The Occultation Of Rigel Pharmaceuticals

| About: Rigel Pharmaceuticals, (RIGL)

Investors in Rigel Pharmaceuticals (NASDAQ:RIGL) got another very much unwanted dose of bad (or at least confusing) data on Thursday, with disappointing OSKIRA-4 Phase 2 data on fostamatinib. While there are additional studies still under way and scenarios under which this drug could still make it, Rigel Pharmaceuticals is well on its way to being one of my worst biotech calls, and the risk on this stock is definitely running high.

Disappointing Data From OSKIRA-4

Rigel's partner AstraZeneca (NYSE:AZN) announced top-line data from the OSKIRA-4 study of fostamatinib in DMARD naïve, intolerant, or inadequate responders on Thursday morning, and the data were not good. Only one of the two endpoints was met, and only at the higher doses.

In the OSKIRA-4 study, patients were given one of three treatments - fostamatinib (monotherapy), adalimumab (monotherapy), or placebo. In the fostamatinib group there were three possible regimens (100mg twice a day, 100mg twice a day for a month and then 150mg daily, or 100mg twice daily for a month and then 100mg daily). All treatments were given for six months and the patients were then assessed by the change seen in their DAS28 score.

In the 100mg twice daily and 100mg twice daily + 150mg daily groups, the patients did show a superior response to placebo, but the 100mg twice daily + 100mg daily group did not. What's worse, none of the groups showed superiority to adalimumab [better known as Abbott Labs' (NYSE:ABT) Humira]. Although AstraZeneca didn't release very many details, the Humira ACR20 response (59%) seemed somewhat high, though not totally inconsistent with prior studies.

Safety data were not provided, other than a comment that they were "consistent" with prior studies.

Phase 3 Trials Still Coming

This isn't the end of the fostamatinib data cycle. Phase 3 data will be coming in early 2013, with the OSKIRA-3 study. OSKIRA-3 is examining the drug in a six-month study that enrolled patients who have failed to respond to anti-TNF treatments (a group that includes Humira). OSKIRA-1 and '-2 are also on the way and these are 12-month studies in methotrexate and DMARD non-responders, respectively. It's also worth noting that while the OSKIRA-4 study used fostamatinib as a monotherapy, these Phase 3 studies do not (the drug is being evaluated in combination with methotrexate or DMARDs).

While the OSKIRA-4 study is clearly disappointing, and marks yet another setback for a drug that has had some significant ups and downs in prior studies, it is not necessarily the end of the game. Should these additional studies show efficacy in anti-TNF non-responders and acceptable safety, I would think that could be enough to drive an FDA submission and a label limiting the drug to anti-TNF non-responders. That likely cuts the sales potential of fostamatinib to $1 billion or less, but it would at least keep the drug alive.

Investors should also consider the possibility of more conflicting/contradictory data. Were the OSKIRA-2 study to show good efficacy in DMARD non-responders (a similar group to this OSKIRA-4 study), the drug could still have some potential outside of anti-TNF failures, but I don't think investors should count on that.

Is The Opportunity Getting Away?

It's getting harder and harder to have much confidence in fostamatinib becoming the treatment of choice behind Humira. In addition to Pfizer's tofacitinib (now also known by its brand name Xeljanz), Lilly (NYSE:LLY) and Incyte (NASDAQ:INCY) have seen encouraging data from their Jak-1/2 inhbitor baricitinib. Results released back in June showed an ACR20 of 75% for the 4mg group and an ACR70 of 23% - data that compares pretty well with Humira and Xeljanz (but this wasn't a head-to-head study and mixing and matching data can be misleading).

As the Phase 2b of baricitinib showed good efficacy and safety, the drug is going into a four-pronged Phase 3 program that will evaluate the drug in treatment naïve patients, inadequate responders to methotrexate, inadequate responders to DMARDs, and inadequate responders to anti-TNFs. The downside to this rigorous approach is that data probably won't be available until late 2014 or early 2015, giving AstraZeneca and Rigel a window of opportunity if their Phase 3 trials deliver stronger data.

The Bottom Line

Although the rheumatoid arthritis opportunity is indeed large (over $10 billion), Rigel and AstraZeneca need to start seeing significantly better clinical data if fostamatinib is going to have a credible chance of getting some (or any) of that pie. At a minimum, it would seem that this drug's history of decidedly mixed trial results will make for a pretty interesting FDA panel meeting, assuming the Phase 3 data even supports an NDA filing.

I know there's a tendency with biotech investors and writers to see every setback as an "opportunity" and to never give up the ship, but I have a hard time maintaining faith and bullishness in Rigel. While an anti-TNF label for fostamatinib could be worth $1 billion in revenue (implying about about $8 a share in fair value), Rigel shareholders need to accept the possibility of not only even less sales potential ($500 million or less), but also the possibility that the drug never even makes it to the point where AstraZeneca chooses to file an NDA.

As it stands today, Rigel has been a bad call for me, and I've been very wrong in the only thing that really matters in the end - the stock's performance. While it's probably not time to turn out the lights on Rigel, investors should at a minimum appreciate that the road ahead has gotten rockier and much less certain.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.