REDHILL BIOPHARMA LTD.
CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
(UNAUDITED)
March 31, 2022
REDHILL BIOPHARMA LTD.
CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
(UNAUDITED)
March 31,2022
TABLE OF CONTENTS
| UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS AS OF MARCH 31, 2022, IN U.S. DOLLARS: | Page |
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REDHILL BIOPHARMA LTD.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE
LOSS
(Unaudited)
| | | Three Months Ended | |
| | | March 31, | |
| | | 2022 | | | 2021 | |
| | | U.S. dollars in thousands | |
| NET REVENUES | | | 18,236 | | | | 20,575 | |
| COST OF REVENUES | | | 8,034 | | | | 10,253 | |
| GROSS PROFIT | | | 10,202 | | | | 10,322 | |
| RESEARCH AND DEVELOPMENT EXPENSES | | | 3,062 | | | | 7,484 | |
| SELLING AND MARKETING EXPENSES | | | 12,560 | | | | 13,895 | |
| GENERAL AND ADMINISTRATIVE EXPENSES | | | 7,818 | | | | 7,095 | |
| OPERATING LOSS | | | 13,238 | | | | 18,152 | |
| FINANCIAL INCOME | | | 10 | | | | 42 | |
| FINANCIAL EXPENSES | | | 3,909 | | | | 4,753 | |
FINANCIAL EXPENSES, net | | | 3,899 | | | | 4,711 | |
| LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD | | | 17,137 | | | | 22,863 | |
| | | | | | | | | |
LOSS PER ORDINARY SHARE, basic and diluted (U.S. dollars): | | | 0.03 | | | | 0.05 | |
WEIGHTED AVERAGE OF ORDINARY SHARE (in thousands) | | | 525,186 | | | | 429,603 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
REDHILL BIOPHARMA LTD.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL
POSITION
(Unaudited)
| | | March 31, | | | December 31, | |
| | | 2022 | | | 2021 | |
| | | U.S. dollars in thousands | |
| CURRENT ASSETS: | | | | | | |
| Cash and cash equivalents | | | 28,847 | | | | 29,474 | |
| Bank deposits | | | 17 | | | | 8,530 | |
| Trade receivables | | | 25,934 | | | | 31,677 | |
| Prepaid expenses and other receivables | | | 3,507 | | | | 4,661 | |
| Inventory | | | 14,272 | | | | 14,810 | |
| | | | 72,577 | | | | 89,152 | |
| NON-CURRENT ASSETS: | | | | | | | | |
| Restricted cash | | | 16,165 | | | | 16,169 | |
| Fixed assets | | | 528 | | | | 572 | |
| Right-of-use assets | | | 7,736 | | | | 3,651 | |
| Intangible assets | | | 70,043 | | | | 71,644 | |
| | | | 94,472 | | | | 92,036 | |
| TOTAL ASSETS | | | 167,049 | | | | 181,188 | |
| | | | | | | | | |
| CURRENT LIABILITIES: | | | | | | | | |
| Accounts payable | | | 5,706 | | | | 11,664 | |
| Lease liabilities | | | 1,431 | | | | 1,618 | |
| Allowance for deductions from revenue | | | 31,390 | | | | 30,711 | |
| Accrued expenses and other current liabilities | | | 24,151 | | | | 20,896 | |
| Payable in respect of intangible assets purchase | | | 11,223 | | | | 16,581 | |
| | | | 73,901 | | | | 81,470 | |
| | | | | | | | | |
| NON-CURRENT LIABILITIES: | | | | | | | | |
| Borrowing | | | 86,397 | | | | 83,620 | |
| Payable in respect of intangible assets purchase | | | 4,061 | | | | 3,899 | |
| Lease liabilities | | | 7,183 | | | | 2,574 | |
| Royalty obligation | | | 750 | | | | 750 | |
