EX-2 3 exh_2.htm EXHIBIT 2

EXHIBIT 2

REDHILL BIOPHARMA LTD.

CONDENSED INTERIM FINANCIAL INFORMATION

(UNAUDITED)

JUNE 30, 2015

REDHILL BIOPHARMA LTD.

CONDENSED INTERIM FINANCIAL INFORMATION

(UNAUDITED)

JUNE 30, 2015

TABLE OF CONTENTS

	Page
UNAUDITED FINANCIAL STATEMENTS AS OF JUNE 30, 2015 -
IN U.S. DOLLARS:
Condensed interim statements of comprehensive loss	2
Condensed interim statements of financial position	3
Condensed interim statements of changes in equity	4-5
Condensed interim statements of cash flows	6
Notes to the condensed interim financial statements	7-11

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REDHILL BIOPHARMA LTD.

CONDENSED INTERIM STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

	Three months ended June 30				Six months ended June 30
	2015		2014		2015		2014
	U.S. dollars in thousands

REVENUES:
Licensing revenue		-		-		-		7,000
Other revenue		1		4		2		9
TOTAL REVENUES		1		4		2		7,009
COST OF REVENUE		-		-		-		1,050
RESEARCH AND DEVELOPMENT EXPENSES, net		5,090		3,157		8,919		4,893
GENERAL AND ADMINISTRATIVE EXPENSES		801		961		1,728		1,988
OTHER INCOME		-		-		-		100
OPERATING LOSS		5,890		4,114		10,645		822
FINANCIAL INCOME		167		133		91		222
FINANCIAL EXPENSES		873		543		684		547
FINANCIAL EXPENSES, net, see note 6		706		410		593		325
LOSS AND COMPREHENSIVE LOSS		6,596		4,524		11,238		1,147

LOSS PER ORDINARY SHARE, basic and diluted (U.S. dollars)		0.07		0.05		0.12		0.01
WEIGHTED AVERAGE OF ORDINARY SHARES (in thousands)		99,438		87,559		96,574		85,354

The accompanying notes are an integral part of these condensed financial statements.

REDHILL BIOPHARMA LTD.

CONDENSED INTERIM STATEMENTS OF FINANCIAL POSITION

(Unaudited)

	June 30			December 31
	2015			2014
	U.S. dollars in thousands

CURRENT ASSETS:
Cash and cash equivalents		7,439			5,892
Bank deposits		19,041			17,053
Prepaid expenses and receivables		1,572			3,074
		28,052			26,019
NON-CURRENT ASSETS:
Bank deposits		78			76
Fixed assets		136			146
Intangible assets		6,115			2,615
		6,329			2,837
TOTAL ASSETS		34,381			28,856

CURRENT LIABILITIES :
Accounts payable and accrued expenses		2,012			1,720
Intangible assets payable, see note 3		2,000			-
		4,012			1,720
NON-CURRENT LIABILITIES -
Derivative financial instruments, see note 6		2,746			2,125
TOTAL LIABILITIES		6,758			3,845

EQUITY:
Ordinary shares		271			240
Additional paid-in capital		79,135			65,461
Warrants		1,057			1,528
Accumulated deficit		(52,840	)		(42,218	)
TOTAL EQUITY		27,623			25,011
TOTAL LIABILITIES AND EQUITY		34,381			28,856

The accompanying notes are an integral part of these condensed financial statements.

(Continued) - 1

REDHILL BIOPHARMA LTD.

CONDENSED INTERIM STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

	Ordinary shares		Additional paid-in capital		Warrants			Accumulated deficit			Total equity
	U.S. dollars in thousands

BALANCE AT APRIL 1, 2015		271		79,099		1,057			(46,538	)		33,889

CHANGES IN THE THREE-MONTH PERIOD ENDED JUNE 30, 2015:
Share-based compensation to employees and service providers		-		-		-			294			294
Exercise of options into ordinary shares		*		36		-			-			36
Comprehensive loss		-		-		-			(6,596	)		(6,596	)
BALANCE AT JUNE 30, 2015		271		79,135		1,057			(52,840	)		27,623
BALANCE AT APRIL 1, 2014		239		64,858		1,591			(29,638	)		37,050

CHANGES IN THE THREE-MONTH PERIOD ENDED JUNE 30, 2014:
Share-based compensation to employees and service providers		-		-		-			626			626
Exercise of warrants and options into ordinary shares, net		1		589		(63	)		-			527
Comprehensive loss		-		-		-			(4,524	)		(4,524	)
BALANCE AT JUNE 30, 2014		240		65,447		1,528			(33,536	)		33,679

* Represents amount less than $1 thousand.

