Citi: 27 October 2008 - 8 pages
Rigel
Stock Sell off Overdone- Additional Safety Data Presented
at ACR
* What is new- - RIGL presented safety data from the
extension portion of the Phase IIa study of Tamatinib
(R788) for the treatment of Rheumatoid Arthritis (RA) at
the American College of Rheumatology (ACR) meeting.
* Phase IIa Extension Study - No QT prolongation signals
have been noted. Reasons for withdrawal from the extension
phase of the study included single cases of LFT increase,
neutropenia, GI intolerance, abdominal pain, and lack of
efficacy. A total of 5 patients had ALT rise >3x ULN, of
which 2 cases were confirmed with >1 occurrence. No case
of concomitant increase in ALT and bilirubin was noted.
Absolute neutrophil <1500 mm3 was noted in 9 patients, of
which 3 cases were confirmed with >1 occurrence.
* Additional data from Phase IIa Poster Presentation -
Country interaction analysis showed that while ACR scores
in RA patients from Mexico are higher than US, the
magnitude of change in ACR scores over baseline is
maintained between patients from these geographies. This
observation was also noted in trials of Orencia, Rituxan
and Actemra. We view this data point as positive for
RIGL, as it may indicate a greater predictive value in
outcome of the Phase IIb studies, where patients are
enrolled from US and Europe.
* In the Phase IIa study, 5 patients had increase in BP (4
mm Hg systolic) - The increase in blood pressure (BP) seen
with 100 mg b.i.d. dose of Tamatinib was already known.
It is important to note that elevations in BP are seen at
varying degrees in RA studies in general, and are not
specific to Tamatinib. RIGL noted that the BP measurements
were not precise and were not taken several times per day.
It remains to be seen whether BP elevations will also be
seen in the pending Phase IIb trials of RA, where RIGL
will monitor BP levels more precisely.
* Key Catalysts - Partnership announcement is expected in
1H09, with data from the two Phase IIb studies in RA in
late Summer 09. Patient enrollment in the QTc study is
3/4 completed.
* Conclusions - RA is a large and established market with
room for effective oral therapies. We estimate US RA sales
for Tamatinib to grow from $284M to $992M from 2012-14,
respectively. Rigel expects to co-promote the drug in the
US and receive royalties on potential ex-US sales.
See Appendix A-1 for Analyst Certification and important
disclosures.
Buy/Speculative 1S
Price (27 Oct 08)
US$8.84
Target price US$32.00
Expected share price return
262.0%
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 are initiating coverage of Rigel (RIGL) with a Buy/Speculative (1S) rating
and 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 in 2H09. 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 $3.14 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 ... |
