Rigel Pharma: Key RA Drug Data Expected Late 2012 Through H1 2013

| About: Rigel Pharmaceuticals, (RIGL)

Rigel Pharma (NASDAQ:RIGL) is focused on the development of new treatments for auto-immune and inflammatory conditions with a key ongoing pivotal Phase 3 program for the company's late-stage pipeline drug candidate, Fostamatinib disodium (oral spleen tyrosine kinase or SYK inhibitor), which is currently being evaluated in Pivotal Phase 3 (OSKIRA-1,2,3) Clinical Trials, a Phase 2b (OSKIRA-4) Clinical Trial and a Phase 3 Long-Term Extension Clinical Trial (OSKIRA-X).

Partner AstraZeneca (NYSE:AZN) expects to report pivotal Phase 3 clinical trial results from OSIRA-1,2,3 trials during 1H13 along w/ Phase 2b (OSKIRA-4) mono-therapy study in late 2012 to support a planned New Drug Application (NDA) filing during 2H13. AZN is also conducting a long-term extension study through early 2015 to evaluate both safety and effectiveness on a long-term basis in addition to a randomized, double-blind Phase 2 clinical trial in patients w/ relapsed or refractory diffuse large B-cell lymphoma (DLBCL) that is evaluating 100mg and 200mg doses orally twice daily for this blood-based cancer.

RIGL received $100 million (M) upfront from AZN and has received an additional $25M in milestone payments to date with the possibility for up to $320M in development and $800M in sales-based milestone payments remaining plus stepped double-digit royalties if the drug is commercialized.

The company's Phase 2 clinical development pipeline includes both R343 (an inhaled syk kinase inhibitor) for the treatment of allergic asthma and topical ointment R333 (JAK/SYK dual inhibitor) for an auto-immune condition affecting the skin known as Discoid Lupus Erythematosus or DLE). R548 (oral JAK3 inhibitor) is currently in Phase 1 clinical development to treat organ transplant rejection.

RIGL enjoys a strong balance sheet with $202.6M in cash and equivalents along with no debt as of 6/30/12, although the company has an outstanding $200M common stock and warrants shelf filing that was declared effective by the SEC in late March. As of 8/2/12, RIGL reported 71.6M shares of common stock outstanding and the company expects to end 2012 with a cash balance in excess of $145M, which is adequate to fund planned operations into 2014 (through the expected NDA filing for Fostamatinib by partner AZN).

Last June, RIGL completed an offering for the sale of 18.75M shares of common stock @$8 for net proceeds of $140.5M so it does not appear likely that the company would need to raise a substantial amount of cash if any under the $200M shelf filing in the near term or even this year since its lead drug is already partnered w/ a big pharma company that would handle the commercial launch, marketing, etc. in addition to potential development milestone payments and royalties if the drug successfully completes Phase 3 testing and receives regulatory approvals in key markets such as the U.S. and Europe.

Fostamatinib has the potential to be a key second-line therapy (i.e. convenience of oral dosing w/ a fast onset in one week and potential for efficacy similar to injected anti-TNF drugs such as ENBREL, REMICADE and HUMIRA to prevent further bone and cartilage damage associated w/ RA) for many patients w/ RA that experience an inadequate response and/or serious side effects (e.g. liver function) from widely used first-line treatments (disease-modifying anti-rheumatic drugs or DMARDs) such as methotrexate.

A potential competing oral DMARD drug developed by Pfizer (NYSE:PFE) (Tofacitinib is an oral JAK inhibitor) has a PDUFA decision goal date of 11/21/12 that was recently extended by three months for the FDA to review additional data analyses. The best-case scenario for RIGL would be a harsh Complete Response Letter (CRL) for Tofacitinib to eliminate a directly competing drug in the RA space. However, even in the case of approval I don't expect shares of RIGL to experience much if any downside given the significant amount of late-stage clinical trial catalysts for Fostamatinib starting late this year through the first half of next year and the company already has a big pharma partner to assist with a potential product launch and marketing activities.

Abbott's (NYSE:ABT) HUMIRA (also approved for other types of arthritis and Crohn's disease) is poised to become the world's top selling drug this year with over $9 billion in annual sales projected for this year w/ a low double-digit growth rate, which illustrates the huge market potential for effective RA treatments. Given the substantial market potential for Fostamatinib, I expect shares of RIGL to continue their recent uptrend through new 52-week highs (although this may present an excellent opportunity to raise some cash under the shelf filing) as the Phase 3 results approach given the fast onset of action (i.e. within one week) sustained throughout earlier stage Phase 2 clinical trials without any significant safety concerns.

The main risk factors for RIGL include no expected Phase 3 results until next year, the potential for a dilutive capital raise under an effective shelf filing and the reliance on a single late-stage pipeline candidate on the company's prospects over the next 6-9 months. While the first two risk factors are not major concerns; the company is heavily reliant on successful results for Fostamatinib since the remaining pipeline is still in the early stages of clinical development-making the Phase 3 readouts next year a key binary event trade that is likely to result in a share price run-up back to low double digits ($10-$12) going into later this year in anticipation of the Phase 2b results and then Phase 3 results through the first half of next year.

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.