The accompanying notes are an integral part of these condensed financial statements.

(Concluded) - 2

REDHILL BIOPHARMA LTD.

CONDENSED INTERIM STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

	Ordinary shares		Additional paid-in capital		Warrants			Accumulated deficit			Total equity
	U.S. dollars in thousands
BALANCE AT JANUARY 1, 2015		240		65,461		1,528			(42,218	)		25,011
CHANGES IN THE SIX-MONTH PERIOD ENDED JUNE 30, 2015:
Share-based compensation to employees and service providers		-		-		-			616			616
Exercise of options into ordinary shares		*		36		-			-			36
Issuance of ordinary shares, net of expenses		31		13,167		-			-			13,198
Warrants expiration		-		471		(471	)		-			-
Comprehensive loss		-		-		-			(11,238	)		(11,238	)
BALANCE AT JUNE 30, 2015		271		79,135		1,057			(52,840	)		27,623
BALANCE AT JANUARY 1, 2014		174		43,144		1,867			(33,260	)		11,925
CHANGES IN THE SIX-MONTH PERIOD ENDED JUNE 30, 2014:
Share-based compensation to employees and service providers		-		-		-			871			871
Exercise of options and warrants into ordinary shares, net		11		5,682		(702	)		-			4,991
Issuance of ordinary shares and warrants, net of expenses		55		15,927		1,057			-			17,039
Warrants expiration		-		694		(694	)		-			-
Comprehensive loss		-		-		-			(1,147	)		(1,147	)
BALANCE AT JUNE 30, 2014		240		65,447		1,528			(33,536	)		33,679

* Represents amount less than $1 thousand.

The accompanying notes are an integral part of these condensed financial statements.

REDHILL BIOPHARMA LTD.

CONDENSED INTERIM STATEMENTS OF CASH FLOWS

(Unaudited)

	Three months ended June 30						Six months ended June 30
	2015			2014			2015			2014
	U.S. dollars in thousands

OPERATING ACTIVITIES:
Comprehensive loss		(6,596	)		(4,524	)		(11,238	)		(1,147	)
Adjustments in respect of income and expenses not involving cash flow:
Share-based compensation to employees and service providers		294			626			616			871
Depreciation and amortization		8			6			17			13
Cost of out- licensing of intangible assets		-			-			-			50
Fair value losses on derivative financial instruments		869			550			621			534
Fair value gains on financial assets at fair value through profit or loss		-			(1	)		-			-
Revaluation of bank deposits		14			(10	)		10			(8	)
Exchange differences in respect of cash and cash equivalents		(114	)		(130	)		53			(214	)
		1,071			1,041			1,317			1,246
Changes in assets and liability items:
Decrease (increase) in prepaid expenses and receivables		796			(1,165	)		1,502			(1,881	)
Increase (decrease) in accounts payable and accrued expenses		49			484			367			(706	)
		845			(681	)		1,869			(2,587	)
Net cash used in operating activities		(4,680	)		(4,164	)		(8,052	)		(2,488	)
INVESTING ACTIVITIES:
Purchase of fixed assets		(5	)		(5	)		(7	)		(30	)
Purchase of intangible assets		(1,500	)		-			(1,575	)		-
Change in investment in current bank deposits		5,000			(7,000	)		(2,000	)		(7,000	)
Purchase of non-current bank deposits		-			(10,000	)		-			(10,000	)
Proceeds from sale of financial assets at fair value through profit or loss		-			243			-			243
Net cash provided by (used in) investing activities		3,495			(16,762	)		(3,582	)		(16,787	)
FINANCING ACTIVITIES:
Proceeds from issuance of ordinary shares and derivative financial instruments, net		-			-			13,198			19,364
Exercise of warrants and options into ordinary shares, net		36			527			36			4,991
Net cash provided by financing activities		36			527			13,234			24,355
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(1,149	)		(20,399	)		1,600			5,080
EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS		114			130			(53	)		214
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		8,474			37,414			5,892			11,851
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD		7,439			17,145			7,439			17,145
Supplementary information on interest received in cash		54			9			80			15
Supplementary information on investing activities not involving cash flows - Purchase of intangible assets		-			1,000			2,000			1,000

The accompanying notes are an integral part of these condensed financial statements.

