24% compared to the second quarter of 2017. The increase from the comparable periods was mainly due to the establishment and advancement of the Company’s U.S. commercial operations. The Company recognized Selling and Marketing Expenses in 2017 for the first time .

Operating Loss   for the third quarter of 2017 was $14 million, an increase of $5.5 million or 65% compared to the third quarter of 2016. Operating Loss for the third quarter of 2017 increased by $0.4 million or 3% compared to the second quarter of 2017. The increase from the comparable periods was mainly due to an increase in Selling, Marketing and Business Development Expenses, Research and Development Expenses, and General and Administrative Expenses, as detailed above.

Financial Expenses ,   net   for the third quarter of 2017 was $1.5 million, an increase of $1.1 million compared to the third quarter of 2016. Financial Income, net for the second quarter of 2017 was $2.5 million. The changes from the comparable periods were mainly due to variations in the fair value of the derivative financial instruments, which is affected by share price variations.

Net Cash Used in Operating Activities   for the third quarter of 2017 was $10.6 million, an increase of $3.2 million or 43% compared to the third quarter of 2016. The increase was mainly due to the increase in Operating Loss, as detailed above. Net Cash Used in Operating Activities for the third quarter of 2017 increased by $0.8 million or 8% compared to the second quarter of 2017.

Net Cash Provided by Investing Activities   for the third quarter of 2017 was $13.9 million, an increase of $3.2 million or 30% compared to the third quarter of 2016. Net Cash Used in Investing Activities for the second quarter of 2017 was $4.9 million. The changes from the comparable periods were mainly due to changes in bank deposits and financial assets at fair value through profit or loss.

Cash Balance as of September 30, 2017, was $39.6 million, a decrease of $26.7 million, compared to $66.3 million as of December 31, 2016, and a decrease of $11.6 million compared to June 30, 2017. The decrease was a result of the ongoing operations, mainly related to research and development activities and the establishment and advancement of the U.S. commercial operations.

“The third quarter of 2017 was the first full quarter of revenues generation from the promotion of Donnatal® and EnteraGam®, with $1.5 million in net revenues. We anticipate net revenues to continue to grow following initiation of the promotion of Esomeprazole Strontium DR capsules 49.3 mg in mid-September,” said Micha Ben Chorin, RedHill’s CFO. “We expect a decrease in quarterly cash burn rate along with continued revenue growth in 2018. Our cash balance at the end of the third quarter of approximately $39.6 million, along with expected net proceeds of approximately $20.6 million from the November 2017 underwritten public offering of ADSs, should allow us to achieve significant milestones in 2018, including Phase III top-line results with RHB-104 for Crohn’s disease, expected in mid-2018, and confirmatory Phase III top-line results with TALICIA (RHB-105) for H. pylori infection, expected in the second half of 2018.”

Conference Call and Webcast Information:

The Company will host a conference call today, Monday, November 13, 2017 at 9:00 am EST to review the financial results and business highlights.

To participate in the conference call, please dial one of the following numbers 15 minutes prior to the start of the call: United States: +1-877-280-2296; International: +1-212-444-0896; and Israel:
+972-3-763-0147. The access code for the call is: 2543708.

The conference call will be broadcasted live and will be available for replay on the Company's website, http://ir.redhillbio.com/events.cfm, for 30 days. Please access the Company's website at least 15 minutes ahead of the conference call to register, download and install any necessary audio software.

Recent operational highlights:

  1. On July 31, 2017, RedHill reported, following a second pre-planned meeting by an independent Data and Safety Monitoring Board (DSMB) to assess the safety and efficacy data from its ongoing first Phase III study with RHB-104 for Crohn’s disease (the MAP US study), that it had received a unanimous recommendation from the DSMB to continue the study as planned. The DSMB reviewed safety and efficacy data, of which RedHill remains blinded, from the first 222 subjects who had completed week 26 assessments in the Phase III MAP US study.
     
  2. On September 13, 2017, RedHill announced that it had initiated promotion of Esomeprazole Strontium DR Capsules 49.3 mg in the U.S. Esomeprazole Strontium DR Capsules 49.3 mg is a U.S. Food and Drug Administration (FDA)-approved, proprietary, prescription proton pump inhibitor (PPI) indicated for adults for the treatment of gastroesophageal reflux disease (GERD) and other gastrointestinal (GI) conditions 9 . On August 17, 2017, RedHill announced that it had entered into a commercialization agreement with ParaPRO LLC, an Indiana-based specialty pharmaceutical company, granting RedHill the exclusive rights to promote Esomeprazole Strontium DR Capsules 49.3 mg to gastroenterologists in certain U.S. territories.
     
  3. On September 18, 2017, RedHill announced that it had received a Notice of Allowance from the United States Patent and Trademark Office (USPTO) for a new patent covering the use of two of RedHill’s Phase II-stage proprietary investigational compounds, YELIVA ® and MESUPRON (upamostat) 10 in combination with a known antibiotic. Upon issuance, on top of existing intellectual property (IP) protection covering the individual compounds, the new patent will provide RedHill with IP protection covering its combination for the potential treatment of cancer, prevention of cancer recurrence or progression and inhibition of growth and proliferation of cancer cells.
     
  4. On October 3, 2017, RedHill announced positive top-line results from the Phase II study with BEKINDA ® 12 mg for the treatment of diarrhea-predominant irritable bowel syndrome (IBS-D). The study successfully met its primary endpoint, improving primary efficacy outcome of stool consistency. RedHill plans one or more pivotal Phase III studies with BEKINDA ® 12 mg in IBS-D. RedHill further announced that, following the positive results from its Phase III GUARD study with BEKINDA ® 24 mg in acute gastroenteritis and gastritis, the Company met with the FDA to discuss the results and the clinical and regulatory path towards potential marketing approval of BEKINDA ® 24 mg in the U.S. Following the positive FDA guidance meeting, the Company is currently working with the FDA to design the confirmatory Phase III study to support a New Drug Application (NDA) with BEKINDA ® 24 mg for acute gastroenteritis and gastritis.
     
  5. On October 20, 2017, RedHill announced that the FDA granted MESUPRON (upamostat) Orphan Drug designation for the adjuvant treatment of pancreatic cancer. The Orphan Drug designation allows RedHill to benefit from various incentives to develop MESUPRON for this indication, including a seven-year marketing exclusivity period for the indication, if approved. Following the recent identification of a new mechanism of action for MESUPRON, inhibition of trypsin, RedHill is currently evaluating potential utilization of MESUPRON in several GI indications.
     
