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  • 1. REDHILL BIOPHARMA NASDAQ: RDHL Joseph Krug
  • 2. THESIS • Crohn’s caused by a bacterium • RDHL has patent license to use the only known test to detect said bacterium in humans • RDHL also has RHB-104, a treatment to eradicate this bacterium • Almost no coverage of this, therefore RDHL is undervalued ! ! !
  • 3. • • • • • • Israeli biotech firm Trades on TASE and NASDAQ as ADS 1 ADS == 10 shares Small cap - $101.7M No analyst coverage (at least none public) Only Institutional owner is GS with .45% stake in the company
  • 4. PIPELINE Importance of RHB-104 Others — Rehashings - 50-50 approval
  • 5. MANAGEMENT • Dan Suesskind (Board) - Fmr CFO of Teva Pharma — grew the company through acquisitions from market cap of $37M to $34B • Dror Ben-Asher (CEO) — Fmr manager at ProSeed Capital, Fulbright at Harvard who studied pharma & markets • Management good because it’s not mainly doctors, yet has a few doctors on the board. • E.g. Thomas Borody — Developed 3x therapy for H Pylori
  • 6. BALANCE SHEET As of December 31 2012 2011 2010 2009 (U.S. dollars in thousands) (audited) Balance Sheet Data: Cash and short term investments 18,365 18,647 9,152 782 Working capital 17,485 18,223 9,161 770 Total assets 20,096 20,186 10,510 891 1,078 1,399 12,104 21 (23,887 ) (15,209 ) (2,569 ) (105 ) 19,018 18,787 (1,594 ) 870 Total liabilities Accumulated deficit Equity $3M spent on R&D for RHB-104, more than double any other drug
  • 7. COMPETITORS Coronado Biosciences - Helminths ! • • • • Only direct competitor Similar market cap (98.1M) But treatment not effective in other studies And in studies where it was shown effective, it wasn’t significantly more effective than current treatments
  • 8. CROHNS • 500,000 Americans have Crohn’s • Main theory: Immune system attacks lining of intestines and causes inflammation. Causes pain, diarrhea, nausea, vomiting, fevers. Can cause ulcers, fistulas, perforations, strictures. • Discovered by Scottish surgeon Kennedy Dalziel in 1913. • 1895 H.A. Johne - similar disease in cattle - MAP • Dalziel: “So similar as to justify a proposition that the diseases may be the same” • MAP also causes disease in other primates (e.g. baboons)
  • 9. • Problem.. in Johne’s it’s easy to see MAP with a microscope • Most mycobacteriums’ cell walls retain acid stains… • Rodrick Chiodini - microbiologist at Brown cultured live MAP from children with Crohn’s disease • MAP spheroblast. Implications of shedding cell wall • Can reform cell wall up to years later, which is how Chiodini cultured it in his lab.
  • 10. DNA • New way to culture by detecting presence of MAP DNA. Anywhere from 65% to 100% of crohn’s patients have MAP vs. 4% of those with UC (e.g. probably not an opportunistic infection). • Due to the fact that 20% of patients w/ crohn’s are misdiagnosed, the actual numbers could be higher.
  • 11. TRIALS • 1997 London — Rifabutin + clarithromycin — 94% remission rate • Done 5 more times in U.S. and Australia — similar findings • Not large studies, no control groups • Hard to do studies on treatment ideas like this (same w/ H Pylori in the 80s) • (Many of these antibiotics are generic now & if successful would eliminate the multibillion dollar industry of maintaining Crohn’s with anti-TNF inhibitors.) • Market cap Crohn’s treatment $1.4 billion 2008, $2.1 billion 2015 estimate • RDHL first real large phase III trial
  • 12. RHB-104 • Patent protected combo of 3 antibiotics • Clarithromycin, clofazimine, and rifabutin — only drug to treat cause not symptoms • Few side effects • Current drugs don’t work well, e.g. infliximab (Remicade) 28% in remission @ 54 wks. • Expensive (18-30K)/year vs antibiotics (e.g. RHB-104) <$5000 per year • Too low dosages ~60% of required — issue of synergies not working out, prior trials didn’t do this • 52 wks 40% remission (2007 myoconda/giaconda phase 3)
  • 13. MORE RHB-104 • Already has orphan drug status from FDA (easier approval process, R&D tax breaks) • New trial has appropriate dosages of antibiotics — Phase III set to end March 2015 in US + Israel. • Phase III will begin mid 2014 for Europe — 52 week study, double blind w/ placebo controls • No safety issues (already existing drugs) • Lead investigator — David Graham, MD - fmr Pres. of American College of Gastroenterology • “I believe that RHB-104 holds the potential to change the current treatment paradigm and offer patients suffering from Crohn's disease a new and safe therapeutic alternative, targeting the potential cause of the disease rather than the symptoms alone.”
