Good day, and welcome to the RedHill Biopharma Second Quarter 2021 Financial Results Conference Call. [Operator Instructions] At this time, I would like to introduce to the conference call RedHill's CEO, Dror Ben-Asher; Micha Ben-Chorin, Chief Financial Officer; Rick Scruggs, Chief Commercial Officer; Gilead Raday, Chief Operating Officer; Guy Goldberg, Chief Business Officer; Adi Frish, Chief Corporate and Business Development Officer; Rob Jackson, Senior Vice President, Sales and Marketing; and Bob Gilkin, Senior VP, Market Access and Trade Relations. Before we begin, we will read from the RedHill's safe harbor statement. Please go ahead.

Thank you, Andrea. This conference call may contain projections or other forward-looking statements regarding future events or the future performance of RedHill, including statements with respect to the business promotion and other efforts related to RedHill's commercialization activities and the initiation, timing, progress and results of RedHill's research, manufacturing, preclinical studies, clinical trials, marketing applications and approvals, if any, including the clinical trials of opaganib and RHB-107 for the treatment of COVID-19. These statements are only predictions and RedHill cannot guarantee that they will, in fact, occur. RedHill does not assume any obligation to update that information. Actual events, performance, timing, results or commercialization activities may differ materially from what RedHill projects today. Additional information concerning factors that could cause actual events, performance, timing, results or commercialization activities to materially differ from those contained in the forward-looking statements can be found in the company's annual report on Form 20-F filed with the SEC on March 18, 2021, and in its other filings with the Securities and Exchange Commission. I will now transfer the call to Dror Ben-Asher, RedHill's CEO.

Thank you, Alexandra. Good day, everyone, and thank you for joining our second quarter earnings call. We hope that this call finds you and your loved ones safe and well despite the challenging times. Today, we will be presenting detailed R&D, commercial and financial highlights. Starting with R&D. COVID-19 is a devastating disease. Delta and other variants of concern continue to rapidly spread havoc across the U.S. and the globe. Along with rising COVID-19 new cases hospitalizations and, unfortunately, death, there's a clear and immediate need for an effective COVID-19 therapeutic in an oral pill form, as outlined by many public health experts, including recently by the Director of the NIH. I'm proud of RedHill's small but agile and resilient team that rose to the challenge and remain relentlessly execution-focused. This morning, we announced data from the University of Louisville showing strong inhibition of the Delta variant with opaganib. Also this morning, we announced important potential support by Quantum Leap and BARDA, an arm of the U.S. government, for opaganib to be included in the I-SPY COVID-19 clinical trial as a promising drug candidate for severe COVID-19 patients. In parallel, our team and our partners are doing everything humanly possible to get to the finish line with opaganib's global 475 patient Phase 2/3 study in severe COVID-19. With last patient out announced last month, we are nearly there. Remarkably, this study only commenced about a year ago. It was planned and executed by RedHill and its partners at the speed of light, in pharma terms, and it was driven by the urgent medical need all around. To put things in perspective, opaganib is probably the most advanced novel dual mode of action, oral pill candidate of its kind in development currently for hospitalized COVID-19 patients. Opaganib demonstrates strong antiviral activity,…

Thank you, Dror. As we conclude the first half of the year, RedHill is at a very exciting point. Top line results are expected shortly from our opaganib global Phase 2/3 study in hospitalized COVID patients and this could potentially be a transformative event for the company. As we all know, the dream that vaccines alone will get us out of this pandemic will most likely not become reality. This is why public health officials have been saying that a simple, scalable, effective and safe therapeutic is the key to return to normalcy. RedHill foresaw this need from day 1 of the pandemic and has worked diligently to complete several nonclinical and clinical studies to bring us to the point where we are today. And this is why our announcements this morning are so important and so exciting. First, we announced positive preclinical data of opaganib in the Delta variant. This is important because the Delta variant is currently the predominant strain of the virus in the United States and elsewhere. The Delta variant is highly contagious, more than 2x as contagious as previous variants. Some data suggests that Delta variant might cause more severe illness than previous strains in unvaccinated persons. Having a drug that may work specifically against the Delta variant would be a major breakthrough. Second, we are in the final stages of selection by Quantum Leap Healthcare Collaborative and BARDA for inclusion in I-SPY COVID-19 platform. The I-SPY COVID trial is designed to rapidly screen and confirm high-impact treatments to reduce mortality and time on ventilators. Opaganib's inclusion is very important for 2 reasons: First, this is a great validation for our science. And second, this is a great platform to test opaganib against other leading candidates out there utilizing existing clinical trial infrastructure. There have…

