Redhill Biopharma Ltd (RDHL) 2021 Q3 法說會逐字稿

Good day, and thank you for standing by. Welcome to the RedHill Biopharma's Third Quarter 2021 Results Financial 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; 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; Bob Gilkin, Senior VP, Market Access and Trade Relations; and Dr. June Almenoff, Chief Medical Officer. Before we begin, we will read from RedHill's safe harbor statement. Please go ahead.

Thank you, Brian. 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, planning 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.

Thank you, Alexandra. Good day, everyone, and thank you for joining our third quarter earnings call. Today, we will be presenting detailed R&D, commercial and financial highlights. In light of the recent emergence of the Omicron variant and the risk presented by future variants of concern, we will elaborate on RedHill's strategy with opaganib and RHB-107 and their increasingly relevant mechanisms of action, potential against the emerging variants.

Our U.S. commercial business continues to drive growth, triggering a second consecutive quarterly net revenue record of $21.6 million despite continuously challenging pandemic environment. Talicia generated another record quarter with 15% growth in new prescriptions, while Movantik continues to perform, adding a 1.1% increase to new prescriptions. Both products are also continuing to make strides in gaining both commercial and government formulary coverage. Rob Jackson, who is heading our marketing and sales, will further elaborate shortly.

Turning to R&D. Given the recent emergence of the heavily mutated Omicron, or South African variant, as well as likely emergence of other variants of concern over time. The importance of drug candidates that independently of the viral spike protein is growing. This makes both opaganib and RHB-107's host targeted mechanism of action and expected maintenance of effect against new variants, increasingly more relevant in the battle against COVID-19.

The third quarter saw a significant focus on completing opaganib global Phase II/III COVID-19 study in hospitalized patients. Specifically, in the currently underserved hospitalized moderately severe patient group, which the Pfizer and Merck pills do not address, a subpopulation comprising more than 50% of our total study population, opaganib demonstrated a 62% reduction in mortality as well as improved return to room air and earlier hospital discharge. This is consistent with what we have seen in our Phase II study and compassionate use experience. The consistency across multiple endpoints and territories provide us with a high degree of confidence in the results showing opaganib's effect in this patient population.

We have now provided regulators in various countries with robust data packages to facilitate discussions on next steps, and we'll continue to provide data to regulators in additional countries. Expedited review of the opaganib data has already been granted by EMA, the European Union's regulatory body equivalent to the FDA in the United States.

In parallel, we continue to progress our Phase II/III program in nonhospitalized patients in the United States and South Africa with our other novel once-daily oral COVID-19 drug candidate, RHB-107 with Part A top line results expected in the first quarter of 2022. Gilead, our Chief Operating Officer, will elaborate about the status of our COVID-19 program shortly.

Our Phase III study of RHB-204 in pulmonary NTM disease continues to enroll patients in the United States. Importantly, progress with Phase III stage RHB-104 for Crohn's disease is expected to speed up thanks to a recent much-awaited potential progress in Mycobacterium avium subspecies paratuberculosis, or in short MAP, detection research. We are very excited about that.

With steep reduction in quarterly operating and net loss, a quarterly record gross profit of $12.4 million with improved gross margin from net revenues and a potential commercial non-GAAP EBITDA breakeven before the end of the year, along with advanced exciting and timely R&D pipeline, we are well positioned for short, medium and long-term success as an emerging specialty pharma company.

Before turning to our Chief Business Officer, Guy Goldberg, and the rest of the team for our presentation, please remember to press the link in order to view our detailed slides to be followed by a Q&A session.

Thank you, Dror. As we near the end of the year, RedHill is at a very important point. I will start with the bottom of the slide. Focusing on RedHill's pandemic program with Omicron and the potential for future variants dominating the attention of public health officials, what they have been saying loud and clear is that a simple, scalable, effective and safe therapeutic is best certainly needed. As we all know, the hope that a vaccine alone will get us out of this pandemic will most likely not become reality. RedHill is uniquely positioned to make a difference with its 2 oral COVID vaccine -- sorry, 2 oral COVID therapeutic candidates.

First opaganib, our novel orally administered first-in-class SK2 inhibitor addressing the moderately severe inpatient hospitalized population with its method of action targeting the host cell rather than working on the virus directly, which we believe we can cast a wider net of efficacy against emerging variants such as the Omicron variant. We have conducted 2 critical studies, a Phase II and a Phase II/III study in hospitalized COVID patients, both demonstrating the potential of opaganib, and Gilead will provide more detail on the Phase II/III study that is the focus of our submissions in several countries around the world. These submissions open up a potentially milestone-rich upcoming few months as we get feedback from these regulatory agencies as far as next steps. Gilead will also provide important new updates later in the presentation of time lines for regulatory feedback as well as new biomarker data and support that our post-hoc analysis has identified the correct target population for opaganib.

Second, we have RHB-107, or upamostat, an orally administered inhibitor, a best one family of trypsin-like serine proteases being developed as a treatment for nonhospitalized COVID patients. Upamostat is demonstrated potent inhibition of SARS-CoV-2 viral replication in preclinical model of human bronchial tissue. And as a result of prior development in a number of indications in several clinical studies, we also have a clinical safety profile from approximately 200 patients. We are conducting a Phase II/III study in nonhospitalized COVID-19 patients in U.S. and South Africa, and we have completed recruitment for Part A of the study and expect top line results in Q1 2022. Importantly, RHB-107 is also a once-daily oral pill and is also host-mediated, which means that it could -- should also potentially work against various mutations such as Omicron. Also, importantly, patients in this study are tested for specific viral strain.