  6. On October 23, 2017, RedHill announced that it had received a Notice of Allowance from the USPTO for a new patent covering RHB-104 for relapsing-remitting multiple sclerosis (MS), which is expected to be valid until 2032, once granted.
     
  7. On November 1, 2017, RedHill announced, together with IntelGenx Corp. (“IntelGenx”), that they had resubmitted the 505(b)(2) New Drug Application (NDA) for RIZAPORT ® 10 mg to the FDA. If the RIZAPORT ® NDA resubmission is deemed complete and permits a full review by the FDA, a Prescription Drug User Fee Act (PDUFA) date is expected to be set by the FDA for the first half of 2018.
     
  8. On November 9, 2017, RedHill announced that the last patient had been enrolled in the Phase III study with RHB-104 for Crohn’s disease (MAP US study). The study enrolled 331 subjects across approximately 150 clinical sites in the U.S., Canada, Europe, Israel, Australia and New Zealand. Top-line results are expected to be announced in mid-2018. On October 2, 2017, RedHill announced that it had curtailed the target sample size in the Phase III study with RHB-104 for Crohn’s disease (MAP US study) from 410 to approximately 325 subjects, while maintaining statistical power of over 80% with a treatment effect of 15%.        

Financial Highlights:

On November 9, 2017, RedHill announced the pricing of its underwritten public offering, announced on November 8, 2017, for a total number of 4,090,909 American Depositary Shares (ADSs), each representing ten of its ordinary shares, at a public offering price of $5.50 per ADS. Gross proceeds from the sale of the ADSs by RedHill before underwriting discounts and commissions and other offering expenses are expected to be approximately $22.5 million. The offering is scheduled to be closed today, subject to customary closing conditions. RedHill has also granted the underwriters a 30-day option to purchase up to 613,636 additional ADSs at the public offering price. Cantor Fitzgerald & Co. and Nomura Securities International, Inc. are acting as joint book-running managers for the offering. SMBC Nikko Securities America, Inc. is acting as lead manager and H.C. Wainwright & Co., LLC and Roth Capital Partners, LLC are acting as co-managers for the offering. The Company intends to use the proceeds from the offering to fund clinical development programs, for potential acquisitions, to support commercial operations and for general corporate purposes.

About Esomeprazole Strontium Delayed-Release Capsules 49.3 mg 12 :
Esomeprazole Strontium Delayed-Release Capsules 49.3 mg is indicated for adults:

Important Safety Information about Esomeprazole Strontium Delayed-Release Capsules 49.3 mg:

Talk to your doctor or healthcare professional. Please see Prescribing information including Medication Guide for Esomeprazole Strontium Delayed-Release Capsules at https://dailymed.nlm.nih.gov/dailymed/fda/fdaDrugXsl.cfm?setid=53240ab5-98e7-4050-b640-e09c1271899a&type=display

You are encouraged to report negative side effects of prescription drugs to the FDA.  Visit www.fda.gov/medwatch or call 1-800-FDA-1088.

About Donnatal ® :
Donnatal ® (Phenobarbital, Hyoscyamine Sulfate, Atropine Sulfate, Scopolamine Hydrobromide), a prescription drug, is classified as possibly effective as an adjunctive therapy in the treatment of irritable bowel syndrome (irritable colon, spastic colon, mucous colitis) and acute enterocolitis. Donnatal ®  slows the natural movements of the gut by relaxing the muscles in the stomach and intestines. Donnatal ® comes in two formulations: immediate release Donnatal ®  Tablets and immediate release Donnatal ®  Elixir, a fast-acting liquid.

Important Safety Information about Donnatal ® :
Donnatal ® is contraindicated in patients who have glaucoma, obstructive uropathy, obstructive disease of the gastrointestinal tract, paralytic ileus, unstable cardiovascular status, severe ulcerative colitis, myasthenia gravis, hiatal hernia with reflux esophagitis, or known hypersensitivity to any of the ingredients. Patients who are pregnant or breastfeeding or who have autonomic neuropathy, hepatic or renal disease, hyperthyroidism, coronary heart disease, congestive heart failure, cardiac arrhythmias, tachycardia or hypertension should notify their doctor before taking Donnatal ® . Side effects may include: dryness of the mouth, urinary retention, blurred vision, dilation of pupils, rapid heartbeat, loss of sense of taste, headache, nervousness, drowsiness, weakness, dizziness, insomnia, nausea, vomiting and allergic reactions which may be severe.

Further information, including prescribing information, can be found on www.donnatal.com.

Please see the following website for complete important safety information about Donnatal ® :
http://www.donnatal.com/professionals/important-safety-information/

To report suspected adverse reactions, contact Concordia Pharmaceuticals Inc. at
1-877-370-1142 or email: medicalinformation@concordiarx.com, or the FDA at
1-800-FDA-1088 (1-800-332-1088) or www.fda.gov/medwatch.
           
About EnteraGam ® :
EnteraGam ® (serum-derived bovine immunoglobulin/protein isolate, SBI) is a medical food product intended for the dietary management of chronic diarrhea and loose stools. EnteraGam ®  must be administered under medical supervision. EnteraGam ® binds microbial components 13 , such as toxic substances released by bacteria, that upset the intestinal environment. This helps prevent them from penetrating the lining of the intestine, which may contribute to chronic diarrhea and loose stools in people who have specific intestinal disorders 14 .

Safety Information about EnteraGam ® :
EnteraGam ®  contains beef protein; therefore, patients who have an allergy to beef or any other component of EnteraGam ®  should not take this product.  EnteraGam ®  has not been studied in pregnant women, in women during labor and delivery, or in nursing mothers.  The choice to administer EnteraGam ®  during pregnancy, labor and delivery, or to nursing mothers is at the clinical discretion of the prescribing physician.

EnteraGam ®  does not contain any milk-derived ingredients such as lactose, casein or whey.  EnteraGam ®  is gluten-free, dye-free and soy-free. 

Please see full Product Information.
                                
To report suspected adverse reactions, contact Entera Health, Inc. at 1-855-4ENTERA (1-855-436-8372), or the FDA at 1-800-FDA-1088 (1-800-332-1088) or www.fda.gov/medwatch.