Thank you, Guy. I'm pleased to provide an overview of RedHill's R&D progress. COVID-19 has been a major R&D focus for RedHill in Q2 and continues to be so going into Q3. The latest pandemic waves in countries with a high proportion of their population vaccinated are challenging the sufficiency of vaccines for keeping the pandemic at bay. Health agencies are now looking to oral antiviral therapies as the next step, and the U.S. government is now directing billions of dollars to support development of an effective oral pill therapy, which is our current holy grail. To illustrate where the COVID-19 field is currently, here are 2 quotes from a recent interview with Dr. Anthony Fauci on August 3. The first quote reads, "While vaccines, including boosters, remain vitally important, we increasingly recognize the therapies safe, effective, scalable, affordable are no less essential to any lasting solutions to the pandemic." When asked about the ideal COVID therapeutic drug profile, Dr. Fauci replied, "Already administered single pill given for 7 to 10 days, little drug-drug interaction and low toxicity. Give me that, and I'll be really happy." Remarkably, both of RedHill's therapeutic candidates, opaganib and upamostat, come as close as it gets to this ideal drug profile. With that, RedHill is currently developing 2 leading candidates that are positioned at the forefront of this high-priority category of potential game-changing COVID-19 therapies. Opaganib, which is our first advanced oral pill therapeutic candidate for COVID-19, is in an exciting phase. Our global Phase 2/3 study of 475 severe COVID-19 patients has completed the enrollment, treatment and follow-up stages and the much anticipated top line results are just around the corner. Opaganib is a first-in-class inhibitor of SK2, which is an intracellular human enzyme with distinct functions, spanning regulation of transcription, proliferation and inflammation.…

Thank you, and good morning. Over the next few minutes, I'm going to summarize our second quarter 2021 sales, marketing and market access achievements. In the second quarter, we achieved record quarterly revenue despite a very challenging pandemic environment. RedHill achieved growth with both Movantik and Talicia, and we're confident in our ability to capitalize on an improving selling environment during the second half of this year. In the second quarter, RedHill grew Movantik volume by 5.6% over the first quarter of this year. We achieved this by taking a disciplined approach to focusing on the pain segment. In tandem, we are also executing marketing strategies that focus on growing the PAMORA market. This is a key objective for Movantik as the established market leader. We've heavily invested in digital marketing tactics to: first, raise opioid-induced constipation awareness with patients and prescribers; and second, to educate these potential customers about how Movantik can help provide relief from the symptoms of opioid-induced constipation. During the second quarter, we also achieved significant market access successes with major payors that we hope will yield growth for Movantik during the second half of the year. Opioid-induced constipation represents a large and underserved growth opportunity for RedHill. The overwhelming majority of the 6 million to 12 million opioid users who may suffer from OIC report little to no benefit from non-PAMORA constipation treatments. Movantik is very well positioned to meet the needs of these patients. And as I mentioned earlier, the PAMORA market is stabilizing. This is a significant change for the therapeutic class. On a moving annual total basis, PAMORA prescribing volume bottomed out in February and has remained steady since. This is a very good sign for our Movantik business and reflects our efforts and investments to return the PAMORA class to growth.…