| | | | 98,391 | | | | 90,843 | |
| TOTAL LIABILITIES | | | 172,292 | | | | 172,313 | |
| | | | | | | | | |
| EQUITY: | | | | | | | | |
| Ordinary shares | | | 1,506 | | | | 1,495 | |
| Additional paid-in capital | | | 375,948 | | | | 375,246 | |
| Accumulated deficit | | | (382,697 | ) | | | (367,866 | ) |
| TOTAL EQUITY | | | (5,243 | ) | | | 8,875 | |
| TOTAL LIABILITIES AND EQUITY | | | 167,049 | | | | 181,188 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
REDHILL BIOPHARMA LTD.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN
EQUITY
(Unaudited)
| | | Ordinary | | | Additional | | | Accumulated | | | Total | |
| | | shares | | | paid-in capital | | | deficit | | | equity | |
| | | U.S. dollars in thousands | |
| BALANCE AT JANUARY 1, 2022 | | | 1,495 | | | | 375,246 | | | | (367,866 | ) | | | 8,875 | |
| | | | | | | | | | | | | | | | | |
| CHANGES IN THE THREE-MONTHS PERIOD ENDED MARCH 31, 2022: | | | | | | | | | | | | | | | | |
| Share-based compensation to employees and service providers | | | — | | | | — | | | | 2,306 | | | | 2,306 | |
| Issuance of ordinary shares, net of expenses | | | 11 | | | | 702 | | | | — | | | | 713 | |
| Comprehensive loss | | | — | | | | — | | | | (17,137 | ) | | | (17,137 | ) |
| BALANCE AT MARCH 31, 2022 | | | 1,506 | | | | 375,948 | | | | (382,697 | ) | | | (5,243 | ) |
| | | | | | | | | | | | | | | | | |
| BALANCE AT JANUARY 1, 2021 | | | 1,054 | | | | 293,144 | | | | (280,334 | ) | | | 13,864 | |
| CHANGES IN THE THREE-MONTHS PERIOD ENDED MARCH 31, 2021: | | | | | | | | | | | | | | | | |
| Share-based compensation to employees and service providers | | | — | | | | — | | | | 872 | | | | 872 | |
| Issuance of ordinary shares, net of expenses | | | 242 | | | | 57,699 | | | | — | | | | 57,941 | |
| Exercise of options into ordinary shares | | | 13 | | | | 3,214 | | | | | | | | 3,227 | |
| Comprehensive loss | | | — | | | | — | | | | (22,863 | ) | | | (22,863 | ) |
| BALANCE AT MARCH 31,2021 | | | 1,309 | | | | 354,057 | | | | (302,325 | ) | | | 53,041 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
REDHILL BIOPHARMA LTD.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH
FLOWS
(Unaudited)
| | | Three Months Ended | |
| | | March 31, | |
| | | 2022 | | | 2021 | |
| | | U.S. dollars in thousands | |
| OPERATING ACTIVITIES: | | | | | | |
| Comprehensive loss | | | (17,137 | ) | | | (22,863 | ) |
| Adjustments in respect of income and expenses not involving cash flow: | | | | | | | | |
| Share-based compensation to employees and service providers | | | 2,306 | | | | 872 | |
| Depreciation | | | 537 | | | | 492 | |
| Amortization and impairment of intangible assets | | | 1,601 | | | | 1,827 | |
| Non-cash interest expenses related to borrowing and payable in respect of intangible assets purchase | | | 3,123 | | | | 2,639 | |
| Fair value losses on financial assets at fair value through profit or loss | | | — | | | | 6 | |
| Exchange differences and revaluation of bank deposits | | | 4 | | | | 46 | |
| | | | 7,571 | | | | 5,882 | |