REDHILL BIOPHARMA LTD.

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - GENERAL:

General

RedHill Biopharma Ltd. (the “Company”) was incorporated in Israel on August 3, 2009 and is active in the pharmaceutical industry. The Company is focused primarily on the development and acquisition of late clinical-stage, proprietary, orally-administered, small molecule therapeutic candidates for the treatment of inflammatory and gastrointestinal diseases, including gastrointestinal cancers. Additionally, the Company's strategy is to commercialize these therapeutic candidates, possibly through cooperation with other pharmaceutical and biotechnology companies, and to acquire rights to additional therapeutic candidates.

In February 2011, the Company listed its securities on the Tel-Aviv Stock Exchange (“TASE”) and they have been traded on the TASE since then. Since December 2012, the Company's American Depositary Shares (“ADSs”) have been listed on the NASDAQ Capital Market (“NASDAQ”), each representing ten ordinary shares.

The Company's registered address is at 21 Ha'arba'a St, Tel-Aviv, Israel.

The Company is engaged in the research and development of most of its therapeutic candidates and to date has out-licensed only one of its therapeutic candidates. Accordingly, there is no assurance that the Company’s business will generate positive cash flow. Through June 30, 2015, the Company has an accumulated deficit and its activities have been funded through public and private offerings of the Company's securities.

The Company plans to further fund its future operations through commercialization of its therapeutic candidates, out-licensing certain programs and raising additional capital. The Company's current cash resources are not sufficient to complete the research and development of all of the Company's therapeutic candidates. Management expects that the Company will incur more losses as it continues to focus its resources on advancing its therapeutic candidates 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. See subsequent event note 7 for capital raised in July 2015.

If the Company is unable to commercialize or further out-license its remaining therapeutic candidates or obtain future financing, the Company may decide to delay, reduce the scope of, or eliminate one or more of its research, development programs or commercialization related to the therapeutic candidates, any of which may have a material adverse effect on the Company's business, financial condition and results of operations.

Approval of the condensed interim financial statements

These condensed interim financial statements were approved by the Board of Directors on July 28, 2015.

REDHILL BIOPHARMA LTD.

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (continued)

(Unaudited)

NOTE 2 - BASIS OF PREPARATION OF THE CONDENSED INTERIM FINANCIAL STATEMENTS:

The Company's condensed interim financial statements for the six and three months ended June 30, 2015 and 2014 (the "Condensed Interim Financial Statements") have been prepared in accordance with International Accounting Standard IAS 34, “Interim Financial Reporting”. These Condensed Interim Financial Statements, which are unaudited, do not include all disclosures necessary for a complete statement of financial position, results of operations, and cash flow in conformity with generally accepted accounting principles. The Condensed Interim Financial Statements should be read in conjunction with the annual financial statements as of December 31, 2014 and for the year then ended 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 six and three months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the entire fiscal year or for any other interim period.

The accounting policies applied in the preparation of the Condensed Interim Financial Statements are consistent with those applied in the preparation of the annual financial statements as of December 31, 2014.

New IFRSs not yet in effect, and which the Company did not elect to adopt early, were listed in the 2014 annual financial statements.

NOTE 3 - AGREEMENT TO PURCHASE INTELLECTUAL PROPERTY:

On March 30, 2015 the Company entered into an agreement with a U.S.-based private company that granted the Company the exclusive worldwide development and commercialization rights for all indications to a therapeutic candidate targeting multiple inflammatory-GI and oncology disease indications. Under the terms of the agreement, the Company undertook to pay the U.S. company an upfront payment in the amount of $1.5 million and an additional amount of $2 million which will be paid on the earlier of (i) a specific date or(ii) reaching a specific development milestone. In addition, the Company undertook to pay up to $2 million in potential development milestone payments, and potential tiered royalties starting in the low double-digits. Such potential royalties are due until the later of (i) the expiration of the last to expire licensed patent that covers the product in the relevant country; and (ii) the expiration of regulatory exclusivity in the relevant country. Through June 30, 2015, the Company paid the U.S. company the initial amount of $ 1.5 million. As of June 30, 2015, the Company recognized an amount of $2 million as a current liability.

