RedHill Biopharma Ltd. (Nasdaq: RDHL); TASE: RDHL) is traded on NASDAQ and on the Tel Aviv Stock Exchange with market cap of $141 million. The company develops drugs on two tracks: the first consists of new formulas for existing generic drugs and the second involves developing a combination of existing generic drugs for new applications. RedHill proved the viability of its model by receiving marketing authorization for a migraine pill from the European Medicines Agency in 2015.
The US pharma market has been infused with negative sentiment in the past few months, due to growing competition in the generic drugs market and statements made by US presidential nominees regarding drug prices. At the same time, we still believe in this sector and in its capability to boost profitability levels, mainly in the ethical (original) drug market, which is significantly more profitable and naturally has lower competition early on.
We estimate that finding cheaply priced companies at the final stages of receiving regulatory authorization for branded drugs could provide the investor with the most significant profit since the shift from a company undergoing development, which by definition 'burns' money, to a company which is already selling, presents the most significant leap in value.
We will focus on three of the company's development programs, which we believe to have the largest commercial potential for RedHill.
RHB-105: treatment against gastric bacteria ( Helicobacter pylori ) , a risk factor for gastritis and duodenitis, which contribute to the development of ulcers and gastric cancer. Existing treatments, antibiotics combined with gastric acid neutralization treatment, are not effective enough.
RHB-105 is a pill combining three generic drugs two types of antibiotics and a drug neutralizing gastric acid. The combination is unique to RedHill and constitutes a clear advantage. A phase III trial showed that the 89.4% of bacteria were eradicated, compared with 70% in historical studies using existing treatments. We believe that the trial's chances of succeeding are very high and that the capsule has a market potential of over $1 billion.
RHB-104: an antibiotics cocktail which eradicates MAP bacteria, potentially responsible for the inflammatory gastric Crohn's Disease. We believe that chances of success are lower than those of RHB-105, but the market penetration potential is excellent, since this is a new treatment approach, compared with existing treatments with relatively severe side effects.
RHB-102: molecule used to prevent vomiting in chemotherapy and irritable bowel syndrome patients. The treatment is in phase II trials and it is still early to provide success forecasts.
Overall, the annual market sales potential of these molecules constitutes hundreds of millions of dollars, significantly exceeding RedHill's market value. We believe that RedHill is on the verge of a potential breakthrough.
Dr. Zeev Zak is head of Rosario's Capital Bio-Med Department.
Published by Globes [online], Israel business news - www.globes-online.com - on July 12, 2016
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