About RedHill Biopharma Ltd.:
RedHill Biopharma Ltd. (NASDAQ:RDHL) (Tel-Aviv Stock Exchange:RDHL) is a specialty biopharmaceutical company, primarily focused on the development and commercialization of late clinical-stage, proprietary drugs for the treatment of gastrointestinal and inflammatory diseases and cancer. RedHill promotes three gastrointestinal products in the U.S. and its clinical stage pipeline includes treatments for gastrointestinal indications, pancreatic cancer and acute migraines: Donnatal ® - a prescription oral adjunctive drug used in the treatment of IBS and acute enterocolitis; Esomeprazole Strontium Delayed-Release Capsules 49.3 mg - a prescription proton pump inhibitor indicated for adults for the treatment of gastroesophageal reflux disease (GERD) and other gastrointestinal conditions; and EnteraGam ® - a medical food intended for the dietary management, under medical supervision, of chronic diarrhea and loose stools. RedHill’s clinical-stage pipeline includes: (i) TALICIA (RHB -105) - an oral combination therapy for the treatment of Helicobacter pylori infection with successful results from a first Phase III study and an ongoing confirmatory Phase III study; (ii) RHB-104 - an oral combination therapy for the treatment of Crohn's disease with an ongoing first Phase III study, a completed proof-of-concept Phase IIa study for multiple sclerosis, and a planned pivotal Phase III study for nontuberculous mycobacteria (NTM) infections; (iii) BEKINDA ® (RHB-102) - a once-daily oral pill formulation of ondansetron with successful top-line results from a Phase III study in acute gastroenteritis and gastritis and successful top-line results from a Phase II study in IBS-D; (iv) RHB-106 - an encapsulated bowel preparation licensed to Salix Pharmaceuticals, Ltd.; (v) YELIVA ® (ABC294640) - a Phase II-stage, orally-administered, first-in-class SK2 selective inhibitor targeting multiple oncology, inflammatory and gastrointestinal indications; (vi) MESUPRON - a Phase II-stage first-in-class, orally-administered protease inhibitor, targeting pancreatic cancer and inflammatory gastrointestinal diseases and (vii) RIZAPORT ® (RHB-103) - an oral thin-film formulation of rizatriptan for acute migraines, with a U.S. NDA resubmitted to the FDA and marketing authorization received in two EU member states under the European Decentralized Procedure (DCP).

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. 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, 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; (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 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; (v) the Company’s ability to successfully market Donnatal ® and EnteraGam ® ; (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 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 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; 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 February 23, 2017. 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
Senior VP Business Development &
Licensing
RedHill Biopharma
+972-54-6543-112
adi@redhillbio.com
IR contact (U.S.):
Marcy Nanus
Senior Vice President
The Trout Group
+1-646-378-2927
Mnanus@troutgroup.com


REDHILL BIOPHARMA LTD.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)

                 
    Three months ended   Nine months ended  
    September 30,    September 30,   
    2017   2016   2017     2016    
    U.S. dollars in thousands  
NET REVENUES    1,523    —    2,006      1    
COST OF REVENUES    935    —    1,207      —    
GROSS PROFIT    588    —    799      1    
RESEARCH AND DEVELOPMENT EXPENSES, net    8,106    7,038    24,677      17,745    
SELLING, MARKETING AND BUSINESS DEVELOPMENT EXPENSES    4,189    *402    8,170      1,138    
GENERAL AND ADMINISTRATIVE EXPENSES    2,258    *1,014    5,513      2,669    
OTHER EXPENSES    —    —    45      —    
OPERATING LOSS    13,965    8,454    37,606      21,551    
FINANCIAL INCOME    150    109    2,541      548    
FINANCIAL EXPENSES    1,697    599    66      17    
FINANCIAL EXPENSES (INCOME), net    1,547    490    (2,475 )    (531 )  
LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD    15,512    8,944    35,131      21,020    
LOSS PER ORDINARY SHARE, BASIC AND DILUTED (U.S. dollars)    0.09    0.07    0.21      0.17    

*Reclassified

REDHILL BIOPHARMA LTD.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
(Unaudited)

         
    September 30,    December 31,
    2017     2016  
    U.S. dollars in thousands
CURRENT ASSETS:        
Cash and cash equivalents    18,663      53,786  
Bank deposits    8,127      55  
Financial assets at fair value through profit or loss    12,645      12,313  
Trade receivables and contract assets    1,399      *99  
Prepaid expenses and other receivables    2,760      *1,562  
Inventory    221      —  
     43,815      67,815  
NON-CURRENT ASSETS:        
Bank deposits    149      137  
Fixed assets    250      165  
Intangible assets    6,085      6,095  
     6,484      6,397  
TOTAL ASSETS    50,299      74,212  
         
         
CURRENT LIABILITIES:         
Accounts payable    1,882      *60  
Accrued expenses and other current liabilities    9,149      *3,296  
Payable in respect of intangible asset purchase    1,000      2,000  
     12,031      5,356  
         
NON-CURRENT LIABILITIES:        
Derivative financial instruments    4,307      6,155  
TOTAL LIABILITIES    16,338      11,511  
         
EQUITY:        
Ordinary shares    459      441  
Additional paid-in capital    156,616      150,838  
Warrants    —      1,057  
Accumulated deficit    (123,114 )    (89,635 )
TOTAL EQUITY    33,961      62,701  
         
TOTAL LIABILITIES AND EQUITY    50,299      74,212  

*Reclassified

REDHILL BIOPHARMA LTD.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(Unaudited)