Returning now to the top part of the slide in our financial highlights from Q3. On the commercial side, we generated record quarterly revenues despite industry-wide challenges, and we believe we will see growth throughout the end of the year and into next year. As a small company, we continue to stand the test of the pandemic and prove we are a resilient organization. So this year generated 15% quarter-over-quarter growth. Commercial coverage continues to improve, and we continue to achieve important launch milestones that will be covered later in the presentation.

We believe Talicia has enormous potential both for patients and as a value driver for RedHill as a company. As we double all launches, especially during these challenging times, we continue to advise that it takes time to build awareness and acceptance both with payers and also with physicians. With Movantik, we continue to maintain our market leader position. Movantik is well liked by physicians with it's great reimbursement, great efficacy and safety and great brand recognition satisfaction. There's still a very large and underserved OIC patient population, and RedHill continues to improve Movantik status of best unrestricted coverage in the PAMORA class. Finally, we maintained a cash position of $51.5 million as of September 30 to support our R&D and commercial efforts.

I would like to provide a brief overview of RedHill to those new to the story who may be on our call today. RedHill is a fully integrated specialty biopharmaceutical company focused on gastrointestinal and infectious diseases with a robust pipeline of drugs in a world-class commercial operation run out of our headquarters, U.S. headquarters in Raleigh, North Carolina. At the top of the slide, you see the 3 FDA-approved drugs we promote: Movantik for opioid-inducted constipation; Talicia for H. pylori infection; and Aemcolo for travelers' diarrhea caused by noninvasive strains of E. coli. Rob Jackson, our Senior VP for Marketing and Sales, will be going into detail in the commercial efforts.

The second part of the slide shows the multiple late-stage programs in development, addressing important unmet medical needs. Gilead Raday, our Chief Operating Officer, will review our 2 COVID programs that I just mentioned. I will then provide an update on RHB-204 for NTM disease and RHB-104 for Crohn's disease. I will now turn it over to Gilead.

Thank you, Guy. In the following slides, I will provide an overview of our advanced COVID-19 programs, specifically with respect to the promise for addressing the Omicron variant and the growing concerns due to potential emergence of resistance to current vaccines and antibodies. I will also provide further data and analyses from the global Phase II/III study, some of which has not been shared before, which bolster our previous reporting of an apparent meaningful benefit of opaganib to the survival of moderately severe hospitalized COVID-19 patients.

As a reminder, opaganib is an oral pill, which is a first-in-class proprietary selective sphingosine kinase-2 inhibitor. Through inhibiting this host factor enzyme, opaganib exerts a dual action against COVID-19, inhibiting viral replication, on the one hand, and reducing the body's excess immune response to the infection on the other hand. Preclinical efficacy has been demonstrated in numerous anti-inflammatory and antiviral models, including demonstrating the blocking of SARS-CoV-2 viral replication across several variants in human bronchial tissue. Multiple Phase II studies in compassionate use in COVID and non-COVID indications have shown promising signals of activity and safety in hospitalized patients.

The recently completed global Phase II/III study in COVID-19 showed opaganib's apparent benefit to the survival of hospitalized COVID-19 patients in moderately severe condition. These are patients with COVID-19 pneumonia who require supplemental oxygen of up to 60% fraction of inspired oxygen, or FiO2 in short. These patients represent a large underserved COVID-19 patient population, which the Pfizer and Merck pills do not address. The hospitalized patient population that opaganib benefited in the study was far more advanced in disease progression than the early-stage outpatients, which participated in the Pfizer and Merck studies. Opaganib benefited the population of hospitalized patients in moderately severe condition with a median of 11 days from the onset of symptoms, while the Pfizer and Merck studies were limited to outpatients with a maximum duration of 5 days from onset of symptoms. This distinguishes opaganib as a potential game changer for advanced COVID-19 patients who are at a high risk of dying from their condition and are already well beyond the realm that the Pfizer and Merck pills can target.

Importantly, opaganib's mechanism of action is independent of the Omicron variant spike protein mutations, which are raising global concerns regarding its potential to evade vaccines and antibodies. Opaganib's antiviral effect is on the intracellular process of viral replication at the replication transcription complex. This takes place downstream from the viral attachment to the cell membrane and viral entry into the cell. As such, opaganib's activity, which blocks the replication of the virus inside the cells, isn't impacted by changes in the viral envelope. Specifically, changes in the spike protein are of no direct consequence to opaganib's pathway. Opaganib's proposed antiviral activity is hence expected to be fully maintained against the Omicron variant, and also against other future foreseeable spike protein variants of concern.

In a similar fashion, opaganib's proposed anti-inflammatory activity is also independent of Omicron variant's spike protein mutations. The reduction in inflammation due to opaganib inhibition of SK2 is not directly related to the SARS-CoV-2 virus, but rather to the body's immune responses. As such, opaganib's anti-inflammatory activity is also expected to be fully maintained against the Omicron variant and against other potentially emerging variants of concern. Opaganib's capacity to work against Omicron and other future variants through both its antiviral and its anti-inflammatory mode of action position it in a unique and high priority potential COVID-19 therapy potential.

