Citi: Rigel
12/7/08
Positive Phase II Data of R788 in Refactory/Relapsed
B-cell non-Hodgkin's Lymphoma Presented at ASH Meeting
* What is new - RIGL presented positive data from the
Phase II study of R778 in 68 patients with relapsed/
refractory B-cell non-Hodgkin's lymphoma (NHL) at the
American Society of Hematology (ASH) meeting. Overall,
R778 led to significant response in DLBCL and CLL/SLL
patients, along with prolonged stable disease in FL
patients.
* Patient Demographics - Patients had advanced disease
and had failed prior treatment. Overall, patients had
received a median of 5 prior therapies, including
autologous stem cell transplant and radioimmunotherapy.
Patients were categorized into three disease cohorts:
diffuse large B-cell lymphoma (DLBCL, n=23); follicular
(FL, n= 21); and other B-cell NHL (n=24) including
chronic lympholytic leukemia (CLL/SLL n=11), mantle (MCL,
n=9), marginal zone (MALT, n=3) and lymphoplasmacytic NHL
(n=1).
* Efficacy of R778 in B-Cell NHL - Best response,
including partial (PR) and complete response (CR)
reported per disease type was as follows: DLBCL 22%
(n=5); SLL/CLL 55% (n=6); FL 10% (n=2); MCL 11% (n=1). 23
patients had stable disease: 12 FL pts, 4 DLBCL pts, 4
MCL pts, 2 CLL/SLL pts and 1 MALT pt. The median
progression free survival period was 4.5 months. The
median duration of response was 3 months for DLBCL
patients, 5.5 months for FL patients, and 5 months for
patients in the mixed NHL category.
* Safety of R778 in B-cell NHL - There were 4 cases of
neutropenia with fever and 8 patients required dose
modification due to the following reasons: neutropenia
(n=2), hypertension(n=2), liver function test
abnormalities (n=2), fever (n=1), and mucositis (n=1).
Six patients withdrew before evaluating the initial
response, due to adverse events (n=5) and noncompliance
(n=1). Drug related adverse events included diarrhea,
fatigue, thrombocytopenia, anemia, hypertension, and
neutropenia.
* Conclusion(s) - We view the Phase II data as positive
and believe potential usage of R788 in NHL can provide
further upside to our estimates. RIGL expects develop
this program further and conduct an additional Phase II
study in 2009.
Buy/Speculative 1S
Price (05 Dec 08) US$7.02
Target price US$32.00
Expected share price return
355.8%
Expected dividend yield
0.0%
Expected total return
355.8%
Market Cap US$257M
Price Performance (RIC:RIGL.O, BB:RIGL US)
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 price target 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 price target 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 |