| Changes in assets and liability items: | | | | | | | | |
| Decrease in trade receivables | | | 5,743 | | | | 5,349 | |
| Decrease in prepaid expenses and other receivables | | | 1,154 | | | | 1,428 | |
| Decrease (increase) in inventories | | | 538 | | | | (2,744 | ) |
| Decrease in accounts payable | | | (5,958 | ) | | | (5,017 | ) |
| Increase in accrued expenses and other liabilities | | | 3,255 | | | | 1,364 | |
| Increase in allowance for deductions from revenue | | | 679 | | | | 4,334 | |
| | | | 5,411 | | | | 4,714 | |
| Net cash used in operating activities | | | (4,155 | ) | | | (12,267 | ) |
| INVESTING ACTIVITIES: | | | | | | | | |
| Purchase of fixed assets | | | (13 | ) | | | (88 | ) |
| Change in investment in current bank deposits | | | 8,500 | | | | — | |
| Proceeds from sale of financial assets at fair value through profit or loss | | | — | | | | 475 | |
| Net cash provided by investing activities | | | 8,487 | | | | 387 | |
| FINANCING ACTIVITIES: | | | | | | | | |
| Proceeds from issuance of ordinary shares, net of issuance costs | | | 713 | | | | 57,941 | |
| Exercise of options into ordinary shares | | | — | | | | 3,227 | |
| Repayment of payable in respect of intangible asset purchase | | | (5,542 | ) | | | (2,125 | ) |
| Payment of principal with respect to lease liabilities | | | (115 | ) | | | (383 | ) |
| Net cash (used in) provided by financing activities | | | (4,944 | ) | | | 58,660 | |
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | (612 | ) | | | 46,780 | |
| EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS | | | (15 | ) | | | (103 | ) |
| BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | | | 29,474 | | | | 29,295 | |
| BALANCE OF CASH AND CASH EQUIVALENTS AT THE END OF PERIOD | | | 28,847 | | | | 75,972 | |
| | | | | | | | | |
| SUPPLEMENTARY INFORMATION ON INTEREST RECEIVED IN CASH | | | 11 | | | | 19 | |
| SUPPLEMENTARY INFORMATION ON INTEREST PAID IN CASH | | | 772 | | | | 1,990 | |
| SUPPLEMENTARY INFORMATION ON NON-CASH INVESTING AND FINANCING ACTIVITIES: | | | | | | | | |
| Acquisition of right-of-use assets by means of lease liabilities | | | 4,767 | | | | — | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTE 1 - GENERAL:
| 1) | RedHill Biopharma Ltd. (the “Company”), incorporated on August 3, 2009, together with its wholly-owned subsidiary, RedHill Biopharma Inc. (“RedHill Inc.”), incorporated in Delaware, U.S. on January 19, 2017, is a specialty biopharmaceutical company primarily focused on gastrointestinal (“GI”) diseases and infectious diseases. |
The Company’s ordinary shares were traded on the Tel-Aviv Stock Exchange (“TASE”) from February 2011 to February 2020, after which the Company voluntarily delisted from trading on the TASE, effective February 13, 2020. The Company’s American Depositary Shares (“ADSs”) were traded on the Nasdaq Capital Market from December 27, 2012 and have been listed on the Nasdaq Global Market (“Nasdaq”) since July 20, 2018.
The Company’s registered address is 21 Ha’arba’a St, Tel-Aviv, Israel.
