Rigel Pharmaceutical, Inc. (RIGL)

Rigel Pharmaceutcal, Inc.’s history dated back to 1996, when it had some core industry “know-how” regarding to drug discovery. Rigel went public in 2000 and has been increasing the equity value or market capitalization from around $150 million in the inception to about $750 million as of early February 2012. However, if you take a look at the stock price chart of Rigel as is shown below, you might be scared to see the extreme volatilities like roller coaster along the road. Well, this is the fascinating feature of small-cap biopharmaceutical companies – with several or even one candidates in pipeline, the stock is significantly affected by catalyst events, but, high return always comes along with high risk.

Let’s look into this company in a qualitative way from the beginning period.

In the first several years since its initial public offering, Rigel, as many other small biotech firms, obtained capitalization from the market by claiming its core advantage in drug discovery technology.

To come up with a new drug in the market, it may take more than $10 billion dollars and 10 years. Identifying a NME (new medical entity) from chemical compounds library that can have the potential to treat disease is really not easy a thing even though most big firms adopt HFT (high throughput) screening technology and computer modification to optimize molecules. Drug discovery is more of a systematic/scientific process than just a luck try.

The core competitive technologies of Rigel are its retroviral and pathway mapping. In the 2000 annual report, Rigel stated to have detected more than 500 million protein-protein interactions in cells, discovered more than 10,000 signaling pathway members which modify cellular function and mapped the protein interactions of over 150 disease modifying protein targets in nine disease relevant pathways. There were programs for multiple disease areas such as asthma/allergy, autoimmunity, transplant rejection, rheumatoid arthritis (both E-3 ubiquitin ligase and tumor necrosis factor (TNF) pathway), inflammatory bowel disease, chronic bronchitis, cancerous tumor growth (both cell cycle inhibition, E-3 ubiquitin ligase and angiogenesis inhibition) and hepatitis C. And Rigel successfully attracted big firms like Pfizer, Novartis as collaborators to fund its programs.

As I have investigated quite a few Biotechnology companies in the U.S., many of them died silently after several or ten years of research, burning through huge cash from investors, with nothing come out in the end. For a company like Rigel to pull through, it’s already a proof that it is a good company.

By 2005, with its core advantage on drug discovery, Rigel had several good candidates entered into clinical trials: R788 for the treatment of rheumatoid arthritis (RA) and Thrombocytopenia (ITP) initiated clinical trial program, R763 in Oncology phase I trial and R112 was in phase 2 clinical trial.

In 2005, the 10-year-old Rigel with clear strategy on “advancing at least one new product candidate into the clinic each year” began its roller coaster trip because it had to put limited resources or capital into cash-burning clinical trial programs. From then on, the investors had been watching closely on any change of update of clinical trial outcome, because every advancement means considerable future return, while any setback indicates their money went down to the tubes.

In December 2005, Phase 2 trial of R112 for the treatment of allergic rhinitis completed, announcing that it did not achieve the primary endpoint. The stock price plunged from $22 to $7.6 in just half a month. What a horrible experience if you stuck to this stock at that time.

However, please note there is another black horse candidate R788 in phase 2 clinical trial. So, there is still hope. The stock price was fluctuated around $10 for two years, until in the end of 2007, when phase 2 clinical trial of R788 (fostamatinib disodium) to treat RA demonstrated statistically significant efficacy results and at the same time, good results on safety too. The stock price rocked from $7 to $27 in two weeks. Roller Coaster again!

2008 is a pessimistic year, the whole market tumbled. The investors are so jittery that they reacted to some mild negative result from R788 trial with strong reaction. The price fell back to around $6- $8 at the end of 2008. If I had studied the clinical trial report carefully back at that time, I would not hesitate to buy in RIGL then.

After 2008, because of the promising prospect of R788, RIGL collected considerable milestone fees from research collaborators; the equity value was pumped up as shown below:

 

 

The recent quarterly reports are quite exciting: the agreement between AstraZeneca and Rigel on the rights of R788, effective on March 26, 2010 and Regel received an upfront payment from AZ of $100.0 million in April 2010. In September, 2010, Rigel earned $25.0 million from AZ for completing the transfer of the fostamatinib long-term open label extension study to AZ and for the initiation of Phase 3 clinical trials in the fostamatinib program by AZ.  If specified development, regulatory and launch events are achieved, Rigel is also eligible to receive $320 million fee. And if specified sales levels are achieved, Rigel is eligible to receive $800 million further, as well we double-digit royalties on net worldwide sales.

The cash and equivalents balance was $265.7 million on September 30, 2011, compared to $177.3 million over the same period in 2010.

In my perspective, the future of this company looks bright because of two factors.

First, the proprietary drug discovery technology has been proved to be effective with R788 coming out as promising candidate to compete blockbusters like Enbrel (TNF factor, treat RA with annual sales of $3.5 billion for Amgen Inc. in 2010). So there are big chances that other molecules in this company’s portfolio could become future potential drugs too. Even the project on R788 failed, this company still has enough cash and technology “know-how” to attract big-biopharma firms to collaborate with it.

Second, with $125 million already reaped from AZ for the star product R788, there are more trophy ahead – $320 if launch events hit, $800 and double digit royalties if sales level hit. As phase 3 is more focused on safety issue in larger population, while existing clinical data collected from phase2 turns out to be quite optimal: the most common adverse events are related to infections and these were generally evenly distributed among the placebo and R788 (fostamatinib) groups.  The major concern on increase blood pressure is well addressed as those patients who those patients who had their dose of blood pressure medications adjusted or initiated, their blood pressure was successfully reduced. So my opinion is tending to optimistic too.

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