The reason we are excited about opaganib's potential central role in treating COVID-19 and is the apparent benefit of opaganib in reducing mortality of advanced hospitalized COVID-19 patients in moderately severe condition. Patients requiring a level of oxygen supplementation of up to 60% fraction of inspired oxygen, or FiO2.

In our global Phase II/III study, this patient population consisting of 251 subjects showed a significant 62% reduction in mortality events when treated with opaganib with a nominal p-value of 0.019. The mortality rate in the control arm was 15.7%, indicative of the high risk of such patients dying due to the serious condition they were in. Treatments of these patients with opaganib reduced the mortality risk to 6%, a very meaningful potential to save lives. The Kaplan-Meier curve of time to mortality events in this hospitalized patient population show a clear separation beginning from a few days after treatment initiation and carried through to the end of the follow-up period at day 42.

Supporting the critically important benefit to the survival of patients, additional key clinical outcomes showed a consistent benefit of opaganib for this patient population. 76.9% of opaganib-treated patients were weaned from their oxygen support and were able to breathe room air by day 14 versus 63.4% for placebo, an efficacy benefit with nominal p-value of 0.033. Consistent with these findings, other key secondary endpoints also showed an apparent benefit of opaganib in this hospitalized patient population with nominally significant p-values. A clinical improvement of 2 or more points on the WHO ordinal scale by day 14 showed a meaningful difference with approximately 80% clinical improvements in the opaganib-treated arm versus 66% in the control arm with nominal p-value of 0.023.

Similarly, the time to clinical improvement down to a score of 3 or lower from a baseline score of 5 on the WHO ordinal scale was shorter for patients treated with opaganib with a median of 8 days versus 10 days and a p-value of 0.01. Patients treated with opaganib are also discharged earlier from hospital with a mean difference of approximately 4.5 fewer days in hospital with a nominal p-value of 0.022. The consistency of opaganib's benefits across the various clinical outcomes evaluated strengthens the inference that the clinical benefit is not a one-off statistical finding as a result of a specific measurement.

Further supporting the apparent overall benefit to survival, opaganib's benefit in this population of patients was consistent across the territories participating in the study in Europe, Latin America, Israel and Russia, demonstrating that the survival benefit was not driven by any territorial outliers. To ensure that the clinical benefit is not a result of potentially confounding risk factors, a comprehensive analysis of the potential confounders was conducted. As can be seen, an exhaustive list of such potential confounders was analyzed. This analysis demonstrated clearly that the survival benefit remains consistent and high within a range of 59% to 66% survival benefit, irrespective of potentially confounding risk factors, including such major known factors such as age, sex, diabetes, BMI or use of dexamethasone as underlying standard of care.

A recent analysis of the inflammatory biomarkers of the opaganib study subjects, which we are sharing publicly today for the first time, further substantiates and supports the utility of FiO2 as a valuable indicator of COVID-19 disease severity and also as a potential predictor of a treatment benefit with opaganib in this target population of hospitalized patients. This table shows that known and accepted disease severity indicating markers such as CRP, lymphocyte counts and D-Dimer are in close correlation and agreement with FiO2. This demonstrates with very significant nominal p-values as shown in the rightmost column, that the group of patients characterized as requiring lower FiO2 at baseline, that is up to 60% FiO2, are indeed a distinct group of hospitalized patients exhibiting lower levels of severity markets than those patients that required higher than 60% FiO2 oxygen at baseline.

This recent analysis that was not previously publicly announced further supports the overall framework of the FiO2 based analysis of study outcomes. It supports using FiO2 as an indicator of disease severity and as a potential identifier of the patient population that stands the best chance of significantly benefiting from being treated with opaganib.

The analysis of safety outcomes shows that safety events in the study were similar between treatment arms with no new safety concerns emerging. The majority of the TEAEs were a mild to moderate in severity. Serious TEAEs were experienced by 52 out of 230 patients in the opaganib arm versus 52 out of 233 patients in the placebo arm, similar ratios. TEAEs with an outcome of death occurred in 15.7% versus 17.2% in the opaganib and placebo arms, respectively. The excellent safety results support the overall risk-benefit evaluation of opaganib in this patient population and is expected to be an important component in regulatory considerations going forward.

Acknowledging that the analysis of the study that demonstrates the apparent benefit for the moderately severe patient population was conducted post-hoc, it is important to clarify why we have a high degree of confidence that this outcome is not a statistical artifact, inferring that opaganib may indeed be effective in this population. The framework of the post-hoc analysis, which identified a subpopulation showing a meaningful benefit when treated with opaganib, is strongly supported by the following aspects. FiO2, which is a parameter used to identify the subpopulation is a clinically and medically relevant parameter for capturing oxygen requirements of patients and for indicating disease severity. This conjecture is now strongly supported by the correlation of FiO2 with known and accepted inflammatory biomarkers of disease severity.

Consistency of opaganib's apparent benefits across the different clinical endpoints strengthens the likelihood that the outcome of any one particular end point is not a statistical artifact. The consistency of opaganib apparent benefit across the study territories provides additional support showing that the effects seen are not driven by any particular territorial outline.

Further, while not shown in this presentation, we also tested the consistency of opaganib's apparent benefit using different oxygen supplementation cutoff points, for example, FiO2 of 50% instead of 60%. This analysis confirmed that the benefit for the lower oxygen supplementation patients, which reflects lower severity of patients, is maintained irrespective of the precise cutoff point selected, again, reducing the likelihood that the analysis is a statistical artifact and supporting the assertion that there's a correlative relationship between lower severity of disease and opaganib's capacity to benefit the patients.