                 
    Three months ended   Nine months ended
    September 30,    September 30, 
    2017     2016     2017     2016  
    U.S. dollars in thousands
OPERATING ACTIVITIES:                
Comprehensive loss    (15,512 )    (8,944 )    (35,131 )    (21,020 )
Adjustments in respect of income and expenses not involving cash flow:                
Share-based compensation to employees and service providers    640      449      1,652      1,318  
Depreciation    26      11      58      32  
Write-off of intangible asset    —      —      45      —  
Unrealized losses (gains) on derivative financial instruments    1,685      585      (1,828 )    (130 )
Fair value losses (gains) on financial assets at fair value through profit or loss    (12 )    (10 )    67      (72 )
Revaluation of bank deposits    (3 )    (108 )    (108 )    (255 )
Exchange differences in respect of cash and cash equivalents    46      (36 )    (315 )    (77 )
     2,382      891      (429 )    816  
Changes in assets and liability items:                
Increase in trade receivables and contract assets    (621 )    —      (1,300 )    —  
Decrease (increase) in prepaid expenses and other receivables    336      150      (1,198 )    342  
Decrease (increase) in inventory    389      —      (221 )    —  
Increase (decrease) in accounts payable    737      *(417)    1,822      *(94)
Increase in accrued expenses    1,734      *950    5,853      *1,868
     2,575      683      4,956      2,116  
Net cash used in operating activities    (10,555 )    (7,370 )    (30,604 )    (18,088 )
INVESTING ACTIVITIES:                
Purchase of fixed assets    (41 )    (10 )    (143 )    (55 )
Purchase of intangible assets    (1,035 )    —      (1,035 )    —  
Change in investment in current bank deposits    7,284      14,668      (7,976 )    14,668  
Purchase of financial assets at fair value through profit or loss    (978 )    (3,976 )    (14,931 )    (11,456 )
Proceeds from sale of financial assets at fair value through profit or loss    8,685      —      14,532      —  
Net cash provided by (used in) investing activities    13,915      10,682      (9,553 )    3,157  
FINANCING ACTIVITIES:                
Proceeds from issuance of ordinary shares, net of expenses    —      —      1,282      —  
Exercise of warrants and options into ordinary shares, net of expenses    30      —      3,437      110  
Net cash provided by financing activities    30      —      4,719      110  
DECREASE (INCREASE) IN CASH AND CASH EQUIVALENTS    3,390      3,312      (35,438 )    (14,821 )
EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS    (46 )    36      315      77  
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD    15,319      3,424      53,786      21,516  
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD    18,663      6,772      18,663      6,772  
SUPPLEMENTARY INFORMATION ON INTEREST RECEIVED IN CASH    153      133      354      185  

*Reclassified

1 Including cash, short-term investments and non-current bank deposits.

2 All financial highlights are approximate and are rounded to the nearest hundreds of thousands.

Donnatal ® (Phenobarbital, Hyoscyamine Sulfate, Atropine Sulfate, Scopolamine Hydrobromide) is a prescription drug, classified as possibly effective as an adjunctive therapy in the treatment of irritable bowel syndrome (irritable colon, spastic colon, mucous colitis) and acute enterocolitis.  For more information, please see the prescribing information: http://www.donnatal.com/wp-content/uploads/2015/02/2015-02-18-Risk-Benefit-information-DTC-REV.-SE.pdf.

4 EnteraGam ® (serum-derived bovine immunoglobulin/protein isolate, SBI) is a commercially-available medical food, intended for the dietary management of chronic diarrhea and loose stools due to specific intestinal disorders, which must be administered under medical supervision.

5 Esomeprazole Strontium Delayed-Release (DR) Capsules 49.3 mg is an FDA-approved, proprietary, prescription proton pump inhibitor, indicated for adults for the treatment of gastroesophageal reflux disease (GERD) and other gastrointestinal (GI) conditions. For more information, please see the prescribing information:  https://dailymed.nlm.nih.gov/dailymed/fda/fdaDrugXsl.cfm?setid=53240ab5-98e7-4050-b640-e09c1271899a&type=display.

6 Esomeprazole Strontium Delayed-Release (DR) Capsules 49.3 mg is an FDA-approved, proprietary, prescription proton pump inhibitor, indicated for adults for the treatment of gastroesophageal reflux disease (GERD) and other gastrointestinal (GI) conditions. For more information, please see the prescribing information:  https://dailymed.nlm.nih.gov/dailymed/fda/fdaDrugXsl.cfm?setid=53240ab5-98e7-4050-b640-e09c1271899a&type=display.

7 TALICIA , BEKINDA ® and YELIVA ® are investigational new drugs, not available for commercial distribution.

8 Including cash and short-term investments and non-current bank deposits.

9 For more information, please see the prescribing information:        https://dailymed.nlm.nih.gov/dailymed/fda/fdaDrugXsl.cfm?setid=53240ab5-98e7-4050-b640-e09c1271899a&type=display.

10 MESUPRON is an investigational new drug, not available for commercial distribution.

11 Xifaxan ® (rifaximin) prescribing information: www.accessdata.fda.gov/drugsatfda_docs/label/2010/022554lbl.pdf; Viberzi ® (eluxadoline) prescribing information: www.accessdata.fda.gov/drugsatfda_docs/label/2015/206940s000lbl.pdf; Average absolute difference from reported Phase III studies; The theoretical comparison between the BEKINDA ® Phase II study results and reported data from studies of IBS-D-approved therapies serves as a general benchmark for the effect size observed with BEKINDA ® and should not be construed as a direct and/or equal comparison given that the studies were not identical in design, patient population and treatment period. For example, in the Xifaxan ® Phase III studies, the referenced efficacy endpoints were evaluated over a period of 4 weeks after 2 weeks of drug administration, and in the Viberzi ® Phase III studies, the referenced efficacy endpoints were evaluated after the drug was administered and evaluated for 12 weeks. The studies were not conducted head-to head in the same patient population.  

12 Esomeprazole Strontium Delayed-Release Capsules is also available in a 24.65 mg dose. RedHill promotes the Esomeprazole Strontium Delayed-Release Capsules 49.3 mg formulation only.

13 Horgan A, Maas K, Henderson A, Detzel C, Weaver E. Serum-derived bovine immunoglobulin/protein isolate binds to pathogen-associated molecular patterns. Poster presented at: Federation of American Societies for Experimental Biology; April 26-30, 2014; San Diego, CA.

14 Petschow BW, Burnett B, Shaw AL, Weaver EM, Klein GL. Serum-derived bovine immunoglobulin/protein isolate: postulated mechanism of action for management of enteropathy. Clin Exp Gastroenterol. 2014;7:181-190. Gasbarrini A, Lauritano EC, Garcovich M, Sparano L, Gasbarrini G. New insights into the pathophysiology of IBS: intestinal microflora, gas production and gut motility. Eur Rev Med Pharmacol Sci. 2008;12 Suppl 1:111-117.

EXHIBIT 2

 

 

 

 

 

 

 

 

 

 

 

 

 

REDHILL BIOPHARMA LTD.

CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

(UNAUDITED)

SEPTEMBER 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

 

REDHILL BIOPHARMA LTD.

CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

(UNAUDITED)

SEPTEMBER 30, 2017

 

 

 

TABLE OF CONTENTS

 

 

 

  Page
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2017 IN U.S. DOLLARS:  
   
Condensed consolidated interim statements of comprehensive loss 2
   
Condensed consolidated interim statements of financial position 3
   
Condensed consolidated interim statements of changes in equity 4
   
Condensed consolidated interim statements of cash flows 6
   
Notes to the condensed consolidated interim financial statements 7-16

 

 

 

 

 

 

 

 

 

 

 

 
 

 

REDHILL BIOPHARMA LTD.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

 

    Three months ended   Nine months ended
    September 30,   September 30,
    2017   2016   2017   2016
    U.S. dollars in thousands
NET REVENUES     1,523             2,006       1  
COST OF REVENUES     935             1,207        
GROSS PROFIT     588             799       1  
RESEARCH AND DEVELOPMENT EXPENSES, net     8,106       7,038       24,677       17,745  
SELLING, MARKETING AND BUSINESS DEVELOPMENT EXPENSES     4,189       *402       8,170       1,138  
GENERAL AND ADMINISTRATIVE EXPENSES     2,258       *1,014       5,513       2,669  
OTHER EXPENSES                 45        
OPERATING LOSS     13,965       8,454       37,606       21,551  
FINANCIAL INCOME     150       109       2,541       548  
FINANCIAL EXPENSES     1,697       599       66       17  
FINANCIAL EXPENSES (INCOME), net     1,547       490       (2,475 )     (531 )
LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD     15,512       8,944       35,131       21,020  
LOSS PER ORDINARY SHARE, BASIC AND DILUTED (U.S. dollars)     0.09       0.07       0.21       0.17  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

*Reclassified

 

 

 

 

 

 

  2  
 

 

REDHILL BIOPHARMA LTD.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION

(Unaudited)

 

    September 30,   December 31,
    2017   2016
    U.S. dollars in thousands
CURRENT ASSETS:                
Cash and cash equivalents     18,663       53,786  
Bank deposits     8,127       55  
Financial assets at fair value through profit or loss     12,645       12,313  
Trade receivables and contract assets     1,399       *99  
Prepaid expenses and other receivables     2,760       *1,562  
Inventory     221        
      43,815       67,815  
NON-CURRENT ASSETS:                
Bank deposits     149       137  
Fixed assets     250       165  
Intangible assets     6,085       6,095  
      6,484       6,397  
TOTAL ASSETS     50,299       74,212  
                 
                 
CURRENT LIABILITIES:                
Accounts payable     1,882       *60  
Accrued expenses and other current liabilities     9,149       *3,296  
Payable in respect of intangible asset purchase     1,000       2,000  
      12,031       5,356  
                 
NON-CURRENT LIABILITIES:                
Derivative financial instruments     4,307       6,155  
TOTAL LIABILITIES     16,338       11,511  
                 
EQUITY:                
Ordinary shares     459       441  
Additional paid-in capital     156,616       150,838  
Warrants           1,057  
Accumulated deficit     (123,114 )     (89,635 )
TOTAL EQUITY     33,961       62,701  
                 
TOTAL LIABILITIES AND EQUITY     50,299       74,212  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

*Reclassified

 

  3  
 

 

REDHILL BIOPHARMA LTD.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

 

    Ordinary   Additional       Accumulated   Total
    shares   paid-in capital   Warrants   deficit   equity
    U.S. dollars in thousands
BALANCE AT JULY 1, 2017     458       156,587             (108,242 )     48,803  
                                         
CHANGES IN THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2017:                                        
Share-based compensation to employees and service providers                       640       640  
Exercise of options into ordinary shares     1       29                   30  
Comprehensive loss                       (15,512 )     (15,512 )
BALANCE AT SEPTEMBER 30, 2017     459       156,616             (123,114 )     33,961  
BALANCE AT JULY 1, 2016     344       120,730       1,057       (73,151 )     48,980  
                                         
CHANGES IN THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2016:                                        
Share-based compensation to employees and service providers                       449       449  
Comprehensive loss                       (8,944 )     (8,944 )
BALANCE AT SEPTEMBER 30, 2016     344       120,730       1,057       (81,646 )     40,485  

 

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)

 

    Ordinary
shares
  Additional
paid-in
capital
  Warrants   Accumulated
deficit
  Total
equity
    U.S. dollars in thousands
                     
BALANCE AT JANUARY 1, 2017     441       150,838       1,057       (89,635 )     62,701  
CHANGES IN THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2017:                                        
Share-based compensation to employees and service providers                       1,652       1,652  
Issuance of ordinary shares, net of expenses     3       1,279                   1,282  
Exercise of warrants and options into ordinary shares     15       3,442                   3,457  
Warrants expiration           1,057       (1,057 )            
Comprehensive loss                       (35,131 )     (35,131 )
BALANCE AT SEPTEMBER 30, 2017     459       156,616             (123,114 )     33,961  
BALANCE AT JANUARY 1, 2016     343       120,621       1,057       (61,944 )     60,077  
                                         
CHANGES IN THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2016:                                        
Share-based compensation to employees and service providers                       1,318       1,318  
Exercise of options into ordinary shares     1       109                   110  
Comprehensive loss                       (21,020 )     (21,020 )
BALANCE AT SEPTEMBER 30, 2016     344       120,730       1,057       (81,646 )     40,485  
                                         

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   Nine months ended
    September 30,   September 30,
    2017   2016   2017   2016
    U.S. dollars in thousands
OPERATING ACTIVITIES:                                
Comprehensive loss     (15,512 )     (8,944 )     (35,131 )     (21,020 )
Adjustments in respect of income and expenses not involving cash flow:                                
Share-based compensation to employees and service providers     640       449       1,652       1,318  
Depreciation     26       11       58       32  
Write-off of intangible asset                 45        
Unrealized losses (gains) on derivative financial instruments     1,685       585       (1,828 )     (130 )
Fair value losses (gains) on financial assets at fair value through profit or loss     (12 )     (10 )     67       (72 )
Revaluation of bank deposits     (3 )     (108 )     (108 )     (255 )
Exchange differences in respect of cash and cash equivalents     46       (36 )     (315 )     (77 )
      2,382       891       (429 )     816  
Changes in assets and liability items:                                
Increase in trade receivables and contract assets     (621 )           (1,300 )      
Decrease (increase) in prepaid expenses and other receivables     336       150       (1,198 )     342  
Decrease (increase) in inventory     389             (221 )      
Increase (decrease) in accounts payable     737       *(417 )     1,822       *(94 )
Increase in accrued expenses     1,734       *950       5,853       *1,868  
      2,575       683       4,956       2,116  
Net cash used in operating activities     (10,555 )     (7,370 )     (30,604 )     (18,088 )
INVESTING ACTIVITIES:                                
Purchase of fixed assets     (41 )     (10 )     (143 )     (55 )
Purchase of intangible assets     (1,035 )           (1,035 )      
Change in investment in current bank deposits     7,284       14,668       (7,976 )     14,668  
Purchase of financial assets at fair value through profit or loss     (978 )     (3,976 )     (14,931 )     (11,456 )
Proceeds from sale of financial assets at fair value through profit or loss     8,685             14,532        
Net cash provided by (used in) investing activities     13,915       10,682       (9,553 )     3,157  
FINANCING ACTIVITIES:                                
Proceeds from issuance of ordinary shares, net of expenses                 1,282        
Exercise of warrants and options into ordinary shares, net of expenses     30             3,437       110  
Net cash provided by financing activities     30             4,719       110  
DECREASE (INCREASE) IN CASH AND CASH EQUIVALENTS     3,390       3,312       (35,438 )     (14,821 )
EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS     (46 )     36       315       77  
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     15,319       3,424       53,786       21,516  
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD     18,663       6,772       18,663       6,772  
SUPPLEMENTARY INFORMATION ON INTEREST RECEIVED IN CASH     153       133       354       185  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

