CS: Rigel Pharmaceuticals Inc. (RIGL) OUTPERFORM [V] M. Aberman
CP: US$ 8.42 TP: US$ 20 CAP: US$ 308m
Updating Model for 2Q - Remain Outperform, Lowering Estimates
• Conclusion: Rigel stock has been extremely volatile over the quarter, rising to close to $15 after the TASKi2 data only to fall
back to the current "pre-TASKi2" levels after the TASKi3 results. We understand the disappointment in TASKi3 missing its
primary endpoint, but think investors have over reacted to those data. We remind investors that the large opportunity for an
oral RA agent, such as R788, is in methotrexate failures, the TASKi2 population. Further, while R788's toxicity profile presents
some risk to development and commercialization we believe that risk has been overstated. The announcement from the FDA
that they are strengthening the warning on the anti-TNF's regarding the risk of cancer highlights the fact that the existing
therapies are not without their own drawbacks. We think the hypertension, neutropenia, and liver toxicity seen with R788 are
all in a manageable range.
• What's New? Rigel reported 2Q09 EPS of ($0.81) vs. consensus of ($0.81). The company reported a cash/equivalents
balance of $79.9 M at the end of the quarter which they stated is sufficient through 2Q10.
• Implication: Retain Outperform rating with a $20 Price Target. We are updating our model to reflect the quarter and moving
forward our valuation to current period. Our bottom line is that at current levels, we believe the risk reward for Rigel is very
favorable and see a potential partnership as a likely positive catalyst. Financing is definitely an overhang, but we believe a
partnership deal is possible ahead of raising capital.
• Valuation: Our $20 target price for Rigel is based on a probability-adjusted, sum-of-the-parts discounted cash flow (DCF) and
net present value (NPV) analysis. We model each of Rigel's pipeline compounds separately, and then we probability adjust
these revenues. For Rigel's lead internal compound, R788, we separately model the compound's potential for immune
thrombocytopenia (ITP), rheumatoid arthritis (RA), and non-Hodgkin's lymphoma (NHL). We also include Rigel's partnered
programs, its internal preclinical pipeline, and cash position. We assume a 44% probability for R788 reaching the market for
the ITP indication, with launch in 2013 and $238 million in probability-adjusted peak market potential in the United States,
bringing us to a value of $3 per share. For RA, we project a 59.8% probability of reaching the market, 2013 launch, and
probability-adjusted peak sales of $765 million in the United States, bringing us to a $13 per share value. For NHL, we project
a 44% probability of reaching the market, 2013 launch, and probability-adjusted peak sales of $295 million in the United
States, bringing us to a $3 per share value. For the remainder of the pipeline, our probability-adjusted NPV model suggests
$485 million in peak sales for the Aurora kinase inhibitor (22% probability of reaching the market), $310 million in peak sales
for the JAK3 inhibitor (13% probability of reaching the market), and $490 million in peak sales for the inhaled syk inhibitor
(13% probability of reaching the market). These inhibitors are valued at $2, $0, and $1 per share respectively. Adjusting for
roughly ($5) per share in corporate/capital costs and $3 per share of cash/marketable securities, we arrive at our price target
value of $20 per share. We use a cost of equity (discount rate) of 10.6%. |
