CS: Rigel Pharmaceuticals Inc. (RIGL) Outperform [V] M. Aberman
CP: US$ 7.17 TP: US$ 16 CAP: US$ 262.3m
R788 Partnership Delay Disappointing - Revising Estimates and Lowering Target Price to $16 (from $34)
• Conclusion: While the delay in partnership is disappointing, management did prepare investors to this possibility in meetings
over the past few weeks, making it less of a surprise. We continue to believe R788 is a valuable asset for rheumatoid arthritis
(RA) based on the strong efficacy seen in the Phase IIa trial, despite safety signals that include elevated liver enzymes,
neutropenia, and effects on blood pressure. Investors now have to endure the risk of the much larger PIIb trials, which will
read out over the summer; but, they should be rewarded for that risk if the data recapitulate what we have seen in the Phase
IIa program. The addition of a lower, once-per-day dose, and better management of the side effects (such as hypertension)
could lead to a better tolerability profile in the PIIb program.
• What's New? Rigel announced the delay of partnership discussion for its lead compound, R788, until after the release of
Phase IIb data from TASKi2 and TASKi3 trials which are expected in July and August 2009. In addition, the company
announced a restructuring plan. Rigel ended 2008 with $134.5 M in cash/equivalents, enough to take the programs through
2Q10.
• Implication: We are lowering our price target to $16 to reflect a likely delay in starting the PIII program as a result of the
partnering delay as well as taking into account the higher risk of the program. Even with this much more conservative view of
the R788 program, we believe Rigel is significantly undervalued and we would advise investors to hold the stock for the
coming PIIb data over the summer. Positive data from that trial should lead to significant appreciation followed by a
partnership deal that could lead to further upside. |