*Reclassified

  6  
 

 

REDHILL BIOPHARMA LTD.

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

(Unaudited)

NOTE 1 - GENERAL:

 

a. General

 

RedHill Biopharma Ltd. (the “Company”) incorporated and headquartered in Israel, together with its wholly-owned subsidiary Redhill Biopharma Inc. incorporated in Delaware, is a specialty biopharmaceutical group of companies primarily focused on the development and commercialization of late clinical-stage, proprietary drugs for the treatment of gastrointestinal (GI) and inflammatory diseases and cancer.

 

The Company is promoting in the U.S. three GI products; (i) Donnatal ® , a prescription oral adjunctive drug for the treatment of IBS and acute enterocolitis, (ii) EnteraGam ® , a medical food intended for the dietary management, under medical supervision, of chronic diarrhea and loose stools, and (iii) Esomeprazole Strontium Delayed-Release Capsules 49.3mg (“Esomeprazole”), a prescription proton pump inhibitor (PPI) indicated for adults for Gastroesophageal Reflux Disease (GERD) and other GI conditions.

 

In February 2011, the Company listed its securities on the Tel-Aviv Stock Exchange (“TASE”). Since December 2012, the Company's American Depositary Shares (“ADSs”) have been listed on the NASDAQ Capital Market (“NASDAQ”).

 

The Company's registered address is at 21 Ha'arba'a St, Tel-Aviv, Israel.

 

The Company is primarily engaged in the research and development of most of its therapeutic candidates and to date has out-licensed on an exclusive worldwide basis only one of its therapeutic candidates and has had two additional regional exclusive out-licensing transactions with another therapeutic candidate . Accordingly, there is no assurance that the Company’s business will generate positive cash flow. Through September 30, 2017, the Company has an accumulated deficit and its activities have been funded through public and private offerings of the Company's securities.

 

The Company plans to further fund its future operations through promotion of Donnatal ® and Esomeprazole, commercialization of EnteraGam ® and its therapeutic candidates, if approved for marketing, and through out-licensing of certain programs or products in various territories and through raising additional capital. The Company’s current cash resources are not sufficient to complete the research and development of all of the Company’s therapeutic candidates. 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 the promotion of Donnatal ® and Esomeprazole and commercialization of EnteraGam ® , based on a prioritized plan that will result in negative cash flows from operating activities. The Company believes its existing capital resources should be sufficient to fund its current and planned operations for at least the next 12 months.

 

 

  7  
 

 

REDHILL BIOPHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

 

If the Company is unable to continue to out-license its therapeutic candidates, generate substantial revenues from Donnatal ® , EnteraGam ® and Esomeprazole, or obtain future financing, the Company may be forced to delay, reduce the scope of, or eliminate one or more of its research and development programs or commercialization programs related to these products, any of which may have a material adverse effect on the Company’s business, financial condition and results of operations.

 

b. Approval of the condensed consolidated interim financial statements

 

These condensed consolidated interim financial statements were approved by the Board of Directors on November 12, 2017.

 

NOTE 2 - BASIS OF PREPARATION OF THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS:

 

a. Basis of presentation

 

The Company's condensed consolidated interim financial statements for the three and nine months ended September 30, 2017 and 2016 (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, which are unaudited, do not include all disclosures necessary for a complete statement of financial position, results of operations and cash flow in conformity with generally accepted accounting principles. The Condensed Consolidated Interim Financial Statements should be read in conjunction with the annual financial statements as of December 31, 2016 and for the year then ended 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 and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the entire fiscal year or for any other interim period.

The Condensed Consolidated Interim Financial Statements as of September 30, 2017 and for the three and nine months then ended include the accounts of the Company, and starting January 2017 also its subsidiary. Intercompany transactions and balances are eliminated on consolidation.

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, 2016. For more information, see Note 3 below, describing new additional accounting policies adopted by the Company with respect to its newly-established commercial operations.

 

  8  
 

 

REDHILL BIOPHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

 

b. Standards and interpretations to existing standards that are not yet in effect and have not been early adopted by the Company

 

International Financial Reporting Standard No. 9 “Financial Instruments” (hereafter - IFRS)

 

IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortized cost, fair value through other comprehensive income and fair value through profit or loss. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in other comprehensive income. Further, the expected credit losses model replaces the incurred loss impairment model used in IAS 39. For financial liabilities, there were no changes to classification and measurement except for the recognition of changes in the Company’s own credit risk in other comprehensive income for liabilities designated at fair value through profit or loss.

 

The standard is effective for accounting periods beginning on or after January 1, 2018. The Company is currently assessing the impact of IFRS 9.

 

International Financial Reporting Standard No. 16 “Leases” (“IFRS 16”)

 

IFRS 16 defines a lease as a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration. Under IFRS 16, lessees have to recognize a lease liability reflecting future lease payments and a ‘right-of-use asset’ for almost all lease contracts. The standard replaces the current guidance in IAS 17. The standard is effective for annual periods beginning on or after January 1, 2019. The Company is currently assessing the impact of adopting IFRS 16.

 

NOTE 3 - NEW ACCOUNTING POLICIES:

 

a. Revenues from contracts with customers

 

In May 2014, the IASB issued the new revenue recognition standard, IFRS 15. IFRS 15 replaces much of the prescriptive and diverse guidance in today's accounting literature. Its purpose, among other things, is to remove inconsistencies in existing revenue recognition frameworks and provide more useful information to financial statements users.

