RedHill Biopharma (2RH) Risk Analysis
Risk Overview Q4, 2021
Source: the company's latest filing for the period ended Dec 31, 2021, filed Mar 17, 2022
Risk Change Over Time
No filing history is available.
- Accounting & Financial Operations - Risk 1Investors in our ADSs may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, par value NIS 0.01 per share ("Ordinary Shares"), and, in some limited circumstances, investors in our ADSs may not receive dividends or other distributions on our Ordinary Shares and may not receive any value for them, if it is illegal or impractical to make them available to investors in our ADSs.
The depositary for the ADSs has agreed to pay to investors in our ADSs the cash dividends or other distributions it or the custodian receives on Ordinary Shares or other deposited securities underlying the ADSs, after deducting its fees and expenses. Investors in our ADSs will receive these distributions in proportion to the number of Ordinary Shares such ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act of 1933, as amended, but that is not properly registered or distributed under an applicable exemption from registration. In these cases, the depositary may determine not to distribute such property and hold it as "deposited securities" or may seek to effect a substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute. We have no obligation to register under U.S. securities laws any ADSs, Ordinary Shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, Ordinary Shares, rights or anything else to holders of ADSs. In addition, the depositary may deduct from such dividends or distributions its fees and may withhold amounts on account of taxes or other governmental charges to the extent the depositary believes it is required to make such withholding. This means that investors in our ADSs may not receive the same distributions or dividends as those we make to the holders of our Ordinary Shares, and, in some limited circumstances, investors in our ADSs may not receive any value for such distributions or dividends if it is illegal or impractical for us to make them available to investors in our ADSs. These restrictions may cause a material decline in the value of the ADSs.
- Corporate Activity and Growth - Risk 2Any collaborative arrangements that we have established or may establish may not be successful, or we may otherwise not realize the anticipated benefits from these collaborations, including commercialization of our current commercial products. We do not control third parties with whom we have or may have collaborative arrangements, and we rely on such third parties to achieve results which may be significant to us. In addition, any current or future collaborative arrangements may place the commercialization of our current commercial products or products that we may commercialize or promote in the future or the development of our therapeutic candidates outside our control and may require us to relinquish important rights or may otherwise be on terms unfavorable to us.
Each of our collaborative arrangements requires us to rely on external consultants, advisors, and experts for assistance in several key functions, including clinical development, manufacturing, regulatory, market research, intellectual property, and commercialization. We do not control these third parties, but we rely on such third parties to achieve results, which may be significant to us. With respect to Aemcolo, we rely on Cosmo, the party responsible for, among others, the manufacture, supply, and other operating responsibilities. With respect to Talicia, we rely on Recipharm Strängnäs AB ("Recipharm") and other contracting parties for the manufacture of Talicia and its components and we rely on Gaelan Medical Trade LLC ("Gaelan Medical") to obtain necessary approvals and commercialize Talicia in the UAE. With respect to Movantik, we rely on AstraZeneca to, among other things, manufacture, supply and provide other operating services. With respect to opaganib, we rely on Kukbo Co. Ltd. ("Kukbo") to obtain necessary regulatory approvals and commercialize opaganib in South Korea. Relying upon collaborative arrangements to commercialize our current commercial products and other products that we may commercialize or promote in the future and to develop our therapeutic candidates, subjects us to a number of risks, including but not limited to the following: - we will be responsible for making certain milestones, royalty or other payments under our various in-licenses even if our operating costs exceed the revenues generated from the relevant products;- our collaborators may default on their obligations to us and we may be forced to either terminate, litigate or renegotiate such arrangements;- our collaborators may have claims that we breached our obligations to them which may result in termination, renegotiation, litigation or delays in performance of such arrangements;- we may not be able to control the amount and timing of resources that our collaborators may devote to our current commercial products, products that we may commercialize or promote in the future or our therapeutic candidates;- our collaborators may fail to comply with applicable laws, rules, or regulations when performing services for us, and we could be held liable for such violations;- our collaborators may experience financial difficulties, making it difficult for them to fulfill their obligations to us, including payment obligations, or they may experience changes in business focus;- our collaborators' partners may fail to secure adequate commercial supplies for our current commercial products or products that we may commercialize or promote;- our collaborators' partners may have a shortage of qualified personnel;- we may be required to relinquish important rights, such as marketing and distribution rights;- business combinations or significant changes in a collaborator's business or business strategy may adversely affect a collaborator's willingness or ability to complete its obligations under any arrangement;- under certain circumstances, a collaborator could move forward with a competing therapeutic candidate or commercial product developed either independently or in collaboration with others, including our competitors;- collaborative arrangements are often terminated or allowed to expire, which may limit or terminate our rights to commercialize