Thank you, Rob. Good morning. RedHill is delivering on a clear growth strategy designed to enable us to achieve planned potential commercial, operational breakeven by the end of this year. We achieved a quarterly record of net revenues and gross profit in this quarter. And we also maintained a cash balance of $71.5 million as of June 30, 2021. Net revenues were $21.5 million for the second quarter of 2021, an increase of $0.9 million compared to the first quarter of this year. The increase was attributable to an increase in revenues from Talicia and Movantik despite the challenging pandemic environment. The record net revenues also enabled quarterly record gross margin of $10.9 million, which represents more than 50% of net revenues. On the expenses side. We had higher expenses in the second quarter than in the first quarter related mainly to the progress of our COVID-19 development programs, the Phase 3 study of RHB-204 for pulmonary NTM disease, and to share-based compensation, mostly one-off expense relating to option exchange. Operating loss and net loss were approximately $24.9 million and $29.1 million, respectively, for the second quarter of this year compared to $18.2 million and $22.9 million, respectively, in the first quarter of this year. The increase was mainly attributable to expense related to progression of our COVID-19 development programs, marketing programs and expenses related to share-based compensation, as just discussed. Net cash used in operating activities increased by $6.6 million compared with the first quarter of 2021. The increase was attributable to anticipation of revenues collection in the first quarter. Cash expenses in the second quarter were actually lower than in the first quarter. Net cash used in financing activities for the second quarter was approximately $1.8 million, comprised primarily of deferred payments with respect to Movantik acquisition in prior year. Through financial discipline, we have ended the quarter with a cash position of $71.5 million, which allows us to continue to drive our core business forward. I will now turn the discussion back to Dror.

Thank you, Micha. We are happy to take questions.

[Operator Instructions]. We're now taking our first question from the line of Ram Selvaraju at H.C. Wainwright.

This is Boobalan dialing in for Ram Selvaraju. The first one, last quarter, you mentioned about evaluating the clinical data from Cosmo's Phase 2 study involving rifamycin in IBS-D patients. So I'm just curious whether the analysis has been done and what would be the next possible steps.

Thank you, Boobalan. We're glad to have you with us. We are still evaluating the data together with our partners and friends at Cosmo.

Okay. That's understood. And with respect to your opaganib inclusion in the I-SPY COVID trial, so what are your thoughts and expectations? And assuming your ongoing Phase 2/3 study involving hospitalized COVID patients are positive, and what are the next steps for the upcoming 12 to 24 months?

The I-SPY BARDA funded study remains subject obviously to FDA clearance, just like any other study. We hope and expect that it will start soon. It's a parallel study. As we mentioned, we will be announcing the Phase 2/3 data soon. And we'll then evaluate what the next steps are. A lot depends on the data, not to say everything depends on the data. Because in our industry, data is key, and we plan on pursuing discussions with regulators, some of them ongoing, show them the data and hear them out and see what we do next. Everything depends on the data. The I-SPY BARDA funded study will go on. All goes well, regardless.

Along the lines, do you plan to study opaganib specifically in Delta variant infected patients in the future?

All data from variants tested with opaganib has been consistent and very encouraging including today's news about strong inhibition of the Delta variant. The assumption right now, the work or assumption here at RedHill is that all goes well and subject to regulatory discussions and approval eventually in the U.S. and elsewhere. We will follow the label that is dictated by the regulators. In our study, there were no subsets that we planned on. We treated everybody. When we started the study, there was no Delta or little Delta. Right now, it's mostly Delta in the U.S., but who knows where it is 6 months from now or 3 months from now. It could be a Lambda. It could be AY.3. It could be a lot of things. But I imagine that it's spreading across the U.S., which we are all following closely. And of course, the medical community is following closely. So the label will be dictated by the regulators. We have not planned for any narrowing down of the label for a specific variant if and when a label is granted.

Great. One final question from me. So if you could comment on the current status of RHB-104, that will be great. And do you plan to do a confirmatory Phase 3 trial in Crohn's disease patients and will it involve a partnership?

Yes. Great question. I'm really happy you asked about that. A confirmation Phase 3 study was planned all along and will be done. As far as next steps, we are making up our minds how that study should look like. We have some regulatory input where it should be conducted and how it should look. What I can tell you is that, right now, it seems that primary endpoint will be based on imaging because mucosal healing is the holy grail. And if we are able to show that RHB-104 is the first drug that shows primary endpoint met in a significant manner, statistically significant manner, we should be able to make a lot of health care providers and, of course, patients and their families happy about the prospect of this investigational drug. Again, everything remains subject to regulatory discussion.

We are now taking our next question from the line of Bert Hazlett at BTIG.

Yes. I've got just a couple more clarifying on opaganib. Is there a scenario where Phase 2/3 study results that are upcoming here in short order could actually lead to an EUA? And could you comment on the manufacturing status of opaganib just in that context? Then I've got 1 or 2 others.

Thank you, Bert. I'll refer this to Gilead.

