Rigel Pharma: The Importance of Knowing Your Stock

Last Thursday night, Rigel Pharma (RIGL) released disappointing results on its TASKi3 Phase 2b study on Rheumatoid Arthritis (RA). The results showed that the placebo worked basically as well as the R788 pill. Now here is where you need to understand the stock and what was being tested or otherwise you'll be forced into a trading decision by the market and not knowledge.

First, this test was only to determine whether the R788 drug worked on RA patients that failed to respond to at least one biologic treatment. Therefore, this result was much less material to the company then the TASKi2 results on July 9th that showed the drug was as effective or more so then existing medicines that typically require shots.

"Our objective with R788 in RA is to position the product after methotrexate and before biological therapies are used. We have shown excellent results in that patient population in our earlier TASKi1 and TASKi2 studies, and we believe that patient population represents the large market opportunity for this product," said James M. Gower, chairman and chief executive officer of Rigel. "In this TASKi3 patient population, biologic failures, we have seen divergent results as sometimes happens in studies with subjective components. However, we are pleased to see excellent results in the objective measures and in the Synovitis and Osteitis MRI scores," he added.

Second, the results actually showed that the R788 worked basically as expected, but that the placebo worked much better then it ever has in similar tests. RIGL doesn't plan to abandon the hopes that this drug will eventually work for these suffering patients. It will be interesting to see why the placebo saw dramatic improvement in results after 6 weeks when the R788 was dramatically outperforming.

Although the ACR scores for the R788 group were within the expected range in this patient population, the reported placebo response rates were considerably higher than seen in any other previous study of RA biologic failure patients and rose unaccountably between week 6 (at which point the reported response rates between R788 and placebo were significantly different) and month 3 (when such reported response rates were no longer significantly different).

Based on these 2 facts, the stock shouldn't have dropped from $14.50 on Tuesday prior to the release to $7.50 in AHs on Thursday after the release. Oh and where is the SEC to investigate the $3 drop during trading on Tuesday and Wednesday prior to the release. Somebody clearly got wind of the negative results.

This is where knowing the stock could have paid big dividends. Anybody buying AHs in the panic could've seen huge gains by mid day on Friday. An easy 20%+ gain as the stock approached $11 and closed at $10.40. Knowing a stock gives you confidence to step in and buy a stock on unwarranted weakness. Likewise it gives a investor confidence to hold as well knowing the stock will bounce.

RIGL should still be in line to sign a significant partner deal as the TASKi2 results were the primary focus of any partnership. It's difficult to see how an inconclusive result on a non-material test group would impact the long term financials of RIGL.

From listening to the conference call though it was clear that most analysts involved were focused on these results and not the valuation impact. Once the emotion subsides in the weeks that follow, more people will begin to realize what any objective person already knows. The inconclusive test results don't matter to RIGL. The market is being reactionary as RIGL already has proof that the drug works on the targeted population.

Prior to the results, several analysts had thrown $30+ targets on the stock. I hardly see how these test results are going to impact that even though one analyst already reduced his target to $18. Huh? What was the rational for that? A 40% reduction because of an immaterial test seems very overdone.

Its also important to point out that these patients failed to respond to other biologic treatments so they are by definition a difficult group to treat. Sure RIGL and analysts were hoping for a homerun by showing that this drug treats this difficult class of patients. Regardless, it doesn't change whether RIGL has a blockbuster drug in their possession. The results were also so inconclusive that hope still exists that this drug will eventually be used. After all per the conference call, 85% of patients in the study chose to continue using the drug and the MRI scores showed improvements. So maybe it really is just an issue with the subjective nature of the test.

Knowing all this lets an investor step up and buy. Or at least make an imformed decision based on when the technicals improve.

Disclosure: Long RIGL in client and personal accounts.

Comments

[Toeser:]

Based on the results of this study, someone should seek FDA approval of the placebo being used :-)

I actually own this stock. Nothing surprises me anymore, but I thought the selloff was insane given the bizarre statistical results of the placebo group.

Jul 29 08:10 AM

[Robert0713:]

I got caught in bad experimental design (not placebo, but similar drug) with ARYX. Don't think that one will ever recover. I guess they don't think reading Fisher is worthwhile.

Jul 29 01:23 PM

[Stone Fox C...:]

Nk. The placebo rocks. Still waiting to see more detail on why that was so.

