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RedHill Biopharma Ltd. (RDHL) recently announced that it entered into a definitive agreement with OrbiMed Israel Partners Limited Partnership, an affiliate of OrbiMed Advisors LLC.

The agreement relates to the sale of  RedHill Biopharma’s American Depository Shares (ADSs) and warrants in a private placement transaction for $6.0 million (1ADS= 10 ordinary shares).

The private placement is expected to close by Jan 2014. As per the agreement, upon closing, RedHill Biopharma will issue OrbiMed a total of 631,580 units. Each unit will consist of one ADS and a warrant to purchase 0.4 of an ADS, at a cost of $9.50 per Unit.

RedHill Biopharma will issue to OrbiMed warrants to purchase 252,632 ADSs in total, which will have a three-year term and exercisable at a price of $11 per ADS.

RedHill Biopharma expects to use the proceeds from the sale for general working capital and development of its leading gastrointestinal candidates, RHB-104 for Crohn's disease and RHB-105 for Helicobacter pylori infection.

We note that apart from Crohn’s disease, RedHill Biopharma is also evaluating RHB-104 for the treatment of multiple sclerosis (phase IIa proof of concept trial is ongoing) and rheumatoid arthritis (plans for a phase IIa proof of concept trial), and systemic lupus erythematosus.

The company currently does not have any approved product in its portfolio and hence we are encouraged by RedHill Biopharma’s efforts to invest in development of its late-stage candidates.

RedHill Biopharma carries a Zacks Rank #2 (Buy). Investors interested in the biopharma industry may consider stocks like Santarus, Inc. , ArQule, Inc. (ARQL - Snapshot Report) and Jazz Pharmaceuticals (JAZZ - Analyst Report). All these stocks carry a Zacks Rank #1 (Strong Buy).

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