Finally, as presented earlier, opaganib's apparent benefit is not dependent on baseline risk factors or potential confounders, showing that opaganib is the likely factor underlying the differences in outcomes for the treated patients. Given all this, despite the analysis being post hoc, the thoroughness of this analysis provides a high degree of confidence that the apparent benefit is not a statistical artifact and that opaganib may be safe and effective in this underserved hospitalized COVID-19 patient population. The resurgence of concerns that Omicron variant might show resistance to vaccines and antibodies further highlights the urgency and the potential advantages of opaganib's potential effectiveness against such variants.

To update on the regulatory status. We have filed opaganib data package in key territories worldwide and continue to file in additional countries. We are anticipating regulatory guidance for next steps in the targeted hospitalized COVID-19 patients population, where there is no currently effective treatment. Europe's EMA has indicated rapid procedure time lines with preliminary feedback expected by year-end. Preliminary feedback from the U.S. FDA is expected in January 2022. Additional territories pursued are the U.K., Russia, Brazil, Israel, Switzerland, Colombia, India and South Africa.

We are also making plans for a confirmatory study with opaganib in the targeted moderately severe hospitalized patients. Subject to regulatory feedback, we will consider shifting from the current standard severity classification based on the World Health Organization ordinal scale, which utilizes the type of oxygen delivery device to defining COVID-19 pneumonia severity using FiO2 as the key parameter.

Moving over to a quick update on RHB-107, or upamostat, our second COVID-19 novel oral pill program that is currently being evaluated in a Phase II/III study in nonhospitalized COVID-19 patients in the U.S. and in South Africa. RHB-107 is a once-daily oral capsule given early in the course of the disease to outpatients. It targets serine proteases, which are human enzymes that are involved in facilitating the entry of SARS-CoV-2 into target cells. The clearing of the spike protein by these host human serine proteases is a necessary step in viral attachment and entry into the cells, which is independent of the mutations observed in the Omicron variant that are altering the spike protein antigenic properties.

As such, RHB-107 is expected to be insensitive to mutations in spike protein given its host mediated mechanism of action. RHB-107 has demonstrated inhibition of SARS-CoV-2 viral replication in preclinical models of human bronchial tissue and is currently being evaluated in outpatients with symptomatic COVID-19 in the U.S. and South Africa. Recruitment for Part A of the study has been completed and top line readout is expected in Q1 2022. We plan to also analyze variants and will plan to include the Omicron variant of concern in the study analysis going forward. I will now turn it back to Guy Goldberg for reviewing additional R&D programs that are not COVID-related.

Thanks, Gilead. So we'll start with RHB-204. RHB-204 is a novel combination therapy of 3 antibiotic drugs that are active against nontuberculous mycobacterial infection, or NTM disease. We are currently in a Phase III study as a first-line therapy. This is important and it's a value-driving study because NTM is the difficult-to-treat infection with no FDA-approved first-line standard of care treatment. In addition, this is an orphan disease with an estimated 110,000 pulmonary NTM patients in the United States. RHB-204 has been granted orphan drug designation, qualified infectious disease product designation and Fast Track designation. With these designations, it is eligible for prior year review of NDA and 12 years of market exclusivity.

This slide shows the study design. We are testing RHB-204 as a potential first-line stand-alone oral therapy. The randomized, placebo-controlled Phase III study is planned to enroll 125 subjects. The key study end points of sputum culture conversion and patient-reported critical outcomes will be evaluated at month 6 with longer-term follow-up, including the post-treatment maintenance of conversion. An important recent change is that we added an interim sample size we estimate at approximately 50% enrollment. In addition, to accelerate recruitment, we are planning to expand the study to additional territories outside the United States including the U.K. and Japan.

I will now provide an update on RHB-104, our innovative treatment for Crohn's disease. As Dror mentioned, based on recent published research, potential progress in Mycobacterium avium paratuberculosis, or MAP, diagnostic technology may enable us to advance the program towards a confirmatory study and MAP positive moderate severe Crohn's patients subject, of course, to required regulatory input.

As a reminder about this program, there is growing evidence that intracellular mycobacteria play a crucial role in Crohn's disease. Investigators have specifically identified MAP as a putative cause of the disease. Testing this theory, we conducted a Phase III study in Crohn's disease that successfully met our primary and key secondary endpoints, including remission of 26 weeks, response at week 26 early remission at week 16, durability, maintenance and others. Overall, RHB-104 demonstrated meaningful, consistent and statistically significant critical activity. In addition, the parent benefit in patients with concomitant anti-TNF use indicates that RHB-104 can potentially be used effectively and safely as an adjunct treatment to other standard of care medications.

Since we completed the Phase III study, there's been a lot of work by us and others on a companion diagnostic to identify MAC infection. It is not an easy thing to do. However, we believe based on recent public research that there may be progress, and we will have an update for investors as soon as we can validate the method. If there is a successful diagnostic, we envision conducting an additional confirmatory clinical study with entry criteria being MAC-positive status and the primary endpoint, including mucosal healing. We will, of course, need FDA feedback. However, we envision that such a study could be relatively small, perhaps 100 to 150 patients. Crohn's disease is a large multibillion-dollar market with a large unmet medical need due to the limited benefit of monoclonal antibody therapy and other immune suppressing drugs and safety-related issues to those treatments. I will now turn it over to Rob to walk through our commercial progress.