| 2) | Since the Company established its commercial presence in the U.S. in 2017, it has promoted or commercialized various GI-related products that were either developed internally or acquired through in-licensing agreements. As of the date of approval of these condensed consolidated interim financial statements, the Company commercializes in the U.S., mainly Talicia®, for the treatment of Helicobacter pylori infection in adults, the first product approved by the U.S. Food and Drug Administration (“FDA”) being developed primarily internally by the Company, and Movantik®, for the treatment of opioid-induced constipation. |
| 3) | Through March 31, 2022, the Company has an accumulated deficit and its activities have been funded primarily through public and private offerings of the Company’s securities and borrowing. There is no assurance that the Company’s business will generate sustainable positive cash flows to fund its business. |
The Company plans to further fund its future operations through commercialization and out-licensing of its therapeutic candidates, commercialization of in-licensed or acquired products and raising additional capital through equity or debt financing or through non-dilutive financing. The Company’s current cash resources are not sufficient to complete the research and development of all of its therapeutic candidates and to fully support its commercial operations until generation of sustainable positive cash flows. Management expects that the Company will incur additional losses as it continues to focus its resources on advancing the development of its therapeutic candidates, as well as advancing its commercial operations, based on a prioritized plan that will result in negative cash flows from operating activities. The Company believes its existing capital resources should be sufficient to fund its current and planned operations for at least the next 12 months, taking into consideration also certain covenants required under the Credit Agreement noted in note 15 to the annual financial statements as of December 31, 2021 (the “Credit Agreement”). See also note 9(b).
If the Company is unable to out-license, sell or commercialize its therapeutic candidates, generate sufficient and sustainable revenues from its commercial operations, or obtain future financing, the Company may be forced to delay, reduce the scope of, or eliminate one or more of its research and development or commercialization programs, any of which may have a material adverse effect on the Company’s business, financial condition or results of operations.
The current COVID-19 pandemic has presented substantial public health and economic challenges around the world and specifically in the Company’s target markets in the U.S., affecting employees, patients, medical clinics, medical diagnosis, communities, and business operations. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted at this stage. The Company took actions designed to mitigate the potential impact of the COVID-19 pandemic on its business operations and to date, the COVID-19 pandemic has not caused significant disruptions to the supply chain and the Company has sufficient supply on hand to meet U.S. commercial demand and clinical study’s needs.
A number of the Company’s commercial activities have been impacted by the COVID-19 pandemic, including some launch sales and marketing activities for Talicia® for H. pylori infection and significant impact on sales of Aemcolo® for travelers’ diarrhea.
Although no major disruptions, other than manageable impact on its development and commercial activities, the Company continues to assess the potential impact of the COVID-19 pandemic on its business and operations, including on its sales, expenses, supply chain, financial resources, and clinical trials.
| b. | Approval of the condensed consolidated interim financial statements: |
These condensed consolidated interim financial statements were approved by the Board of Directors (the "BoD") on June 22, 2022.
NOTE 2 - BASIS OF PREPARATION OF THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS:
The Company’s condensed consolidated interim financial statements for the three months ended March 31, 2022 (the "Condensed Consolidated Interim Financial Statements"), have been prepared in accordance with International Accounting Standard IAS 34, “Interim Financial Reporting”. These Condensed Consolidated Interim Financial Statements, that are unaudited, do not include all the information and disclosures that would otherwise be required in a complete set of annual financial statements and should be read in conjunction with the annual financial statements as of December 31, 2021, and their accompanying notes, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as published by the International Accounting Standards Board (“IASB”). The results of operations for the three months ended March 31, 2022, are not necessarily indicative of the results that may be expected for the entire fiscal year or for any other interim period.
| a. | The accounting policies applied in the preparation of the Condensed Consolidated Interim Financial Statements are consistent with those applied in the preparation of the annual financial statements as of December 31, 2021, except for the following addition: |
Revenues from licensing
The Company accounts for licenses of intellectual property (“IP”) rights and manufacturing and supply services as distinct performance obligations if the customer can benefit from the good or services either on its own or together with other resources that are readily available to the customer (i.e. – the good or service is capable of being distinct) and if the Company’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e. – the promise is distinct within the context of the contract).
If the promise to grant the license is distinct, the Company determines whether the nature of the promise in granting the license to the customer is to provide the customer with either a right to access the entity’s IP as it exists throughout the license period or a right to use the entity’s IP as it exists at the point in time at which the license is granted. Accordingly, revenue from a license providing a right of use to the Company’s is recognized at the point in time when control of the distinct license is transferred to the customer. Revenue from a license providing a right of access to the Company’s IP is recognized over the access period.
