Earnings call transcript: RedHill Biopharma Q1 2022 sees revenue dip
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Overview
The earnings call reveals concerns about regulatory challenges, reliance on external funding, and decreased net revenues. Despite operational cost savings and reduced cash usage, the biotech sector's downturn and competitive pressures from a new FDA-approved drug pose risks. The Q&A highlights management's lack of clarity on strategic moves and uncertainties around COVID-19 therapeutics. These factors suggest a negative sentiment, likely leading to a stock price decline over the next two weeks.
Key Financial Performance
Cash Used in Operating Activities Approximately $4,000,000, a reduction of over 70% compared to approximately $15,000,000 in Q4 of last year, due to the implementation of cash optimization measures.
Net Revenues $18,200,000, down from $22,100,000 in Q4 of last year, attributed to typical cyclical trends in Movantik sales.
Gross Profit $10,200,000, representing a 56% gross margin, expected to improve as TALICIA scripts continue to grow.
Research and Development Expenses $3,100,000, down from $5,900,000 in Q4 of 2021, due to ongoing optimization of R&D costs and completion of elements of the opagunib and HB107 development programs.
Cash Position Approximately $45,000,000 as of March 31, 2022, prior to the $15,000,000 of gross proceeds from a registered direct offering in May.
Operational Cost Savings Expected operational cost savings of approximately $50,000,000 over the next eighteen months, as part of a comprehensive cost reduction plan.
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Operating Highlights
Prescription Volume Growth: RedHill achieved record quarterly prescription volume, with Movantik maintaining nearly 74% market share and TALICIA growing by 12.8% over the previous quarter.
FDA Approved Drugs: RedHill has three FDA approved proprietary drugs in its commercial portfolio.
COVID-19 Therapeutics: RedHill is advancing its COVID-19 drug candidates, opagunib and RHB107, with promising clinical data.
Market Positioning of TALICIA: TALICIA has surpassed Pylara, establishing itself as the most prescribed branded H. Pylori therapy in the U.S.
Payer Coverage Improvement: TALICIA gained preferred status with 14 million medical beneficiaries and improved access on Florida Medicaid.
Cost Reduction Plan: RedHill's comprehensive cost reduction plan is expected to generate operational cost savings of approximately $50 million over the next 18 months.
Cash Flow Improvement: Cash used in operating activities reduced by over 70% in Q1 2022, signaling a clear path towards financial independence.
Strategic Shift in R&D Funding: RedHill is refining its R&D strategy to rely mostly on external funding sources.
Acquisition Strategy: RedHill is in discussions for potential acquisitions of revenue-generating products to expedite cash generation.
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Risk or Challenges
Cost Reduction Plan: Redhill Biopharma has implemented a comprehensive cost reduction plan aiming to save approximately $50,000,000 over the next eighteen months. This includes a significant reduction in the U.S. Commercial team workforce by one third, which may impact sales coverage and overall sales performance.
Market Competition: The company faces competitive pressures in the H. Pylori treatment market, particularly with the recent FDA approval of a competitor's potassium channel blocker, which could impact TALICIA sales.
Regulatory Challenges: Redhill's COVID-19 therapeutic candidates, opagunib and RHB107, are subject to regulatory scrutiny and the need for positive confirmatory studies to support emergency use authorization or full applications.
Supply Chain and Funding: The company is relying on external funding sources for its R&D programs, particularly for COVID-19 treatments, which may pose risks if funding is not secured.
Economic Factors: The biotech sector is experiencing one of the longest downturns, which presents challenges for financial stability and operational profitability.
Cash Flow Management: Redhill aims to achieve positive cash flow from operations by the second half of 2022, but this is contingent on effective cost management and revenue growth.
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Guidance & Outlook
Cost Reduction Plan: RedHill is implementing a comprehensive cost reduction plan expected to generate operational cost savings of approximately $50,000,000 over the next eighteen months.
Operational Profitability Target: The company is targeting positive cash from operations to start during the second half of 2022.
R&D Strategy: Refined R&D strategy to rely mostly on external funding sources for now.
Commercial Growth Strategy: RedHill is focused on achieving earlier profitability and is well positioned for further growth through potential acquisitions of additional revenue-generating products.