Thank you, Guy, and good morning. Over the next few minutes, I'm going to summarize the excellent progress we made during the third quarter in our sales, marketing and market access activities so you can understand how we have developed our business and why we feel increasingly confident about the fourth quarter in 2022.

In the third quarter, RedHill achieved record quarterly prescription volume for Talicia, despite the continuously challenging pandemic environment. Talicia prescription volume grew by 117% over Q3 2020 and by 15%, a 5-point improvement over the second quarter growth rate of 10%. Simultaneously, we added growth for Movantik over second quarter of 2021. RedHill continues to maintain clear market leadership of the PAMORA class, and we are confident in our ability to capitalize on an improving selling environment during the fourth quarter.

In the second quarter, RedHill grew Movantik volume by 5.6% over first quarter of 2021, and we added an additional 1% growth in third quarter. We achieved this by taking a disciplined approach to focusing on the pain segment. In tandem, we're also executing marketing strategies that focus on growing the PAMORA market. This is a key objective for Movantik as the established market leader. We have invested heavily in digital marketing tactics to first raise opioid-induced constipation awareness with patients and prescribers; and secondly, to educate these potential customers about how Movantik can help provide relief from the symptoms of OIC. During the third quarter, we also achieved significant market access successes with key payers that we believe will yield further growth from Movantik during the fourth quarter in 2022.

A key predictor of the health of the OIC market is the growth or decline in the rate of opioid prescribing. As you can see here, opioid prescribing continues to stabilize during 2021, a major improvement over the declining trend that began way back in 2012. There is a very strong correlation between opioid prescribing and Movantik volume, and a stable opioid prescribing trend provides support from Movantik in the entire PAMORA class.

On this next slide, you can clearly see that 2 other things are happening. First, prescribing volume in the PAMORA class is stabilizing, similar to what we're seeing in the opioid class, and this is a good sign for Movantik. Second, we can see a shift in PAMORA prescribing trends with the class beginning to return to growth. This is a significant change for the PAMORA class. And on a moving annual total basis, PAMORA prescribing volume bottomed out in June and has remained steady or improved slightly since then. Again, this is a very good sign for Movantik business and reflects our efforts and investments as the market leader to return the PAMORA class to growth.

In summary, Movantik continues to achieve new milestones. Over 2.5 million prescriptions have been dispensed since launch. Overall, Movantik has achieved about 90% commercial coverage across all payers, and new prescriptions in total writers both increased year-on-year during third quarter of 2021.

Simultaneously, Talicia continued to achieve new milestones as well. And in third quarter, Talicia achieved its best ever performance in terms of prescription volume growth. Talicia achieved a new high in commercial payer coverage and Talicia also achieved further improvements in customer access, which, in turn, enabled greater trial and usage of the brand. Given what we have seen so far this quarter, we expect that this trend will accelerate in the fourth quarter.

In the third quarter, Talicia achieved 15% growth, and we are optimistic this growth will accelerate. As recent payer wins take effect, new payer wins come to fruition and field execution continues to improve. Antimicrobial stewardship is an important issue. And when the most effective antibiotics are used for a side, they provide the best chance for cure while eliminating the need for second, third and even fourth lines of treatments. These growing realizations among the prescriber community are enabling Talicia to achieve record performance in third quarter for weekly, monthly and quarterly volume. And in the fourth quarter, we'll continue to increase our focus on Talicia and expect to further accelerate our growth heading into 2022.

On the payer front, our market access team has continued to improve our very competitive position with commercial payers. Additionally, Talicia was recently awarded a very significant contract by Medi-Cal, the California State Medicaid program. Effective January 1, 2022, Talicia will be available to 14 million Medi-Cal beneficiaries as a preferred brand with no restrictions when all managed Medicaid plans will follow the state contract drug list. We are confident this will accelerate Talicia uptake in what is the second largest individual state in the country for H. pylori infections and treatments. This is another clear sign that prescribers increasingly recognize, first, the challenges of clarithromycin resistance that were clearly outlined by the American College of Gastroenterology's 2017 guidelines, and secondly, the pitfalls of continuing to persist with using clarithromycin-based therapy as a first-line agent of choice.

I want to reiterate that this brand continues to achieve new milestones. Again, we had record weekly, monthly and quarterly prescription volume. We expect that, that's going to continue into next year and certainly in the fourth quarter. We had our highest levels of commercial and government coverage and we recently had the unrestricted Medi-Cal win as well. And lastly, we achieved 117% prescription volume growth over third quarter of 2020 with Talicia.

We also continue to promote Aemcolo to consumers, PCPs and gastroenterologists. The COVID-19 pandemic has obviously had a very negative impact on international travel, especially nonessential travel outside of the continental United States, where traveler's diarrhea risk is greatest. Our midterm expectations for Aemcolo are tempered by this reality.

In summary, we finished the third quarter with a consistent and growing trend of Talicia growth. We achieved numerous commercial milestones for Talicia and, as the market leader in the PAMORA class, we demonstrated our ability to continue to grow new Movantik prescriptions, stabilized prescription volume in the PAMORA class and further improve on our already strong Movantik payer coverage. We're looking forward to further improving our performance in the fourth quarter in 2022. Thank you for your time, and I'll turn the call back to our CFO, Micha Ben-Chorin.