Thank you, Dror. As mentioned, the key is the data from the study. The results of the study, the efficacy and safety across the various endpoints that are being evaluated will determine the next steps in terms of regulatory process, in terms of emergency use authorizations in the U.S. and in other territories. So that will be what we're looking out for. And in terms of manufacturing, I can say that because opaganib has the potential for broad utilization in the population and in the patients from mild to eventually mild but currently in severe patients, we are already deep in preparation to support scaled-up manufacturing that will support broad use.

And just one other on opaganib. Do you have any sense of timing with regard to data in terms of the I-SPY trial?

It's too early to say. We will be looking first for FDA clearance together with our intended partners at Quantum Leap and the I-SPY platform. Assuming this happens soon, we believe the study will commence very quickly and will enroll very quickly, because a study that is supported and conducted in conjunction with such a reputable and strong platform, the I-SPY platform of the Quantum Leap organization, and funded by very important arm of the U.S. government, by BARDA, is a study that health care providers, the prescribers, all the clinics that are being approached are likely to be -- to look at it favorably. It's not only RedHill, as a small company, conducting a study. This is a study that is on a different scale when it comes to who is backing it. So we cannot put time lines on it, but our belief is that the enrollment will be [finalized] once the study starts.

Okay. And just a question or 2 on R&D. The R&D spend picked up materially this quarter. I'm assuming, based on your comments, that was largely due to NTM -- the initiation of the NTM study. If there are additional elements there, could you just describe them and how we should think about R&D spend? And then second...

Bert, so this was a quarter that we had a lot of progress on our COVID-19 program, which obviously took most of the R&D investment. And as we mentioned also in the press release, we also had a significant investment in the RHB-204 for the NTM study.

That's helpful. And just a brief question on the prostate cancer data for opaganib as well. So does that create more enthusiasm with regard to your development in that indication? Should we expect additional investment there for opaganib in prostate cancer setting?

I refer this to Gilead.

Thank you, Dror. Yes, we are very pleased with where we are now in the study. The data is encouraging, preliminary, of course, and subject to further data gathering. Opaganib has been in development in the oncology indications for quite a while now, given all the supportive information that we have about its activity and signals of activity both in prostate cancer and what we saw previously in cholangiocarcinoma. So taken together, we are continuing to develop opaganib in the oncology arena and continue to follow up on the existing ongoing studies. And once we have full data, we will aim to announce those in scientific presentations and conferences. And based on the final data, we will take decisions on next steps.

We look forward to seeing the detail upcoming.

Thank you.

We are taking our next question from the line of David Hoang at SMBC.

Yes. So my first one is just on Talicia. As we head into the back half of the year, just wondering if you could comment on whether you think the major driver to seeing continued growth, is that more on continuing positive trends with the payor access or is it more with interaction between your sales force and prescribers as the -- as we get out of pandemic here?

Thank you, David. Not to forget, before I refer this to Rick, that it depends also, to a large extent, on the state of the pandemic. Pandemic is affecting drug launches. It affects the clinics, affects the patients, the diagnostic labs, everything that has to do with Talicia. Yet we are seeing healthy growth, regardless. I'll refer this to Rick and the team.

Yes. Thanks, Dror. It's a good question. I think if simply put, COVID has had a dampening effect on our ability to sell Talicia. Physician offices are closed. We see the lockdowns in the past. We are now at full sales force capacity. We have great payor coverage. We do anticipate the fourth quarter -- this quarter, third quarter and fourth quarter will be really good quarters for us. And all of this really hinges on COVID. So we have very good payor coverage. And our access right now to physicians is good, but that could change as COVID impact updates or gets worse or whatever. So that's the end of commentary for me, Dror.

Thank you, Rick.

Okay. Great. So I also had a question just on the -- I know you have another molecule, 107, that's being investigated for COVID. If I recall correctly there, that's more of a, I think, outpatient focused molecule. So I was just wondering, is the sort of the development plan here that opaganib is strictly going to be on the inpatient hospitalized side and the other molecule will be outpatient? Or is it there's more overlap between the eligible population for both products?