 

In the second quarter of 2017, the Company adopted retrospectively IFRS 15 as of January 1, 2017, for all periods presented. The adoption of IFRS 15 did not have an effect on either the revenues recognized in prior periods nor to accumulated deficits as of January 1, 2015 .

 

  9  
 

 

REDHILL BIOPHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

 

 

IFRS 15 introduces a five-step model for recognizing revenue from contracts with customers, as follows:

 

1. Identify the contract with a customer.

 

2. Identify the performance obligations in the contract.

 

3. Determine the transaction price.

 

4. Allocate the transaction price to the performance obligations in the contract.

 

5. Recognize revenue when (or as) the entity satisfies a performance obligation.

 

Revenues from promotional services

 

The Company recognizes revenue from promotional services related to Donnatal ® and Esomeprazole as it satisfies its performance obligation over time, in an amount of the consideration it expects to be entitled to, taking into consideration the constraint on variable consideration stipulated in IFRS 15.

 

Revenues from sale of products

 

Principal versus agent considerations

 

When another party is involved in providing goods or services to a customer, the Company analyzes whether the Company acts as a principal or an agent in the transaction, based on whether the Company obtains control of the product before it is transferred to the customer, using the indicators provided in IFRS 15.

 

In the commercialization of Enteragam ® , the Company is determined to be the principal in the arrangement (rather than an agent of Entera Health), therefore, revenue in the amount the Company is entitled to from its customers is recognized on a gross basis, from which royalties to Entera Health are being accounted for in cost of sales.

 

The Company recognizes revenues from the sale of EnteraGam ® , at a point in time when control over the product is transferred to customers.

 

The transaction price in these arrangements is the consideration the Company expects to be entitled to from the customer, taking into consideration the existence of variable considerations such as the products' right of return and certain other promotional discounts provided to customers.

 

  10  
 

 

REDHILL BIOPHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

 

 

Revenues from out-licensing of the Company's therapeutic candidates

 

Revenue incurred in connection with the out-licensing of a right to use the Company’s intellectual property is recognized at a point in time when control over the license is transferred to the licensee.

 

The transaction price contains variable considerations contingent upon the licensee achieving certain milestones as well as sales-based royalties, in accordance with the relevant agreement.

 

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.

 

Sales-based royalties are not included in the transaction price, rather they are recognized as incurred, due to the specific exception for sales-based royalties in licensing of intellectual property.

 

Practical expedients and exemptions

 

The Company expenses sales commissions when incurred. These costs are recorded as sales and marketing expenses.

 

b. Inventories

 

Inventories are stated at the lower of cost or net realizable value with cost determined using the first-in, first-out method. The Company recognized an amount of $0.5 million in inventories as part of cost of revenues during the nine months ended September 30, 2017.

 

The Company continually evaluates inventories for potential losses due to excess quantity, obsolete or slow-moving inventory by comparing sales history and sales projections to the inventory on hand. When evidence indicates that the carrying value of a product may not be recoverable, a charge is recorded to reduce the inventory to its current net realizable value.

 

c. Trade receivables and contract assets

 

Financial assets included in trade receivables and contract assets are recognized initially at fair value. Subsequent to the initial recognition they are measured at amortized cost using the effective interest rate method, less any impairment losses.

 

d. Advertising and promotional expenses

 

Advertising and promotional costs, including free products and samples distributed to customers, are recognized as an expense when incurred.

 

  11  
 

 

REDHILL BIOPHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 4 - EQUITY:

 

a. On January 3, 2017, the underwriters for the Company's 2016 underwritten public offering partially exercised their option and purchased 133,104 ADSs for approximately $1.28 million. Following the partial exercise of the underwriters’ option, the underwritten public offering and the concurrent registered direct offering (totaled 3,846,519 ADSs and warrants to purchase 2,025,458 ADSs, representing aggregate gross proceeds from both offerings combined of approximately $39.4 million before deducting underwriting discounts and commissions, placement agent fees and other offering expenses) were closed.

 

b. During the nine months ended September 30, 2017, the Company received notifications of exercise with respect to options that had been issued to employees, directors and consultants of the Company. Accordingly, the Company issued 2,988,750 ordinary shares for approximately $0.8 million.

 

c. During the nine months ended September 30, 2017, the Company received notifications of exercise with respect to non-tradable warrants that had been issued in 2014 to investors in the form of private placements. Accordingly, the Company issued 2,526,320 ordinary shares for approximately $2.64 million.

 

NOTE 5 - SHARE-BASED PAYMENTS:

 

a. On March 23, 2017, the Board of Directors of the Company granted 3,025,000 options to purchase ordinary shares to employees and consultants of the Company under the Company’s stock options plan.  The fair value of the options granted on the date of grant was $1.45 million.

 

Each option is exercisable into one ordinary share at an exercise price of $1.08 per share. The options will vest as follows: for employees and consultants of the Company who had provided services to the Company exceeding one year as of the grant date, the options will vest in 16 equal quarterly installments over a four-year period. For employees and consultants of the Company who had not provided services to the Company 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.


The options will be exercisable, either in full or in part, from the vesting date until the end of 7 years from the date of grant.

 

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 ordinary share: $1.03, expected volatility: 50.05%, risk-free interest rate: 2.23% and expected useful life to exercise: 7 years.

 

b. On March 23, 2017, the Board of Directors of the Company granted 62,500 options to purchase ADSs to employees of the subsidiary under the Company’s stock options plan.  The fair value of the options granted was $0.3 million on the date of grant.

 

  12  
 

 

REDHILL BIOPHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

 

Each option is exercisable into one of the Company’s ADSs at an exercise price of $10.80 per ADS. The options will vest as follows: for employees and consultants of the Company who had provided services to the Company exceeding one year as of the grant date, the options will vest in 16 equal quarterly installments. For employees and consultants of the Company who had not provided services to the Company 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.


The options will be exercisable, either in full or in part, from the vesting date until the end of 7 years from the date of grant.

 

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: $10.36, expected volatility: 58.09%, risk-free interest rate: 2.23% and expected useful life to exercise: 7 years.