our current commercial products or products we may commercialize or promote in the future, or could delay the development and may increase the cost of developing our therapeutic candidates;- our collaborators may not wish to extend the terms of our agreements related to our commercial products or therapeutic candidates beyond the existing terms, in which case, we will not have access to existing rights upon the expiration and will therefore not be able to develop such therapeutic candidates or commercialize or promote such products following the initial terms of our agreements; and - our collaborators may wish to terminate the collaborative arrangements due to any disagreements or conflicts with us, a change in their assessment that the arrangement is no longer valuable, a change in control or in management or in strategy, changes in product development or business strategies of our collaborators. In addition, our reliance upon our partners in connection with commercial activities subjects us to a number of additional risks, including but not limited to, the following: - we do not generally control our partners' communications with the FDA or other foreign regulatory authorities, and the FDA or other foreign regulatory authorities may determine elect not to approve or to withdraw the products from the market due to various factors including any action or inaction taken by our partners (see "Item 3. Key Information – Our current commercial products or products which we may commercialize or promote in the future may be subject to recalls or market withdrawal that could have an adverse effect on our reputation, business, financial condition or results of operations.");- in many instances, we rely on our partners to take enforcement action to protect the IP and regulatory protections, if any, of some of our commercial products. Their failure to diligently protect these products could materially affect our commercial success;- we rely on our partners to be responsible for the manufacture of some of our current commercial products, including through third-party manufacturers with the requisite quality and manufacturing standards as required under applicable laws and regulations, and we also rely on those same partners to supply their respective products and APIs, which may result in us having those respective products and APIs in insufficient quantities or not delivered in as timely a manner as is necessary to achieve adequate or successful promotion and sale of their respective products;- our partners relating to our commercial products may significantly create or change reimbursement agreements or increase or decrease the price of their respective products to a level that could adversely affect our sales or revenues;- our partners may make decisions related to the product and take critical actions to support the product, including with respect to promotion, sales and marketing, medical affairs and pharmacovigilance, and any action or inaction taken by those same partners may adversely affect the sales of their respective commercial products;- our partners may terminate their agreements with us after an agreed-upon period for reasons set forth in those same partners' respective agreements with us;- our partners for future commercial products may change or create new agreements with wholesalers, Pharmacy Benefit Managers or other important stakeholders, which may significantly impact our ability to achieve commercial success, or they may fail to negotiate reimbursement agreements with payors which could also negatively affect our commercial success;- our partners may change the price of their respective commercial products to a level that could adversely affect our sales or revenues; and - our partners may not be successful in maintaining or expanding reimbursement from government or third-party payors, such as insurance companies, health maintenance organizations and other health plan administrators, which may adversely affect the sales of their respective products If any of these or other scenarios materialize, they could have an adverse effect on our reputation, business, financial condition or results of operations.
- Corporate Activity and Growth - Risk 3Maintaining and potentially expanding our commercial infrastructure in the U.S., and potentially expanding to outside the U.S., is a significant undertaking that requires substantial financial and managerial resources, and we may encounter setbacks or may not be successful in our efforts.
Maintaining and potentially expanding the necessary commercial capabilities is competitive and time-consuming, and the commercialization of Movantik, Talicia and Aemcolo requires a significant expenditure of operating, financial and management resources. Even with those investments, we may not be able to effectively commercialize our current commercial products, or we may incur more expenditures than anticipated in order to maximize our sales. We cannot guarantee that we will be able to maintain or expand our sales, marketing, distribution, and market access capabilities and enter into and maintain any agreements necessary for commercialization with payors and third-party providers on acceptable terms, if at all. If we are unable to maintain or expand such capabilities, either on our own or by entering into agreements with others, or are unable to do so in an efficient manner or on a timely basis, we will not be able to maximize the commercialization of our current commercial products or products that we may commercialize or promote in the future, which would adversely affect our reputation, business, financial condition or results of operations. Even if the commercialization of our current and future commercial products is successful, we may fail to further our business strategy as anticipated or to achieve anticipated benefits and success. We may incur higher than expected costs in connection with the commercialization of our current commercial products, and we may encounter general economic or business conditions that adversely affect these products. In addition, if we incur higher than expected costs in connection with the commercialization of our current and future commercial products, we may need to reduce or terminate our commercial activities, which may have a material adverse effect on our reputation, business, financial condition or results of operations.
