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