 

c. Following a general meeting of the Company’s shareholders held on May 11, 2017, and subsequent to the approval of the Company’s Board of Directors on March 23, 2017, the Company allocated an aggregate of 1,140,000 options to purchase ordinary shares under the Company’s stock options plan to the Company's directors at an exercise price equal to $1.09 per share, excluding 500,000 options to the Company's Chief Executive Officer at an exercise price equal to $1.08 per share. The fair value of the options granted was $0.5 million on the date of grant.

 

Each option allocated to non-executive directors of the Company is exercisable into one ordinary share. The options will vest as follows: for directors who had provided services to the Company exceeding one year as of the grant date, the options will vest in 16 equal quarterly installments. For directors who had not provided services to the Company 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.


The options will be exercisable, either in full or in part, from the vesting date until the end of 7 years from the date of grant.

 

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 ordinary share: $1.00, expected volatility: 49.77%, risk-free interest rate: 2.20% and expected useful life to exercise: 7 years.

 

d. On July 24, 2017, the Board of Directors of the Company granted 237,500 options to purchase ADSs and 70,000 options to purchase ordinary shares to employees of the Company and its subsidiary under the Company’s stock options plan. The fair value of the options on the date of grant was $1.2 million.

 

 

 

  13  
 

 

REDHILL BIOPHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

 

Each option to purchase ADS is exercisable into one of the Company’s ADSs at an exercise price of $9.80 per ADS and each option to purchase ordinary shares is exercisable to one of the Company’s ordinary share at an exercise price of $0.98 per share. 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.

 

The options will be exercisable, either in full or in part, from the vesting date until the end of 7 years from the date of grant.

 

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: $9.76, expected volatility: 57.06%, risk-free interest rate: 2.05% and expected useful life to exercise: 7 years. Price of the Company's ordinary share: $0.98 expected volatility: 49.48%, risk-free interest rate: 2.05% and expected useful life to exercise: 7 years.

 

NOTE 6 - NET REVENUES:

 

The Company’s net revenues for the three and nine months ended September 30, 2017, consist mainly of revenues from product commercialization. The Company also recorded revenues from promotional services during the period.

 

NOTE 7 - FINANCIAL INSTRUMENTS:

 

a. Fair value hierarchy

 

The following table presents Company assets and liabilities measured at fair value:

 

    Level 1   Level 3   Total
    U.S. dollars in thousands
September 30, 2017:            
Assets -            
Financial assets at fair value through profit or loss     12,645             12,645  
Liabilities -                        
Derivative financial instruments           4,307       4,307  
December 31, 2016:                        
Assets -                        
Financial assets at fair value through profit or loss     12,313             12,313  
Liabilities -                        
Derivative financial instruments           6,155       6,155  

 

During the nine-month period ended September 30, 2017, there were no transfers of financial assets and liabilities between Levels 1, 2 or 3 fair value measurements.  There have been no changes in the methodologies used at September 30, 2017, since December 31, 2016.

 

  14  
 

 

REDHILL BIOPHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

 

b. Fair value measurements using significant unobservable input (Level 3)

 

The following table presents the change in derivative financial liabilities measured at level 3 for the periods ended September 30, 2017 and 2016:

 

    Three months ended   Nine months ended
    September 30,   September 30,
    2017   2016   2017   2016
    U.S. dollars in thousands
Balance at beginning of the period     2,622       522       6,155       1,237  
Amounts classified to equity                 (20 )      
Amounts recognized in profit or loss     1,685       585       (1,828 )     (130 )
Balance at the end of the period     4,307       1,107       4,307       1,107  

 

The fair value of the above-mentioned derivative financial instruments that are not traded in an active market is determined by using valuation techniques. The Company uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions at the end of each reporting period.

 

The fair value of the warrants is computed using the Black and Scholes option pricing model. The fair value of the warrants issued in 2016 as of September 30, 2017 is based on the price of an ordinary share on September 30, 2017 and based on the following key parameters: risk-free interest rate of 1.50% and an average standard deviation of 44.26%. The fair value of the above warrants as of December 31, 2016, was computed based on the price of an ordinary share on December 31, 2016 and based on the following key parameters: risk-free interest rate of 1.48% and an average standard deviation of 52.94%.

 

c. The carrying amount of cash and cash equivalents, current and non-current bank deposits, receivables and account payables and accrued expenses approximate their fair values due to its short-term characteristics.

 

 

NOTE 8 - LOSS PER ORDINARY SHARE:

 

a. Basic

 

The basic loss per share is calculated by dividing the comprehensive loss by the weighted average number of ordinary shares in issue during the period.

 

    Three months ended   Nine months ended
    September 30,   September 30,
    2017   2016   2017   2016
    U.S. dollars in thousands
                 
Comprehensive loss     15,512       8,944       35,131       21,020  
Weighted average number of ordinary shares outstanding during the period     171,678       127,474       170,990       127,317  
Basic loss per share     0.09       0.07       0.21       0.17  

 

  15  
 

 

REDHILL BIOPHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

 

b. Diluted

 

The diluted loss per share for the three and nine months period ended September 30, 2017, is identical to the basic loss per share since the effect of potential dilutive shares is anti-dilutive. Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all potential dilutive ordinary shares, which is calculated using the Treasury Method. The Company has two categories of potential dilutive ordinary shares: warrants issued to investors and options issued to employees and service providers. The effect of options issued to employees and service providers is anti-dilutive.

 

    Three months ended   Nine months ended
    September 30,   September 30,
    2017   2016   2017   2016
    U.S. dollars in thousands
Comprehensive loss     15,512       8,944       35,131       21,020  
Adjustment for financial income of warrants                       130  
Loss used to determine diluted loss per share     15,512       8,944       35,131       21,150  
Weighted average number of ordinary shares outstanding during the period     171,678       127,474       170,990       127,317  
Adjustment for warrants                       298  
Weighted average number of ordinary shares for diluted loss per share     171,678       127,474       170,990       127,615  
Diluted loss per share     0.09       0.07       0.21       0.17  

 

 

NOTE 9 - SUBSEQUENT EVENTS:

 

On November 8, 2017, the Company priced an underwritten public offering in the U.S. of an aggregate 4,090,909 ADSs at a price of $5.50 per ADS. Gross proceeds to the Company from the offering are expected to be approximately $22.5 million before underwriting discounts, commissions and other offering expenses. Net proceeds to the Company from the offering, following underwriting discounts, commissions and other offering expenses, are expected to be approximately $20.6 million. In addition, as part of the public offering, the underwriters received an option to purchase an additional 613,636 ADSs at a price of $5.50 per ADS.

 

 

 

 

 

 

 

 

16