Yet Another Failure Has Rigel Pharmaceuticals Almost Back To Square One

By Stephen D. Simpson, CFA | August 26, 2013 AAA

The news from long-suffering biotech Rigel Pharmaceuticals (Nasdaq:RIGL) just continues to get worse. Rigel has already seen AstraZeneca (NYSE: AZN) return the rights to R788, its Syk kinase inhibitor for rheumatoid arthritis, and with Monday's announcement of the failure of R343 in allergic asthma, it's worth asking whether there's any real value left in the company's Syk inhibitor program. Although the company still has a couple of clinical trials ongoing, as well as $250 million in cash, these shares are looking more and more like a spin of the roulette wheel than any sort of real investment opportunity.

Another Syk Failure
Seeing as Rigel's market cap was less than $320 million on Friday, it's difficult to say that the Street had robust expectations for Rigel's Phase II allergic asthma drug R343. While allergic asthma (of varying degrees of severity) affects an estimated 10 million people in the U.S., it's a moot point now as the drug failed to meet both primary and secondary endpoints, leading management to terminate the program.

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What's Next?
With R343 off the table, attention now shifts to R333, a topical JAK3/Syk inhibitor in a Phase II trial for the treatment of discoid lupus. Discoid lupus is a chronic skin condition that causes inflammation, sores, and scarring of the skin โ€“ particularly on the face, ears, and scalp. The musician Seal suffered from this condition earlier in his life, and while it appears to be in remission now it caused significant facial scarring and hair loss.

The market potential of an effective treatment for discoid lupus is likely worthwhile, as there are more than 50,000 people in the U.S. estimated to have this condition. That potential may be moot, though, as the company's failures thus far in developing effective Syk inhibitors raises the question of whether they really have a firm understanding of the relevant mechanism(s) of action and the resulting ability to design effective drugs.

Rigel also has R348 in clinical development as a treatment for dry eye. Given how difficult this condition is to treat, Allergan's (NYSE:AGN) Restasis is the only approved drug specifically targeting this indication, R348 has to be considered a long-shot at best.

Still Awaiting Word On R788
Rigel has yet to make a final determination of its plans for R788 (aka fostamatinib), the oral Syk kinse inhibitor it has explored for the treatment of rheumatoid arthritis. After a largely disappointing clinical development history, AstraZeneca opted to return this drug to Rigel and walk away from the partnership.

Although R788 has shown some signs of efficacy, and could theoretically have a role in patients who fail DMARD therapy, I think you have to consider AstraZeneca's own desperation for growth when evaluating the potential of R788 โ€“ if there were any serious, credible market opportunity for R788, I highly doubt AstraZeneca would have abandoned it. That said, Rigel could still elect to try to submit an NDA, at which point the company would still need to find a marketing partner for a drug whose clinical data package suggests that a major marketing effort would be needed to generate meaningful sales.

The Bottom Line
Rigel shares are trading at about 15% to 20% above cash value per share, and I think that's a fair price considering the circumstances. The company has yet to demonstrate that it has a commercially viable product candidate in its pipeline, and pursuing a Phase III study for either discoid lupus or dry eye could well consume half (or more) of the current cash balance. Given the paucity of data on either of those drugs, buying Rigel today is basically just a nearly blind bet on one or both of those Phase II trials delivering positive data. That's gambling, not investing, and I don't see a compelling reason to bother with Rigel shares today.

Disclosure โ€“ At the time of writing, the author did not own shares of any company mentioned in this article.

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