Thank you, Rob. Good morning, good afternoon. I will provide short financial summary of the quarter. RedHill is executing on a consistent growth and value creation strategy, enabling us to be near quarterly commercial non-GAAP EBITDA breakeven by the end of this year. We have achieved another quarterly record of net revenues and gross profit accompanied by a reduction in operating and net loss. Our cash balance of $51.5 million as of September 30, 2021, has been supplemented by more than $20 million in equity financing during this month of November.

Net revenues were $21.6 million for the third quarter of 2021, a second consecutive quarter of record net revenues attributable to an increase in revenues from both Talicia and Movantik, as shown by Rob. The record net revenues also contributed a quarterly record gross profit of $12.4 million, an increase of 14% from previous quarter, which represents 57% gross margin from net revenues compared with 51% in the previous quarter.

On the expenses side, we had substantially lower expenses in the third quarter during the second quarter, $29.8 million compared with $35.8 million mainly attributable to the completion of our global COVID-19 Phase II/III study with opaganib. Operating loss was approximately $17.4 million compared with $24.9 million in the previous quarter, a decrease of 30%, which was mainly attributable to increasing revenues, increasing gross profit, completion of our great majority of our COVID-19 programs and reduction in share-based compensation expenses.

Net cash used in operating activities was approximately $19 million for the third quarter of 2021, similar to the second quarter of 2021. We have ended the quarter well positioned for potential quarterly commercial non-GAAP EBITDA breakeven by the end of this year. I will now turn it over to Dror for Q&A.

(Operator Instructions) And your first question comes from the line of Brandon Folkes from Cantor Fitzgerald.

Congratulations on all the progress in both the pipeline and the commercial front. Maybe just firstly on opaganib. I appreciate all the additional data there. Should we think about the EMA as being the most receptive? And potentially -- I know you said we're going to expect feedback from them first. Is that indicative of -- that opaganib is probably going to be in the lead in the EMA versus the U.S.?

Maybe secondly, just staying on the pipeline on 204, you talked about expanding the territories in the Phase III. Is that just to speed up the pace of enrollment and the program? Or should we think of something else driving the potential expansion there? And then last, if I may just slip in all 3 upfront. On the Talicia coverage, obviously, congratulations, great coverage there. Just going forward, should we expect additional wins here or improvements in coverage? Or do you believe you're in a very strong steady state now and it's really just executing on those coverage points?

Thank you, Brandon. It's Dror here. Starting with the question about EMA and whether this is likely to be the most important response in the short term. So you're right about saying that this is likely to be first to respond, as Gilead said, before the end of the year. It's an expedited review, which we are very happy about. But it does not necessarily mean that this is a territory where we expect the fastest progress, we are applying in many more countries. Some of them with a very high degree and increasing need for treatment for this patient population in Latin America, in Europe, Israel, Switzerland, India, South Africa and others. And we do not know at this point which country or countries will be the most promising for an advance towards the market.

Your question about RHB-204 for anti-infection, yes, the speed of enrollment is the main reason that we are expanding the study to additional territories. The other reason is that we see a strong need for RHB-204 anti infections in other countries such as Japan, where there's actually more patients than in the U.S.

Your last question about Talicia coverage and whether we should be expecting additional coverage for further improvement, right now, coverage is excellent but it can be improved. I'll refer this to Bob Gilkin, who's heading our market access team. Bob, would you like to elaborate on the Talicia coverage and what we can expect moving forward?

Sure. Thank you, Dror. Appreciate that. So first, Rob and I are committed with pulling through the great coverage that we have for Talicia. Eight out of 10 commercially insured patients have access to Talicia. Most of those patients have access with no restrictions. We are committed to expanding that coverage. Our national account executive team is working hard diligently. We have many things in the works right now, cannot elaborate at this time but definitely expect to see more wins as we go into 2022. We are not done yet. If there's any indication of our ability to get it done, take a look at Movantik and what we were able to do once we acquired it from AstraZeneca. Our team has continued to improve coverage. And we expect to do the same thing with Talicia. Like I said, that Rob and I are committed with pulling our current coverage through with our (inaudible) out there in the field.

We will now be taking our next question that comes from the line of Ram Selvaraju from H.C. Wainwright.

This is Boobalan dialing in for Ram Selvaraju. Can you hear me okay?

Yes, we can.

All right. Awesome. Great. Great presentation. Congrats on your progress. Just a few questions from our end. So your Phase IIb whole-stock analysis looks solid and convincing. So with respect to using FiO2 as a medically relevant parameter, so just curious, have you spoken to KOLs and received any preliminary thoughts regarding its feasibility in current medical practice. Also, are there any limitations that you are aware of in using FiO2 as a relevant parameter in treating COVID patients .

Thank you. Certainly, we have interacted with KOLs, and we will have further interaction, as we indicated, with regulators. This is a change from what the standard World Health Organization ordinal scale characterizes severity. But certainly, FiO2 is a very well-known measure and parameter that is being used by the treating physicians and KOLs, and we get feedback that is certainly a feasible parameter to utilize going forward. But we will have more input and further information once we have the regulatory feedback as we explained.

Okay. So with respect to the RHB-107 Phase II/III study, the data readout is expected in first quarter 2022. So can you remind us whether you expect to report any preliminary efficacy data in addition to the 50?