  • 14. MAIN CATALYST • Feb 3 Migraine PDUFA (not important to thesis) • March 2015 — Study results • Great theory — doesn’t always work out in practice • Estimate: 50-50 odds
  • 15. DOWNSIDE • RHB-104 could have bad trial results • Estimate: stock • Probably • Feb could drop anywhere from 20-50% lower end of this scale, 5 other drugs in pipeline 3. Issue (will discuss in conclusions)
  • 16. CONCLUSIONS • Crohn’s likely caused by MAP • Drug combo already known to be more effective than current standard of care in Phase III trials before acquisition (likely positive result from FDA) • Company has only patent for MAP detection in humans • RDHL undervalued due to revolutionary unorthodox ideas, slowness of medicine, no analyst coverage, superior management compared to most biotech firms (both on the R&D and financial sides), and its relative obscureness in the U.S. • Recommendation: Buy 2298 shares RDHL now to avoid paying a premium after likely price jump on Feb. 3 if FDA approves RHB-103* Reevaluate around March 2015 (expected results of Phase III RHB-104 trial) *”The trial met its specified endpoints and FDA's criteria, in all parameters for bioequivalence, between RedHill's RHB-103 oral thin-film, and Merck & Co.'s Maxalt-MLTR, a leading, approved, migraine treatment, based on Rizatriptan, a 5-HT1 receptor agonist drug.”
  • 17. FAQ • Why doesn’t everyone get Crohn’s? • Criteria for causality of a disease by an infection — Koch’s postulates - studies w/ chickens + goats !! 1. The microorganism must be found in abundance in all organisms suffering from the disease, but should not be found in healthy organisms.! ! 2.! The microorganism must be isolated from a diseased organism and grown in pure culture ! ! 3.! The cultured microorganism should cause disease when introduced into a healthy organism.! ! 4.! The microorganism must be reisolated from the inoculated, diseased experimental host and identified as being identical to the original specific causative agent.
  • 18. ANTIBIOTICS • Tried before in Crohn’s & didn’t work — why should RDHL’s work then? • Prior studies used monotherapy, however mycobacteria develop resistance easily and take months or even years to completely get rid of. • 1992 - Clarithromycin very effective in vitro along with rifabutin. — block protein synthesis • Most antibiotics don’t work — block cell wall synthesis (MAP = no cell wall)
  • 19. WHY IMMUNOSUPPRESSANTS WORK NOD2 & Crohn’s ! NOD2 & Johne’s + MAP • 6MP and Azathioprine —- mechanisms unknown, kill MAP in vitro • Immunosuppressants issue (6mp/remicade) & anti-MAP activity
  • 20. SPREAD OF MAP • Spreads through milk and meat, primarily from cattle. • May explain why Crohn’s is only seen in milk drinking places (e.g. Europe, U.S., Canada, etc.), but not in India (where milk is usually boiled first) or in Japan • Japanese farmers/gov’t rewards • English milk — 25% contains MAP • USDA claims pasteurization kills all bacteria in milk, so researchers decided to take milk off the shelves and try to culture MAP. Success in ~20% of milk jugs. • MAP takes 10 min. of pasteurization or boiling temp to kill, US milk 15s/161F.
  • 21. SOURCES Thompson DE. "The Role of Mycobacteria in Crohn's Disease." Journal of Medical Microbiology 41(1994):74-94. Hermon-Taylor, J. "The Causation of Crohn's Disease and Treatment with Antimicrobial Drugs." Italian Journal of Gastroenterology-Hepatology. 1998 Dec;30(6):607-10. NAID. "Crohn's Disease - Is There a Microbial Etiology? Recommendations for a Research Agenda." Conference was held in the Natcher Conference Center on the NIH campus in Bethesda, Maryland on December 14th, 1998. Paratuberculosis And Crohn's Disease by Michael Greger, MD