- Corporate Activity and Growth - Risk 4In order to maintain and increase our commercialization capabilities in the U.S. and outside the U.S., we may need to further expand, among others, our development, regulatory, manufacturing, sales and marketing capabilities, and to increase or maintain our personnel to accommodate sales. We may experience difficulties in managing this growth and integrating new personnel.
To maintain and increase our own commercialization capabilities in the U.S. and outside the U.S. we may need to expand, among others, our development, regulatory, manufacturing, sales and marketing capabilities, and to increase or maintain our personnel to accommodate sales. We may not be able to secure or retain personnel, organizations or vendors that are adequate in number or expertise to successfully and lawfully market and sell our products in the U.S. or outside the U.S. If we are unable to expand our sales and marketing capabilities, train our sales force or contractors effectively or provide any other capabilities necessary to commercialize products, we may need to contract with third parties to market and sell our products which could have an adverse effect on our financial condition and our results of operations. We may also have difficulty in integrating into our existing U.S. operations sales and other commercial personnel or contractors that we may hire or engage to support the commercialization of Movantik, Talicia and Aemcolo. Sales personnel or contractors' productivity may decrease as we hire new, less experienced sales personnel or contractors who are not yet familiar with our commercial products. In addition, we may be exposed to greater regulatory and compliance risks with our expanded sales force and activities. Future growth may impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees or contractors. Our U.S. subsidiary, RedHill U.S., has recently experienced high turnover rates due to the overall tightening and increasingly competitive labor market in the U.S. employment market in response to the COVID-19 pandemic. See "– Our business could suffer if we are unable to attract and retain key personnel" below. In addition, management may have to divert a disproportionate amount of its attention away from running our day-to-day activities and devote a substantial amount of time to managing these growth activities.
Risk Highlights Q4, 2021
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 86
- Share Price & Shareholder Rights - Risk 1The obligations and responsibilities of our shareholders are governed by Israeli law, which may differ in some respects from the obligations and responsibilities of shareholders of U.S. companies. Israeli law may impose obligations and responsibilities on a shareholder of an Israeli company that are not imposed upon shareholders of corporations in the U.S.
We are incorporated under Israeli law. The obligations and responsibilities of the shareholders are governed by our articles of association and Israeli law. These obligations and responsibilities differ in some respects from the obligations and responsibilities of shareholders in typical U.S.-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith toward the company and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on matters such as amendments to a company's articles of association, increases in a company's authorized share capital, mergers and acquisitions and interested party transactions requiring shareholder approval. In addition, a shareholder who knows that it possesses the power to determine the outcome of a shareholder vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company. There is limited case law available to assist us in understanding the implications of these provisions that govern shareholders' actions. These provisions may be interpreted to impose additional obligations and responsibilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.
- Share Price & Shareholder Rights - Risk 2It may be difficult to enforce a U.S. judgment against us and our directors and officers in Israel or the U.S. or to serve process on our directors and officers.
We are incorporated in Israel. Most of our directors and executive officers reside outside of the U.S., and most of the assets of our directors and executive officers may be located outside of the U.S. Therefore, a judgment obtained against us or most of our executive officers and our directors in the U.S., including one based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the U.S. and may not be enforced by a U.S. or Israeli court. It may also be difficult to effect service of process on these persons in the U.S. or to assert U.S. securities law claims in original actions instituted in Israel.
- Share Price & Shareholder Rights - Risk 3Provisions of the RedHill Biopharma Ltd. Award Plan, Israeli law, our articles of association and our change in control retention plan may delay, prevent or otherwise impede a merger with, or an acquisition of, our Company, or an acquisition of a significant portion of our shares, which could prevent a change in control, even when the terms of such a transaction are favorable to us and our shareholders.