Thank you, David. It's a wonderful question. When COVID hit towards the spring or late winter 2020, all of us knew very little. RedHill is a small company, and we have to allocate our resources very carefully. The rational decision to do for opaganib was to go for hospitalized patients and not for non-hospitalized patients. Because non-hospitalized patients require an entirely different type of study. And because non-hospitalized patients mean the endpoints are very -- are different, relatively complicated to define. The costs of a study and monitoring patients outside clinical setting, again, complicates things. And the discussions with the regulators made very clear where the need is, which was severe patients, hospitalized, who are at very serious risk of deteriorating. So this is where we headed with opaganib. We tested both opaganib and RHB-107 against SARS-CoV-2, and both of them yielded very exciting inhibition results. 107, we went for the outpatient or non-hospitalized population because opaganib was already in non-hospitalized, because it is once daily, which is ideal for symptomatic patients who are not at a hospital or at home and because we managed to figure out how to monitor them properly at home. And this took time. It's very complicated. Very few companies are actually trying to do it. And I believe very few have managed to successfully do so. We commenced the study, the first patient in of the RHB-107 study was announced in February. So not that long ago. It's a U.S. study, but as Gilead said, we are expanding it to other places. And the beauty of having both opaganib and RHB-107, both of them are novel oral molecules that are expected to be effective against existing and emerging variants, because both act on the host cell as opposed to directly on the virus. The…

Yes, certainly. Thanks so much for taking the questions and the really detailed response and all the color. Super helpful. And looking forward to seeing the data soon.

We are now taking our next question from the line of Matt Kaplan at Ladenburg Thalmann.

Just wanted to zero in on the opaganib Phase 2/3 trial. Can you give us a sense in terms of how long it's going to take to crunch the data now that everyone is -- the major parts of the trial are complete and how soon we should get the data?

Thank you, Matt. It's an important question. We have stated in our filings and also repeatedly today, that the data is upcoming, and we will keep it at that.

Okay. Fair enough. And then with respect to the Phase 2/3 trial, can you give us a sense in terms of the primary endpoint and some of the secondary endpoints in these severe patients? Your powering assumptions and in terms of patients -- proportion of the patients reaching room air by day 14. How should we think about that as the data is upcoming?

Thank you, Matt. I'll refer this to Gilead.

Thanks, Dror. So Matt, we powered the Phase 2/3 global study for the primary endpoint for reaching room air by day 14 based on what we already saw from the Phase 2 study in the U.S. where we saw a difference of 50% versus 22% in the U.S. Phase 2 study. We took a conservative powering approach and looked for a 15% delta in that -- in the Phase 2/3 study globally. And that's how we arrived at the study size that we completed of 475 patients. So that covers the primary endpoint. And we also are looking for additional secondary endpoints, which are clinically meaningful and important, of course, and those include mortality and intubation and other clinical outcomes that are being captured in the global Phase 2/3 study.

Okay. That's very helpful, Gilead. And then in terms of the next steps for the prostate cancer program, can you give us a sense now that you've -- I guess, the Phase 2 met its primary endpoint. What are you thinking in terms of the continued development there for opaganib?

Thank you, Matt. Glad you asked. We are very excited about this study. It's conducted at the American University of South Carolina. Phase 2 data with a novel molecule in prostate cancer is something that a lot of people are looking at. We as a company are very excited about. We know a lot about opaganib in oncology, be it cholangiocarcinoma, prostate cancer and other indications. And the plan is to complete the analysis, the review, everything that needs to be completed. We are looking to present it at a major oncology conference the way Gilead described, and take it from there. I have to say there is several possibilities here, including pharma partnerships or we continue it alone. Either way, it's fine with us. The more we learn about opaganib's promise in various indications, including oncology, including specifically prostate cancer, the more excited we get about the prospect of helping patients. I will also remind that we have been supplying opaganib to numerous oncology patients on a compassionate use basis subject to regulatory exemption in the U.S. and elsewhere. So it's not as if we are starting from scratch when it comes to our experience with compassionate use, with actual use both in the studies and outside the study subject to the regulatory exemption.

Okay. And then 2 more questions, one on pipeline and one on commercial. RHB-204 progress in the Phase 3 for NTM. You mentioned that enrollment has continued to be slow. Can you give us a sense in terms of what your thoughts are for the time line for that program kind of going forward as hopefully some enrollment picks up?