Revenue Expectations: Net revenues of $18,200,000 in Q1 compared to $22,100,000 in Q4 of last year, with expectations of continued growth in prescription volume for TALICIA and Movantik.
Gross Margin: Gross profit was $10,200,000 in Q1, representing a 56% gross margin, expected to improve as TALICIA scripts continue to grow.
Cash Flow Outlook: The company expects to achieve positive cash flow from operations before interest payments starting in the second half of 2022.
R&D Expenses: Research and development expenses for Q1 were $3,100,000, down from $5,900,000 in Q4 2021, with further reductions anticipated.
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Shareholder Return Plan
Operational Cost Savings: RedHill Biopharma is implementing a comprehensive cost reduction plan expected to generate operational cost savings of approximately $50,000,000 over the next eighteen months.
Cash Flow Positive Target: The company is targeting positive cash from operations to start during the second half of 2022.
Cash Used in Operating Activities: Cash used in operating activities was reduced by over 70% in Q1 2022, amounting to approximately $4,000,000 compared to $15,000,000 in Q4 2021.
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Key Q&A
Q:Can you talk about the reduction of the commercial team and any impact on overall sales?
A:We did a comprehensive analysis of our commercial operation. We merged territories and employed Customer Engagement Specialists to cover white space. We feel poised to go forward.
Q:How do we think about gross to net in 2022 compared to 2021?
A:We believe we stabilized on gross to net and will continue in more or less where we are now.
Q:On the $50,000,000 OpEx savings over the next eighteen months, any color in terms of how quickly you expect that to be achieved?
A:We prepared a very detailed plan, which shows that in the next coming six quarters, we will save those $50,000,000.
Q:What has to happen in order for the process to complete regarding the non-binding discussion to acquire a GI drug?
A:Unfortunately, we cannot provide additional color on this one beyond what we already stated.
Q:What are your thoughts on the commercial outlook for COVID-nineteen therapeutics targeting more severely ill patients?
A:We see COVID-nineteen remain a problem, very dynamic evolving problem with variants and mutations arising continuously.
Q:Was there a reason for the delay in the call this year?
A:There were several reasons for that, including the announcement of an improved credit agreement.
Q:How do you define cash flow positive from operations?
A:We will need to do vigorous action on expenses, and we see our revenues continue to grow.
Q:What's your current cash runway given your current cash levels?
A:We have no growing concern remark and feel confident for the next twelve months and well beyond that.
Q:Can you break out the revenue contribution performance for Felicia and Movantik for the first quarter?
A:Movantik with a little over $14,000,000, out licensing deal for TALICIA for $2,000,000, and the rest commercial sales of TALICIA.
Q:Can you give us some detail in terms of your thoughts for the regulatory pathway for opagunib and COVID-nineteen?
A:A positive confirmatory study can support emergency use approvals, depending on the situation of the pandemic.
Q:What does the enrollment look like for RHB204 and what are the funding scenarios?
A:We hope to be able to enroll the study within a year and a half, and external funding could accelerate the timeframe.
Q:Review of Unclear Management Responses
A:Management avoided providing additional details on the non-binding discussion to acquire a GI drug.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Biopharma net
CDC
CEO Biopharma
COVID patient
Folkes
HB
Marketing Biopharma
Movantec
Officer Biopharma
POMORA
Phase twothree
President Chief
Primora
Pylori infection
RSV
Safe Harbor
Swirks President
TALICIA brand
TALICIA sale
agreement
cash flow
cost reduction
cost saving
funding
independence
interest payment
landscape
opagunib
pathway
payer coverage
percent reduction
preparedness
profitability
reduction plan
saving month
source
submission
today line
RDHL Transcript
Earnings call transcript: RedHill Biopharma Q1 2022 sees revenue dip
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The earnings call reveals concerns about regulatory challenges, reliance on external funding, and decreased net revenues. Despite operational cost savings and reduced cash usage, the biotech sector's downturn and competitive pressures from a new FDA-approved drug pose risks. The Q&A highlights management's lack of clarity on strategic moves and uncertainties around COVID-19 therapeutics. These factors suggest a negative sentiment, likely leading to a stock price decline over the next two weeks.
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