Citi: November 2008 - 8 pages
Rigel (RIGL) Estimate change
Noneventful 3Q08 - Reserving Cash with More Focused Clinical Y
Programs
* Conclusion(s) - We maintain our Buy rating. R788's blood
pressure signal, which has become investor focus since ACR,
was not new at all. We believe the major catalyst and
value-creating event for RIGL is potential partnership
agreement by 1H09.
* Financial Results - RIGL reported non-eventful 3Q08
financial results. Revenues for the 3Q were $0.0M, same as
our estimate of $0.0M and compared to consensus estimate of
$2.0M. EPS came at ($1.03) compared to our and consensus
estimates of ($0.77) and ($0.83), respectively. Variance
was due to higher R&D costs associated with the Phase IIb
studies of Tamatinib in RA.
* Update on TASKi trials - Data from TASKi 2 & 3 are both
expected in late Summer 2009. Patient enrollment in TASKi2
is expected to complete by 1Q09.
* Reserving Cash with More Focused Clinical Programs - RIGL
plans on a more focused development of its pipeline program
as means to reserve cash. RIGL plans to partner Tamatinib
for ITP and Lupus and defers any further clinical
development. As well, R348 (Jak3 inhibitor) will not be
developed for RA but for psoriasis and topical applications,
which is expected with a partner. Results from Phase II
trials of Tamatinib leukemia are expected at the American
Society of Hematology meeting in December 2008; RIGL did not
comment on the partnership potential of this program.
See Appendix A-1 for Analyst Certification and important
disclosures.
Buy/Speculative 1S
Price (03 Nov 08)
US$8.45
Target price US$32.00
Expected total return
278.7%
Market Cap US$309M
Lucy Lu, MD
Kia Khaleghpour, PhD
C o m p a n y d e s c r i p t i o n
Rigel is a development-stage biopharmaceutical company with lead drug
Tamatinib (R788), a syk kinase inhibitor, currently in Phase IIb trials
(TASKi2 and TASKi3) for the treatment of Rheumatoid Arthritis (RA). RA is a
chronic inflammation disease of the lining of the joints, which can
eventually lead to long-term joint damage and result in chronic pain, loss of
function and disability. Early diagnosis and treatment of RA is critical to
patients' ability to maintain a productive lifestyle. It is estimated that RA
affects 2.1M people in the US. Rigel is also developing Tamatinib in
additional indications, such as iopathic thrombocytopenic purpura (ITP) ,
non-hodgkins lymphoma (NHL) and systemic lupus erythematosus (SLE or
lupus). The company also has three other drugs, R763 (partnered with Merck
Serono for solid tumors and leukemia), R348 (partnered with Pfizer for RA
and psoriasis) and R343 for allergic asthma in development.
I n v e s t m e n t s t r a t e g y
We rate Rigel (RIGL) Buy/Speculative Risk (1S) with a 12-month target price
of $32 per share. Rigel is a development-stage biopharmaceutical company
with lead drug Tamatinib (R788), a syk kinase inhibitor, currently in
clinical trials for the treatment of Rheumatoid Arthritis (RA). It is
estimated that RA affects 2.1M people in the US. Two Phase IIb studies
(TASKi2 and TASKi3) are currently ongoing for the RA indication and data
from these studies is expected by late Summer 2009. We expect positive
results and believe Tamatinib will become the first orally bioavailable
biologic approved drug for treatment of RA. Rigel is also developing
Tamatinib in additional indications, such as iopathic thrombocytopenic
purpura (ITP), non-hodgkins lymphoma (NHL) and systemic lupus
erythematosus (SLE or lupus). The company also has three other drugs, R763
(partnered with Merck Serono for solid tumors and leukemia), R348
(partnered with Pfizer for RA and psoriasis) and R343 for allergic asthma in
development. However, we have conservatively modeled only worldwide
Tamatinib sales in RA, which grows from $284M in 2012 to $1,559M in 2014.
Our $32 target price is based on using a 34x P/E multiple on the company's
2014 fully taxed EPS estimate of $3.51 with a discount rate of 30% per year.
V a l u a t i o n
Our 12-month target price of $32 is derived from using a 34x P/E multiple on
Rigel's 2014 fully-taxed EPS estimate discounted back at 30% per year.
We believe RIGL should be given a similar multiple as the peer group (P/E
multiple range of 19x-55x; average 34x) since we project it will attain
profitability and join the ranks of our comparison group. We have no basis to
provide the company with a discount or premium to this peer group multiple at
present. We recognize the uncertainty associated with 2014 estimates, but
adjust for this by incorporating a discount rate significantly higher than
the company's cost of capital. This high discount rate also reflects that
emerging biotech stocks are exceptionally volatile and often appear to trade
as much on near-term news flows as they do on longer-range profit
projections.
We note that the discount rate represents a standard base on the status of
the product and our actual discount rate takes into account other factors,
including profitability, the complexity of the studies, conviction on the
outcome and timing of the event and may be higher or lower than these
guidelines. In the case of RIGL, we believe 30% is a proper discount rate
based on positive Phase IIa data with Tamatinib in RA but the uncertainty
associated with the final trial data and ability to gain FDA approval and is
in-line with our base discount rate valuation grid.
R i s k s
We believe a Speculative (S) risk rating for RIGL is appropriate, given the
price volatility and the risk associated with the Tamatinib program.
As with any development-stage biopharmaceutical company, investing in RIGL
involves many clinical, regulatory, commercial, intellectual property (IP)
and financial risks. We believe the most important near- to medium-term
downside risks to our target price consist of:
Clinical Risks - Tamatinib has shown interesting Phase IIa data in RA. We
believe that Tamatinib is well tolerated and efficacious for the TNF
refractory patients, but we cannot conclusively predict the drug will be
successful with respect to safety or efficacy when the full pivotal data are
presented from larger patient samples.
Regulatory Risks - Tamatinib's safety and efficacy profile seen thus far in
RA seem sufficient to gain FDA approvability; however, we cannot fully
determine how the FDA may react to the final pivotal trial data presented.
Commercial Risks - We believe that RIGL can obtain pricing for Tamatinib
around $15,000 per year, but if the company is unable to obtain this goal,
then our revenue estimates for Tamatinib in RA patients may not be achieved.
As well, depending on the efficacy and safety profile of Tamatinib in
clinical trials, it remains to be determined whether the drug will be used as
a second line agent in TNF refractory patients or more upfront as a first
line agent.
IP Risks - Tamatinib may have patent protection until 2027. The patent
position of biotechnology companies can be highly uncertain, and the
company would face the risk in obtaining and defending its key product
patents. Failure to protect its patents could negatively impact the stock
price.
Financial/Partnership Risks - We believe RIGL will be in need of additional
capital in 2009. This may be accomplished via a partnership deal for their
lead product or via a secondary round of financing. We have assumed both a
second round of financing and milestone revenues from potential partnership
of Tamatinib for the RA indication in our financial forecasts. If the company
is unable to access the capital markets or sign a partnership agreement, it
may not be able to finance further clinical development of Tamatinib, or its
other products and build up of a commercial infrastructure.
Appendix A-1
Analyst Certification
Each research analyst(s) principally responsible for the preparation and
content of all or any identified portion of this research report hereby
certifies that, with respect to ... |