Our Award Plan provides that all options granted by us will be fully accelerated upon a "hostile takeover" of us. A "hostile takeover" is defined in our Award Plan as an event in which any person, entity or group that was not an "interested party", as defined in the Israeli Securities Law – 1968, on the date of the initial public offering of our Ordinary Shares on the TASE, will become a "controlling shareholder" as defined in the Israel Securities Law, 1968, or a "holder," as defined in the Israeli Securities Law – 1968, of 25% or more of our voting rights or any merger or consolidation involving us, in each case without a resolution by our board of directors supporting the transaction. In addition, if a "Significant Event" occurs and following which the employment of a grantee with us or a related company is terminated by us or a related company other than for "Cause", and unless the applicable agreement provides otherwise, all the outstanding options held by or for the benefit of any such grantee will be accelerated and immediately vested and exercisable. A "Significant Event" is defined in our Award Plan as a consolidation or merger with or into another corporation approved by our board of directors in which we are the continuing or surviving corporation or in which the continuing or surviving corporation assumes the option or substitutes it with an appropriate option in the surviving corporation. The Israeli Companies Law, 1999, or the Israeli Companies Law, regulates mergers, requires tender offers for acquisitions of shares or voting rights above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger may not be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar of Companies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, a majority of each class of securities of the target company must approve a merger. Moreover, the Israeli Companies Law provides that certain purchases of securities of a public company are subject to tender offer rules. As a general rule, the Israeli Companies Law prohibits any acquisition of shares or voting power in a public company that would result in the purchaser holding 25% or more, or more than 45% of the voting power in the company, if there is no other person holding 25% or more, or more than 45% of the voting power in a company, respectively, without conducting a special tender offer. The Israeli Companies Law further provides that a purchase of shares or voting power of a public company or a class of shares of a public company which will result in the purchaser's holding 90% or more of the company's shares, class of shares or voting rights, is prohibited unless the purchaser conducts a full tender offer for all of the company's shares or class of shares. The purchaser will be allowed to purchase all of the company's shares or class of shares (including those shares held by shareholders who did not respond to the offer), if either (i) the shareholders who do not accept the offer hold less than 5% of the issued and outstanding share capital of the company or of the applicable class, and more than half of the shareholders who do not have a personal interest in the offer accept the offer, or (ii) the shareholders who do not accept the offer hold less than 2% of the issued and outstanding share capital of the company or of the applicable class. The shareholders, including those who indicated their acceptance of the tender offer (except if otherwise detailed in the tender offer document), may, at any time within six months following the completion of the tender offer, petition the court to alter the consideration for the acquisition. At the request of an offeree of a full tender offer which was accepted, the court may determine that the consideration for the shares purchased under the tender offer was lower than their fair value and compel the offeror to pay to the offerees the fair value of the shares. Such an application to the court may be filed as a class action. In addition, the Israeli Companies Law provides for certain limitations on a shareholder that holds more than 90% of the company's shares, or class of shares. Pursuant to our articles of association, the size of our board of directors may be no less than five persons and no more than eleven, including any external directors whose appointment is required under the law. The directors who are not external directors are divided into three classes, as nearly equal in number as possible. At each annual general meeting, the term of one class of directors expires, and the directors of such class are re-nominated to serve an additional three-year term that expires at the annual general meeting held in the third year following such election (other than any director nominated for election by Cosmo pursuant to the Company's subscription agreement with Cosmo, whose term of office may expire earlier depending on the beneficial ownership by the Cosmo investor of the Cosmo shares). This process continues indefinitely. Such provisions of our articles of association make it more difficult for a third party to effect a change in control or takeover attempt that our management and board of directors oppose. In addition, we have adopted a change in control employee retention plan and entered into employment agreements providing for compensation to Company officers and employees in the event of a change in control (as defined by the plan and employment agreements), subject to the satisfaction of various conditions. See "Item 6 B. – Compensation – Change in Control Retention Plan." Furthermore, Israeli tax considerations may, in certain circumstances, make potential transactions unappealing to us or to some of our shareholders. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no actual disposition of the shares has occurred. These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, or an acquisition of a significant portion of our shares, even if such an acquisition or merger would be beneficial to us or to our shareholders.
- Share Price & Shareholder Rights - Risk 4Our Amended and Restated Articles of Association designate courts located either within the State of Israel, or the Federal District Courts of the United States, as the exclusive forum for certain litigation that may be initiated by our shareholders, which could limit our shareholders' ability to bring a favorable or convenient judicial forum for disputes with us.