Thank you. Yes, COVID has been harsh on enrollment, especially in respiratory indications and studies in respiratory indications. And yes, our enrollment has been slow. However, we have already activated many sites. We are confident that enrollment will continue to pick up especially as the COVID situation clears gradually over time. And even if it stays, both ourselves and the sites learn to live with it and conduct the study to the best of our ability regardless. Time line, it's too early to say. Initially, we estimated about 1 year for enrollment to last patients out. But right now, given COVID, it changes so fast, so it's better to park it and maybe discuss during the next earnings call.

Okay. Fair enough. And then last question. Congratulations on the record revenues for the quarter. Can you give us a breakdown of the Movantik and Talicia revenues for the quarter?

Yes, sure. So the great majority of the revenues are with Movantik, obviously. And we have, obviously, Talicia as well with some additional revenues for Aemcolo. But the great majority is with Movantik.

And Movantik is about 90%.

We are now taking our next question from the line of Scott Henry at ROTH Capital.

Just a couple questions. First, on the R&D spend. I understand why it was high in 2Q, but it looks like it was about $7.5 million in Q1 and $10.3 million in Q2. When we think about the second half of the year, do you think it will look more like Q1 or Q2?

We refer this to Micha.

This is a good question. And I believe it will be somewhere between Q1 and Q2. So I would expect lower expenses than Q2, but it could be in the level or a little bit higher than Q1.

Okay. Fair enough. And then G&A also jumped in 2Q from $7.1 million to $10.2 million. Were there any onetime events there? Or -- just trying to get a sense of why the number was so high in 2Q?

Yes. So as you can see, we have substantial expenses there from a onetime option pricing. We did an option -- stock option exchange, which created onetime significant expenses, which are not expected to repeat in the future. This was the majority of the increase in expenses.

Okay. So we should expect that to kind of revert back to that Q1 level? Is that fair?

Yes. This is fair to say.

Okay. Great. And then just -- you made the comment that you expect commercial operations to be breakeven by the end of 2021. Now I mean, that always depends how one defines commercial operations. Typically, I would think of that meaning gross profit greater than selling expenses and G&A and just pulling R&D out of that equation. But it sounds like maybe are you also allocating some of your G&A out of the commercial operations? Or do you think that gross profit can be higher than G&A and selling expenses combined? And maybe you're pulling some selling expenses out as well. I just wanted clarity, if I could.

Yes. We are taking into account all the commercial expenses -- the relevant commercial expenses, which including also some of the G&A, obviously, includes the sales and marketing and not including the R&D. And we are basing it on a non-GAAP basis. So also not taking into account share-based compensation and other elements, which are non-GAAP. So -- and obviously, we are talking about the latest portion of the year. So this is our plan.

Okay. So your -- basically, you want to exit Q4 with commercial operations positive, as defined by your prior comments? Okay. That is helpful. And then just a couple of quick clarification questions on the opaganib program in -- Dror, I don't know if you want to answer this or not, but I mean you've used words like shortly and upcoming for the data presentation. I'm not going to pin you down, but would you expect that data by the end of September, by the end of the third quarter? I mean, that would typically be a safe assumption, but I thought I'd give you a chance to confirm that.

Yes, absolutely. There's nobody that wants to announce the data more than the team here with us right here. So we will make sure that the upcoming results reach the market as soon as possible. And yes, to answer your question, certainly, before the date that you mentioned.

Okay. And then just the final question, which I know you've kind of been asked this from a couple of different angles. But I just wanted to get your take on if the data is statistically significant and strongly significant. With regards to the U.S. market, you've kind of said on one hand that the ability to file will depend on the data, but then in the press release, it specifically says that the FDA has indicated we will need to complete additional studies. My question is, is the language in the press release, is that firm? Is it definitely you will need to do additional studies in the U.S.? Or is that always up to interpretation of the final data set?

It's a very important point you raised. Everything that is stated is carefully worded up to the letter. This is exactly where we are with FDA. And our consultants who are ex-FDA and other experts are very clear that the data will dictate everything. Now this is correct not only for the U.S. but ex U.S. as well. I remind you that the vast majority of the market is outside the U.S. including Europe and many other countries. The disease is hitting right now pretty much everywhere. And we plan to evaluate the data with the regulators outside the U.S. as well as the FDA once it's available.

There are no more questions on the line. I will hand it over back to Dror for closing remarks.

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

That concludes the call for today. Thank you for participating. You may all disconnect.