Variable consideration, such as sales-based royalties and milestones that are allocated to license of IP are recognized only when (or as) the later of the following occurs: (a) the subsequent sale occurs; and (b) the performance obligation to which some or all the sales-based royalty has been allocated has been satisfied (or partially satisfied).
Revenue from achieving additional milestones is recognized only when it is highly probable that a significant reversal of cumulative revenues will not occur, usually upon achievement of the specific milestone, in accordance with the relevant agreement.
| b. | The following clarification to standards issued by the IASB has not yet been adopted by the Company: |
IFRIC Agenda Decision on Demand Deposits with Restrictions on Use arising from a Contract with a Third Party (IAS 7 - Statement of Cash Flows)
In April 2022, the International Financial Reporting Interpretations Committee (IFRIC) issued an agenda decision clarifying that an entity should present a demand deposit with restrictions on use arising from a contract with a third party as cash and cash equivalents in the statements of financial position and cash flows, unless those restrictions change the nature of the deposit such that it no longer meets the definition of cash in IAS 7.
The Company is currently assessing the impact of this IFRIC agenda decision on its financial statements.
NOTE 3 - SIGNIFICANT EVENTS DURING THE CURRENT REPORTING PERIOD:
| a. | During the three months ended March 31, 2022, the Company sold 333,533 ADSs under the “at-the-market” equity offering program (“ATM program”) at an average price of $2.07 per ADS, for aggregate net proceeds of approximately $0.7 million, net of an immaterial amount of issuance expenses. |
| b. | In March 2022, the Company entered into an exclusive license agreement with Kukbo Co. Ltd ("Kukbo") for oral opaganib for the treatment of COVID-19, in South Korea. Under the terms of the license agreement, which follows the strategic investment by Kukbo noted in note 18(c) to the annual financial statements as of December 31, 2021, RedHill is to receive an upfront payment of $1.5 million and is eligible for up to $5.6 million in milestone payments as well as low double-digit royalties on net sales of oral opaganib in South Korea. Kukbo will receive the exclusive rights to commercialize opaganib in South Korea for COVID-19. |
| c. | In October 2021, the Company entered into an exclusive license agreement (the “License Agreement”) with Gaelan Medical Trade LLC ("Gaelan") for Talicia in the United Arab Emirates (UAE). Under the terms of the License Agreement, the Company received in April 2022 an upfront payment of $2 million. In addition, the Company is eligible for additional milestone payments as well as tiered royalties up to mid-teens on net sales of Talicia in the UAE. Gaelan will receive the exclusive rights to commercialize Talicia in the UAE, as well as a right of first refusal to commercialize Talicia in the Gulf Cooperation Council region (Saudi Arabia, Kuwait, Qatar, Bahrain, and Oman) for a pre-determined period. Gaelan shall be responsible for obtaining and maintaining regulatory approvals, as well as to conduct any and all required clinical and other studies. In March 2022, the Company and Gaelan signed an amendment to the License Agreement, according to which Gaelan may sublicense or assign any of its rights or obligations under the License Agreement. |
In connection with the License Agreement, the Company and Gaelan entered into a supply agreement, according to which, the Company will exclusively manufacture (by a third party CMO) and supply to Gaelan during the term of the agreement.
The Company accounted for the license of the Talicia IP rights and manufacturing and supply services as distinct performance obligations, mainly due to the manufacturing not being specialized or unique and can be manufactured by others (i.e. – the good or service is capable of being distinct), as well as due to that the License Agreement and the manufacturing and supply services do not significantly affect each other (i.e. – the promise is distinct within the context of the contract). During the three months ended March 31, 2022, the Company provided Gaelan substantially all the documentation which represents the right to use the Licensed IP, as well the paperwork relating to the IP itself and its regulatory documents. Accordingly, and since the manufacturing services are priced at their Standalone Selling Price, the Company recognized the $2 million upfront consideration as revenues in the Statement of Comprehensive Loss for the three months ended March 31, 2022.
