What happened

Shares of Redhill Biopharma (NASDAQ:RDHL), an emerging gastrointestinal specialist, rose by as much as 34% in pre-market trading this morning. The spark?

Redhill announced that its experimental Crohn's disease drug, RHB-104, met its primary endpoint and key secondary endpoints in a late-stage trial before the opening bell today. Turning to the specifics, patients treated with RHB-104 exhibited a significantly higher remission rate than those on placebo (p = 0.013), which was the study's primary endpoint.

Equally as important, Redhill noted that the rates of serious adverse events between the treatment and placebo arms of the study were highly similar and fairly low in both cases. If true, RHB-104 could be on the path toward becoming an important new tool in the battle against this particularly painful form of inflammatory bowel disease. 

Rocket taking flight.

Image Source: Getty Images.

So what

While there's a surfeit of available treatment options for Crohn's disease at the moment, there's always room for more for two key reasons. First off, patients often stop responding to treatment with individual agents over time, which is problematic given that this is a lifelong, chronic disease that requires medical intervention in order to manage the symptoms properly.

Secondly, the current generation of Food and Drug Administration-approved therapies for Crohn's disease typically come with serious side effect profiles that lead to unusually high rates of patients forgoing treatment altogether or moving on to other medicines in short order. So, RHB-104 has a real shot at carving out a profitable niche in this multibillion-dollar market. 

Now what

Redhill emphasized in the press release that it plans to meet with key opinion leaders and regulators to discuss the drug's path to approval. Although this study might be enough to convince regulators to green-light the drug, management said that additional studies may also be required prior to filing a New Drug Application with the FDA. And that's the good news.

The bad news is that Redhill is essentially broke. The company exited the most recent quarter with less than $40 million in cash. That amount is simply not enough to cover current expenses and advance RHB-104's late-stage clinical program at the same time. In short, investors should expect an enormous secondary offering soon. 

George Budwell has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.