Our Amended and Restated Articles of Association provide that, unless we consent in writing to the selection of an alternative forum, the Tel Aviv District Court (Economic Division in the State of Israel (or, if the Tel Aviv District Court does not have jurisdiction, and no other Israeli court has jurisdiction, the federal district court for the District of New York) shall be the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our shareholders, and (3) any action asserting a claim arising pursuant to any provision of the Companies Law or the Israeli Securities Law 5728-1968, in all cases subject to the court's having personal jurisdiction over the indispensable parties named as defendants. In addition, the federal district courts of the United States for the District of New York shall be the exclusive forum for any complaint asserting a cause of action arising under the Securities Act of 1933. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to these provisions. This forum selection provision may limit shareholders' ability to bring a claim in a judicial forum for disputes that it finds favorable or convenient for disputes with us or our directors, officers, or other employees, which may discourage lawsuits with respect to such claims. Alternatively, a court, including an Israeli court, could find these provisions of our Articles of Association to be inapplicable or unenforceable in respect of one or more of the specified types of actions or proceedings, which may require us to incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.
- Share Price & Shareholder Rights - Risk 5The depositary for our ADSs gives us a discretionary proxy to vote our Ordinary Shares underlying ADSs if a holder of our ADSs does not give voting instructions, except in limited circumstances.
Under the deposit agreement for the ADSs, the depositary gives us a discretionary proxy to vote our Ordinary Shares underlying ADSs at shareholders' meetings if a holder of our ADSs does not give voting instructions, unless: - we have instructed the depositary that we do not wish a discretionary proxy to be given;- we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting; or - we have informed the depositary that a matter to be voted on at the meeting would have a material adverse impact on shareholders. The effect of this discretionary proxy is that a holder of our ADSs cannot prevent our Ordinary Shares underlying such ADSs from being voted by us at our discretion, absent the situations described above. Holders of our Ordinary Shares are not subject to this discretionary proxy.
- Share Price & Shareholder Rights - Risk 6As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of applicable SEC and Nasdaq Stock Market requirements, which may result in less protection than is accorded to investors under rules applicable to domestic issuers.
As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of those otherwise required under the Nasdaq Listing Rules for domestic issuers. For instance, we follow the home country practice in Israel with regard to, among other things, director nomination procedures and quorum at shareholders' meetings. In addition, we follow our home country law, instead of the Nasdaq Listing Rules, which require that we obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity-based compensation plans, an issuance that will result in a change in control, certain transactions other than a public offering involving issuances of a 20% or more interest in us and certain acquisitions of the stock or assets of another company. Following our home country governance practices as opposed to the requirements that would otherwise apply to a U.S. domestic issuer listed on the Nasdaq Stock Market may provide less protection than is accorded to investors under the Nasdaq Listing Rules applicable to domestic issuers. In addition, as a foreign private issuer, we are exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as domestic companies whose securities are registered under the Exchange Act.
- Share Price & Shareholder Rights - Risk 7There has been a limited market for our ADSs. We cannot ensure investors that an active market will continue or be sustained for our ADSs on the Nasdaq and this may limit the ability of our investors to sell our ADSs.
In the past, there was limited trading in our ADSs, and there is no assurance that an active trading market of our ADSs will continue or will be sustained. Limited or minimal trading in our ADSs has in the past, and may in the future, lead to dramatic fluctuations in market price and investors may not be able to liquidate their investment at all or at a price that reflects the value of the business. While our ADSs began trading on the Nasdaq Capital Market in December 2012 and on the Nasdaq Global Market in July 2018, we cannot assure you that we will maintain compliance with all of the requirements for our ADSs to remain listed. Additionally, there can be no assurance that trading of our ADSs will be sustained or desirable.
- Share Price & Shareholder Rights - Risk 8U.S. holders of ADSs may suffer adverse tax consequences if we were characterized as a passive foreign investment company.
Based on the current composition of our gross income and assets and on reasonable assumptions and projections, we believe we will not be treated as a passive foreign investment company (a "PFIC") for U.S. federal income tax purposes for 2021. However, there can be no assurance that this will be the case in future taxable years. If we were characterized as a PFIC, U.S. holders of the ADSs may suffer adverse tax consequences such as (i) having gains realized on the sale of the ADSs treated as ordinary income rather than capital gain, the preferential rate otherwise applicable to dividends received in respect of the ADSs by individuals who are U.S. holders, and (ii) having interest charges apply to certain distributions by us and sales of the ADSs.
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