| d. | In March 2022, the Company entered into an operating lease agreement for the U.S. offices it uses. The agreement will expire on July 31, 2034. The projected yearly rental for the first four years expenses are approximately $400,000 per year and for the next 8 years are approximately $900,000 per year. The Company recognized right-of-use asset and lease liability of approximately $4.8 million. The weighted average lessee’s incremental annual borrowing rate applied to the lease liabilities was 9.9%. |
NOTE 4 - ALLOWANCE FOR DEDUCTIONS FROM REVENUES:
The following table shows the movement of the allowance for deductions from revenues:
| | | Rebates and patient discount programs | | | Product returns | | | Total | |
| | | U.S. dollars in thousands | |
| As of January 1, 2022 | | | 29,742 | | | | 969 | | | | 30,711 | |
| Increases | | | 19,773 | | | | 1,903 | | | | 21,676 | |
| Decreases (utilized) | | | (17,343 | ) | | | (946 | ) | | | (18,289 | ) |
| Adjustments | | | (1,789 | ) | | | (919 | ) | | | (2,708 | ) |
| As of March 31, 2022 | | | 30,383 | | | | 1,007 | | | | 31,390 | |
| | | Rebates and patient discount programs | | | Product returns | | | Total | |
| | | U.S. dollars in thousands | |
| As of January 1, 2021 | | | 16,380 | | | | 1,963 | | | | 18,343 | |
| Increases | | | 17,804 | | | | 460 | | | | 18,264 | |
| Decreases (utilized) | | | (13,028 | ) | | | (243 | ) | | | (13,271 | ) |
| Adjustments | | | (659 | ) | | | - | | | | (659 | ) |
| As of March 31, 2021 | | | 20,497 | | | | 2,180 | | | | 22,677 | |
NOTE 5 - SHARE-BASED PAYMENTS:
| a. | The following is information on options granted during the three months ended March 31, 2022: |
| | | Number of options granted | |
| | | According to the Award Plan of the Company (1) | | | Exercise price for 1 ADS ($) | | | Fair value of options on date of grant in U.S. dollars in thousands (2) | |
| | | | | | | |
| Date of Grant | | | | | | |
| January 2022 | | | 5,000 | | | | 2.45 | | | | 7 | |
| March 2022 | | | 6,000 | | | | 1.67 | | | | 6 | |
| | | | 11,000 | | | | | | | | 13 | |
| 1) | The options will vest as follows: for directors, employees and consultants of the Company and the Company's subsidiary who had provided services exceeding one year as of the grant date, options will vest in 16 equal quarterly installments over a four-year period. For directors, employees and consultants of the Company and the Company's subsidiary who had not provided services exceeding one year as of the grant date, the options will vest as follows: 1/4 of the options will vest one year following the grant date and the rest over 12 equal quarterly installments. During the contractual term, the options will be exercisable, either in full or in part, from the vesting date until the end of 10 years from the date of grant. |
| 2) | The fair value of the options was computed using the binomial model and the underlying data used was mainly the following: price of the Company's ADS: $1.67-2.45, expected volatility: 66.94%-67.21%, risk-free interest rate: 1.73%-1.78% and the expected term was derived based on the contractual term of the options, the expected exercise behavior and expected post-vesting forfeiture rates. |
| b. | During the three months ended March 31, 2022, the Board of Directors of the Company approved grants of 2,016,500 RSUs to employees and consultants of the Company under the Company’s Award plan. The RSUs vest as follows: 50% of RSUs will vest one year following grant and 50% will vest two years following grant. The fair value of the RSUs on the date of grant was $5.7 million. |
In addition, the general meeting of the Company’s shareholders held on May 13, 2022 (the “May 2022 AGM”), subsequent to approval of the Company’s BoD, approved the grant of 140,000 RSUs under the Company’s Award plan to directors and to the Company's Chief Executive Officer in the same terms. The fair value of these RSUs on the date of grant was $0.1 million.