Jul 29 06:58 PM

[Eastriver:]

I did purchase after hour. I put in order first at 7.5, then 8, then 8.5, then 9.5 in a matter of 2 mins. I fialed to get any share on my first 3 bids, but finally picked up some at 8.55.

You are right, knowing the stock really matters. I am in medical field and I have been doing phase 2 and 3 trials for several companies.

RIGL's phase IIa trial was a huge success. and really think that this medication will take majority of the Ramicade and Humira market away after approval.

RIGL has no trouble finding a partner to have a phase III trial. I hope RIGL will not sell them cheap in the negotiation of finding a partner.

Jul 29 11:09 PM

[Stone Fox C...:]

Don't see them selling out cheap. Management knows that they have a winner.

Jul 30 01:00 PM

[Zimmorn:]

Hi Eastriver and everyone else,

I also hold RIGL since 2 years ago. I am worrying the side effects of R788. According to your professional knowledge and experience in clinic trials, do you think Diarrhea or
Hypertension will become a big issue for RIGL to find a partnership and pursue the Phase III trial?

Many Thanks


On Jul 29 11:09 PM Eastriver wrote:

> I did purchase after hour. I put in order first at 7.5, then 8, then
> 8.5, then 9.5 in a matter of 2 mins. I fialed to get any share on
> my first 3 bids, but finally picked up some at 8.55.
>
> You are right, knowing the stock really matters. I am in medical
> field and I have been doing phase 2 and 3 trials for several companies.
>
>
> RIGL's phase IIa trial was a huge success. and really think that
> this medication will take majority of the Ramicade and Humira market
> away after approval.
>
> RIGL has no trouble finding a partner to have a phase III trial.
> I hope RIGL will not sell them cheap in the negotiation of finding
> a partner.

Jul 31 07:34 PM

[Eastriver:]

I don't think hypertension is a concern. We treat hypertension all the time. NSAIDS (motrin, advil, aleve, clebrex, etc) commonly used for mild rheumatoid arthritis cause hypertension. People still use them as first line for mild arthritis. As long as the blood pressure elevates mildly, it will not lead to any hesitation on the health professional part to use this medication.

With regard to diarrhea, it's common knowledge that GI side effects are the most commonly reported in any clinical trial for any drug. Diarrhea in my view is just common noise of people feeling sick during the clinicl study and it is not directly related to this medication.

Bottom line, these reported side effects will not change the market share of this medication at all after it is approved unless there is another oral agent with similar mechanism and less side effects. But there is no other oral agent like it, and will not be one for years to come. I am pretty sure RIGL has patent on delivery mechanism of this type of medication.


On Jul 31 07:34 PM Zimmorn wrote:

> Hi Eastriver and everyone else,
>
> I also hold RIGL since 2 years ago. I am worrying the side effects
> of R788. According to your professional knowledge and experience
> in clinic trials, do you think Diarrhea or
> Hypertension will become a big issue for RIGL to find a partnership
> and pursue the Phase III trial?
>
> Many Thanks

Aug 11 09:10 PM

[Zimmorn:]

Hi Eastriver,
Thank you for your professional analysis.

How do you think about Pfizer's oral JAK3 inhibitor? How heavy does it hurt RIGL's market's share?

Zimmorn


On Aug 11 09:10 PM Eastriver wrote:

> I don't think hypertension is a concern. We treat hypertension all
> the time. NSAIDS (motrin, advil, aleve, clebrex, etc) commonly used
> for mild rheumatoid arthritis cause hypertension. People still use
> them as first line for mild arthritis. As long as the blood pressure
> elevates mildly, it will not lead to any hesitation on the health
> professional part to use this medication.
>
> With regard to diarrhea, it's common knowledge that GI side effects
> are the most commonly reported in any clinical trial for any drug.
> Diarrhea in my view is just common noise of people feeling sick during
> the clinicl study and it is not directly related to this medication.
>
>
> Bottom line, these reported side effects will not change the market
> share of this medication at all after it is approved unless there
> is another oral agent with similar mechanism and less side effects.
> But there is no other oral agent like it, and will not be one for
> years to come. I am pretty sure RIGL has patent on delivery mechanism
> of this type of medication.

Aug 30 03:50 AM