Sure. So the RHB-107 study is a 2-stage study. Part A is the part that we're currently completed enrollment for and expect topline readout in Q1. This was a 60-patient part of the study, evaluating primarily the safety aspects of 2 doses that we are evaluating, and that will be the main outcome. We will get, of course, and capture also efficacy endpoints and parameters. But given the relatively small size of the cohort, we don't expect to have clear indications on efficacy but we may follow signals that we get and certainly select a dose for optimal -- for optimally going forward into the Part B of the study, which will be the main part with assessed efficacy.

Okay. So yes, with respect to RHB-107, are there any benefits, limitations from a safety efficacy perspective in targeting serine proteases in COVID treatment? Also are you aware of any competitors working in this space?

So in terms of the safety aspect, RHB-107 has been studied already even prior to COVID in other indications, extensively clinically over 200 -- 400, I think, patients altogether. And the safety aspects are very well established and adequate for treating the early-stage patients -- outpatients of COVID-19. In fact, RHB-107 was provided on a longer-term basis in other indications. So we're not concerned about safety aspects. In terms of the second part of the question, can you remind me what else you asked?

Yes. Just curious whether there are any -- are you aware of any competitors working in this space?

In terms of the protease inhibitors there are competitors that are targeting protease inhibitors or other compounds in a similar class. The serine proteases that are viral targeted like the Pfizer drug are a different class and different targets.

We will now be taking our next question that comes from the line of David Hoang from SMBC.

So I had a few here. First one just on, I guess, the scenario expectations for your discussions with regulators regarding the opaganib post-hoc analysis. You talked about running a confirmatory trial in using FiO2 to select patients. Is that -- I guess, is that definitely occurring? Or is that subject to regulator feedback or any other factors in terms of your decision to pursue another trial?

Sure. Thank you, David. Certainly, everything that we have discussed is subject to the regulatory feedback that we will receive with -- according to the time lines that we illustrated of the expected feedback -- initial feedback. Certainly, for further full approval processes, it's quite clear that additional study in the target population is likely to be required. The question will be that of timing in terms of whether it is in parallel or prior to any other potential emergency uses in parallel to the study that we may contemplate. And of course, the use of FiO2 is a selective parameter of the target population. Again, we think that is very feasible and makes a lot of sense but we'll get regulatory feedback in that respect also.

Okay. Got it. And then on Talicia, I just had a question. Maybe you could help me understand a little bit in terms of squaring the excellent script growth you're seeing in Talicia with the revenues reported for the quarter. So can you just give a sense of maybe what type of rebating is going on for the product? And is there -- has there been any material change in the gross to net for Talicia over recent quarters?

Thank you, David. It's Dror here. Specific numbers for rebating is not something that any peer company will disclose. However, we can make general comments, and I'll refer this to Bob.

Yes. Thank you, Dror. Appreciate that. we are well within industry standards probably do a little bit better than industry standards as it relates to rebate contracting with our payer customers. We are -- we take a very conservative approach to discounting. We really watch our gross to net. We've been very fortunate with a product like Talicia, where the clinical attributes of the products and really the -- how it fares and does much better than the clari-based therapies really provides an advantage for us and payers do see the value in the product. So we've been very fortunate on that front. But we've been able to maintain and hold on to that rebate line. One of the challenges that we do see is that payers continue to increase rebates and more deductibles that we're seeing across the board. So obviously, what we're trying to kind of manage that and make sure that our products are affordable for our patients.

Great. Really appreciate you sharing that. And then just last question on RHB-104 in Crohn's disease. I guess can you provide any more color on the maybe expected time lines or further development there and your level of confidence in being able to secure the companion diagnostic test.

Thank you, David. It's Dror. I'm glad you asked because we are estimated as ever to RHB-104 for Crohn's disease. We have been asked by investors and numerous patients on a daily basis from all over the world., What is happening with this program? How can we access this product for compassionate use, numerous questions on a daily basis. And we do understand that this is a potential breakthrough in the treatment paradigm. And the Phase III results that Guy mentioned briefly are robust and very, very promising. We are aware of all that. But in the last 3 or 4 years, we were reluctant to move forward into a confirmatory Phase III study without making sure that we are right on target when it comes to the patient population. And the right patient population directly related to our suggested mechanism of XL, is Mycobacterium avium paratuberculosis infected Crohn's patients as opposed to all-comers, even though we were very successful in all-comers.

And very recently, there was, for the first time, a peer-reviewed publication that disclosed a very important progress in detecting MAP which we believe gives us a decent chance of running the studies that we always dreamed of. Now for the time lines, we expect to have some kind of idea about validating the test within weeks, and we are highly committed to this program. So we intend to go to the regulators quickly with a proposed design and take it from there.

I'll remind you that the holy grail in Crohn's treatment is mucosal healing imaging. And the mucosal healing data, which is completely objective from our Phase III study, is very, very promising. In fact, we've shown significance in mucosal healing despite a relatively small number of patients. So again, we are very excited about this program. and we are fully committed to moving it forward as quickly as possible because the patients are waiting for it. And now it seems that, at last, we have a way forward.

We will now be taking our next question that comes from the line of Bert Hazlett from BTIG.

Congratulations on the progress, especially impressed with Talicia and the efforts you're making there. Do you have any anecdotal -- along those lines, do you have any anecdotal evidence or circumstances you can present with regard to field force engagement? How is the traction growing or not with regard to your sales effort? And is -- could you describe the market a little bit? Is it improving the diagnosis of the condition actually improving itself.

Thank you very much, Bert, wonderful questions. I'll refer them to Rob.