NOTE 6 - NET REVENUES:
| | | Three Months Ended March 31, | |
| | | 2022 | | | 2021 | |
| | | U.S dollars in thousands | |
| Licensing revenues | | | 2,000 | | | | — | |
| Movantik revenues | | | 14,614 | | | | 18,898 | |
| Sales of other products | | | 1,622 | | | | 1,677 | |
| | | | 18,236 | | | | 20,575 | |
NOTE 7 - FINANCIAL INSTRUMENTS:
The carrying amount of cash equivalents, bank deposits, restricted cash, receivables, account payables and accrued expenses approximate their fair value due to their short-term characteristics.
The fair value of the borrowing and Payable in respect of intangible assets purchase is approximately $98 million and $16 million as of March 31, 2022, respectively.
NOTE 8 - SEGMENT INFORMATION:
The Chief Executive Officer is the Company’s Chief Operating Decision Maker (“CODM”). The CODM allocates resources and assesses the Company’s performance based on the following segmentation: Commercial Operations and Research & Development.
Effective December 31, 2021, the Company changed its operating segments to reflect the manner in which the Company's CODM reviews and assesses performance. Accordingly, the Company reports on revenue and segment Adjusted EBITDA. Disclosures regarding the Company’s reportable segments for prior periods have been adjusted to conform to the current period presentation. Adjusted EBITDA represents net loss before depreciation, amortization, and financial expenses (income), adjusted to exclude share-based compensation.
The following table presents segment profitability and a reconciliation to the consolidated net loss and comprehensive loss for the periods indicated:
| | | Three Months Ended March 31, | |
| | | 2022 | | | 2021 | |
| | | U.S. dollars in thousands | |
| Commercial Operations Segment Adjusted EBITDA | | | (5,881 | ) | | | (5,011 | ) |
| Research And Development Adjusted EBITDA | | | (2,913 | ) | | | (9,950 | ) |
| Financial expenses (income), net | | | 3,899 | | | | 4,711 | |
| Share-based compensation to employees and service providers | | | 2,306 | | | | 872 | |
| Depreciation | | | 537 | | | | 492 | |
| Amortization and impairment of intangible assets | | | 1,601 | | | | 1,827 | |
| Consolidated Comprehensive loss | | | 17,137 | | | | 22,863 | |
Except for $2 million licensing revenues reported in the three months ended March 31, 2022, which are allocated to the Research and Development segment, all of the Company’s revenues are allocated to the Commercial Operations segment.
NOTE 9 - EVENT SUBSEQUENT TO MARCH 31, 2022:
| a. | In May 2022, the Company entered into a definitive agreement with a single investor. In accordance with the agreement, the Company issued to the investor 10,563,380 ADSs (or ADS equivalents), as well as granted unregistered private warrants to purchase up to 13,204,225 ADSs, for a total net consideration of $14.3 million. The warrants have an exercise price of $1.48 per ADS, are exercisable six months after the issuance date, and have a term of five and one-half years. The warrants may be exercised either for cash or on a cashless basis. |
| b. | On June 17, 2022, RedHill Inc. signed an amendment to the Credit Agreement. Under the Amendment, RedHill Inc. shall be required to maintain minimum net sales of $75 million for the trailing four fiscal quarter periods ending June 30, 2022, and September 30, 2022, and $90 million each fiscal quarter thereafter. Redhill Inc. shall also be required to maintain minimum net sales of $14 million for Movantik® each fiscal quarter starting the fiscal quarter ending June 30, 2022. The Amendment further sets the interest on the outstanding term loan for the quarters ending June 30, 2022, and September 30, 2022, at 3-month LIBOR rate (“LIBOR”), subject to a 1.75% floor rate, plus 7.2% fixed rate, which will be decreased to 6.7% thereafter. |