REDHILL BIOPHARMA LTD.

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (continued)

(Unaudited)

NOTE 4 - EQUITY:

In February 2015, the Company completed an underwritten public offering in the U.S. of an aggregate of 1,150,000 ADSs at a price of $12.50 per ADS for gross proceeds to the Company of $14.4 million before underwriting discounts and commissions and other offering expenses. Net proceeds to the Company from the offering, following discounts, commissions and expenses amounting to $1.2 million, were approximately $13.2 million.

As a result of the offering, the Price Protection Right as defined in the annual financial

statements as of December 31, 2014, provided by the Company to investors who participated in the January 2014 private placement, is no longer valid. The change in the fair value of the Price Protection Right of $542 thousand was recognized as financial income in the statement of comprehensive loss in the first quarter of 2015.

In January 2015, 2,558,440 unexercised warrants, issued by the Company in January 2013, expired along with any related rights or claims by the holders.

In June 2015, the Company received notifications of exercise with respect to options that had been issued to an employee of the company. Accordingly, the Company issued 220,000 ordinary shares for $36 thousand.

NOTE 5 - SHARE-BASED PAYMENTS:

On May 17, 2015, the Board of Directors of the Company granted 330,000 options to employees and consultants of the Company under the Company’s stock options plan. The fair value of the options grant on the date of grant was $240 thousand.

Each option is exercisable into one ordinary share at an exercise price of $1.61 per share. The options will vest as follows: 1/4 of the options will vest one year following the grant date and the rest over the following three years in 12 equal quarterly installments. The options will be exercisable, either in full or in part, from the vesting date until the end of 7 years from the date of grant. 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 ordinary share: $1.56, expected volatility: 51.75%, risk-free interest rate: 1.87% and expected useful life to exercise: seven years.

REDHILL BIOPHARMA LTD.

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (continued)

(Unaudited)

NOTE 6 - FINANCIAL INSTRUMENTS:

As of June 30, 2015 and December 31, 2014, the financial instruments of the Company presented at fair value are derivative financial instruments in the amounts of $2,746 thousand and $2,125 thousand, respectively. Those instruments are classified as level 3.

The following table presents the change in instruments measured at level 3 for the periods ended June 30, 2015 and 2014:

	Three months ended June 30				Six months ended June 30
	2015		2014		2015		2014
	U.S. dollars in thousands

Balance at beginning of the period		1,877		2,309		2,125		-
Proceeds received during the period		-		-		-		2,325
Amounts recognized in profit or loss		869		550		621		534
Balance at the end of the period		2,746		2,859		2,746		2,859

The fair value of the above-mentioned derivative financial instruments that are not traded in an active market is determined by using valuation techniques. The Company uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period.

The fair value of the warrants is computed using the Black and Scholes option pricing model. The fair value of the Price Protection Right is computed using a common valuation model which takes into account specific scenarios. The fair value of the warrants as of June 30, 2015, is based on the price of an ordinary share on June 30, 2015 and based on the following key parameters: risk-free interest rate of 0.47% and an average standard deviation of 48.63%. The fair value of the warrants and Price Protection Right as of December 31, 2014, was computed based on the price of an ordinary share on December 31, 2014 and based on the following key parameters: risk-free interest rate of 0.12% - 0.7% and an average standard deviation of 44.92% - 61.70%.

The carrying amount of cash and cash equivalents, current and non-current bank deposits, receivables and account payables and accrued expenses approximate their fair values.

REDHILL BIOPHARMA LTD.

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (continued)

(Unaudited)

NOTE 7 - EVENTS SUBSEQUENT TO JUNE 30, 2015

In July 2015, the Company completed an underwritten public offering in the U.S. of an aggregate of 2.74 million ADSs at a price of $16.25 per ADS generating gross proceeds to the Company of approximately 44.5$ million before underwriting discounts and commissions and other offering expenses. Net proceeds to the Company from the offering, following underwriting discounts and other offering expenses, were approximately $41.6 million.

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