Thank you, Dror. Great question. We're definitely seeing a lot of improvement in what's happening in the field. I mean our team is executing better but we're also seeing a lot of growth week after week, not only in volume but also in consistency. So I would say the traction is definitely improving in the field for Talicia. In terms of the diagnostic component, I think the conditions have certainly improved. If you go back to the peak of COVID last year or earlier this year, a lot of prescribers were not performing breath testing for obvious reasons as well as endoscopic biopsies in the hospital. That has changed significantly. So the -- although COVID is still a bit of an issue for us out there, it's certainly better than it was at the beginning of the year.

Okay. And then maybe you mentioned it and maybe I missed it, my apologies, is there any chance you could give us a breakdown of revenue maybe in percentage terms of Movantik versus Talicia in the quarter? And apologies if I've missed it.

Sure. Thank you, Bert. This is Micha. So about a little over $19 million coming from Movantik and almost $2.25 million coming from Talicia.

We will now be taking our next question that comes from the line of Scott Henry from ROTH Capital.

I have a couple of questions on the commercial operations, and I may be a little more critical, but that's only because I want to understand exactly what's going on there. Sequentially, from 2Q to 3Q, revenues only went up about $100,000. So I have to assume Movantik was down sequentially. Is that the correct assumption? And is that seasonal? Or how should we be thinking about that?

Thank you, Scott. It's Dror here. No, it's not related at all. The factory sales and scripts are very different things sometimes.

But I can add, Scott, that both revenues from Movantik and Talicia went up. And we took a negative impact from Aemcolo. So both Talicia and Movantik are up.

Could you give me any idea of how large the negative impact on Aemcolo was?

It's not very big. It's towards the neighborhood of $100,000.

Okay. And with regards to Aemcolo, what are your thoughts there? Is it burning a lot of cash, marketing the product? I mean, there's virtually no revenues coming from it. But I don't know -- which is understandable given COVID. But what -- is it taking a lot of resources is the question? And how long can you keep doing that?

Thank you. Thank you, Scott. About that, I'll let Rob answer. Obviously, before I turn to Rob, the pandemic has had a very negative impact on travel to high-risk territories. Therefore, what we have seen in the beginning or right before the pandemic with Aemcolo, which was a very nice trend, has come to a halt, complete halt almost. I'll let Rob explain what we are doing right now in terms of our own investment. We're big believers in the product as the pandemic gradually, hopefully, eases. Rob?

Thank you, Dror. To answer the question, relative to Movantik and Talicia, Aemcolo is taking very few resources right now. It's typically in a second or third position detail when the opportunity arises. So I would not be concerned, looking at this from the outside, that we're overweighting our effort or our spend on Aemcolo relative to what we're able to deliver right now during the pandemic.

Okay. I guess, Rob, and this is a question for you because I know you sound very enthusiastic about the direction of the commercial division. But when I look at it, I mean, yes, the loss went way down in Q3 from Q2, but that's largely because it went way up from Q1 to Q2. So I mean if I compare Q3 to Q1, the story isn't as attractive. So my question is when are we going to see an inflection point and really start to get that loss in a declining mode versus up 1 quarter, down 1 quarter. When can we see a sustainable improvement?

Rob, would you like to take this?

Sure. Certainly, in terms of Talicia, we are seeing a sustainable improvement. If you look at the slide in our deck for please, where we break out the prescription volume by month. You will see that there has been a sustainable improvement since the end of second quarter. We have put more focus on Talicia second half of the year, and we are definitely seeing an uptake. And I know based on what I'm seeing already, I'm very confident we're going to have a strong fourth quarter as well. So we're heading in the right direction. And if you take that and combine that with the Medi-Cal win that we have that's going to take into effect in January of next year, I think between the sustained performance we're seeing in our core business, plus what we'll get from Medicaid plus potentially some spillover there on the commercial side, I expect we'll be able to continue that trend right through 2022 and continue to accelerate.

Okay. Just looking forward to seeing that commercial breakeven. And when I speak of the trends, obviously, I see the Talicia scripts every week, they look great. But I just want to see that loss start to decline because it is still a significant number. But shifting gears, I did want to ask the gross margin in the quarter looked pretty good. How should we think about that going forward?

So you're right that we have a substantial increase this quarter, and this is compared to previous 2 quarters in which we had a smaller margin mainly due to the shorter expiration of Talicia, which comprise part of the inventory and the channel. And now after we got the FDA extension of the expiration from 2 years to 3 years this allows us to much better flexibility in the operations and also contribute to the increased margin. So we will see an increase of margin going forward as compared with Q1 that you mentioned, for example.

So I guess what I'm saying is, do you think Q3 gross margin, can you maintain that level going forward from Q3 number?

Q4 may be a little lower than Q3, but above Q1 and Q2 gross margins.

Okay. That's helpful. And then final question, I think it will be the final. On opaganib, if you do have to do a confirmatory trial how long do you think that would take from start to finish?

Thanks, Scott, Gilead here. We think the last study that enrolled 450 -- all 450 patients actually was completed in a year, close to a year. We think that given the positive data from the study targeted to the right population of the moderately severe hospitalized patients, we can probably do better than that. And given the resources and potential support from external sources also, be it public platforms or other sources, we could go even broader in terms of number of sites and get the study done in under a year. So that would be our target.

So no further questions that came through.

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

Thank you. That does conclude our conference for today. Thank you all for participating. You may all disconnect.