On August 6th, Rigel Pharmaceuticals (RIGL), reported their Q2 earnings and updates on their flagship product, TAVALISSE. Rigel Pharmaceuticals recorded a beat on EPS of -$0.12 by $0.02 and revenue of $10.41M, which was a beat by $1.13M. It appears that Rigel has been executing with their TAVALISSE sales in chronic ITP, which has experienced a 26% growth in net product sales quarter-over-quarter. Following the earnings release the stock saw an abrupt rise in share price in after-hours; however, the subsequent trading day was a sea of red that quickly subdued the injection of bullish momentum.
Figure 1: TAVALISSE Q2 (Source Seeking Alpha)
The overall market is behaving erratically which has been hurting the biotech sector and its small-cap stocks. Luckily, RIGL hasn't experienced a strong selloff during this volatile market. On the other hand, RIGL is only trading about $0.25 above its 52-week low despite encouraging earnings numbers and improving fundamentals. Although the current share price has many longstanding investors in the red, it could be a great opportunity for potential investors to start a position, or for current investors to add to their positions. I intend to review Rigel’s Q2 earnings and reveal why I am confident in Rigel's commercial abilities. In addition, I take a look at upcoming earnings estimates to justify a RIGL buy at these prices.
For the second quarter of 2019, TAVALISSE pulled in $10.2M in net product sales, which was up over 500% compared to $1.8M in Q2 of 2018. Rigel reported a net loss of $20.6M, which was down from $25.6M during Q2 of 2018 (Figure 2).
Figure 2: Q2 Financials (Source Seeking Alpha)
These numbers should be reassuring investors that the company’s commercial strategy has some traction a year after launch but without a huge increase in expenses. This success should translate into a strong second half of 2019 which should help the stock gain some positive momentum into 2020.
In addition to revenue growth, the company reported the TAVALISSE’s patient refill rate indicates that roughly half the patients are experiencing the benefits with manageable side effects (Figure 3). The company expects this will encourage physicians to continue to move TAVALISSE into earlier lines in their treatment paradigm.
Figure 3: Q2 Commercial Progress (Source Seeking Alpha)
The company also reported strong numbers in the prescriber base, with robust repeat prescribers and new prescribers quarter-over-quarter.
What is Next?
Rigel has a strong list of upcoming milestones and catalysts that should be on every shareholder’s calendar. Looking at Figure 4, we can see several of these opportunities and their expected due dates.
Figure 4: Near-Term Opportunities (Source Seeking Alpha)
In my opinion, TAVALISSE (Fostamatinib) in Europe will be the strongest near-term catalyst for the company and shareholders. Rigel reported that they continue to make progress with their EMA process and the day 180 questions. The company expects to have a decision from the EMA by the end of this year, which would facilitate a $20M milestone and healthy royalty stream from Rigel’s European partner Grifols S.A (GRFS).
Next on the list is TAVALISSE in AIHA in the United States. The company announced that their study sites for the Phase III trial in AIHA are now open and the company expects to complete enrollment in Mid-2020. If approved, TAVALISSE would be the first FDA approved therapy entering the $1B AIHA U.S. market (Figure 5). At the moment, corticosteroids are the standard-of-care for AIHA patients, but they are a nuisance to manage over the life of the patient, so I expect patients, physicians, and payer would welcome TAVALISSE as another option.
Figure 5: AIHA Opportunity (Source Seeking Alpha)
The ITP physicians are also physicians who treat AIHA, so Rigel shouldn’t require a large increase in their sales force headcount to cover the expanded label. In addition, those physicians would be familiar with TAVALISSE and wouldn’t require extensive education about the product. Regrettably, investors will have to wait until mid-2021 to see the topline results.
Rigel has a couple of pipeline-related catalysts to keep an eye on. The company expects to report data from its Phase I trial of R835 in the second half of this year. It is important for the company to have at least one more candidate in the pipeline behind TAVALISSE. Although the company has several partnered programs, I believe Rigel needs another solely owned product to diversify the portfolio and provide another source of revenue. In regards to partnered pipeline candidates, Biotech Beast published a comprehensive piece covering the partnerships and the prospects of those programs. The second half readout should reveal if R835 will have what it takes to be that second product behind TAVALISSE. If not, I expect the company to be on the lookout for new pipeline candidates.
However, TAVALISSE’s uses might expand beyond ITP and AIHA as the company searches for supplementary indications for TAVALISSE due to its IP and exclusivity until 2031. Although an additional indication is not listed as a near-term catalyst, investors should be on the lookout for another attempt to expand TAVALISSE’s label and maximize the product’s revenue over the next decade.
My main takeaway from this ER is that the company is executing their commercial strategy and TAVALISSE is showing a strong launch. The company was able to beat on EPS and revenue, which gives me the confidence Rigel will hit their upcoming annual earnings estimates (Figures 6 & 7)
Figure 6: Annual EPS Estimates (Source Seeking Alpha)
Figure 7: RIGL Annual Revenue Estimates (Source Seeking Alpha)
Looking at Figure 6, we can see the street is anticipating strong revenue growth for the next eight years. I would like to point out the forward price-to-sales values on Figure 6, which shows all the values being under the current biotech sector’s price-to-sales multiple of 5x. Admittedly, 2019’s and 2020’s price-to-sales multiple is in the 4s; however, it is still under the sector’s average and should improve as revenues grow. In fact, from 2021 to 2027 the figure shows multiples under 3x and eventually under 1x. By the end of 2024, the company could record a comparable amount of revenue as its current market cap of ~$380M.
I believe these estimates and the company’s performance are a couple of reasons why RIGL has held up in the recent biotech selloff and market volatility. Even if the sector and the market experience a selloff in the coming years, it would be hard for the market to ignore Rigel’s revenue growth and improving fundamental valuations.
What is My Plan? I am going to hold off on another buy at this very moment due to the overall market environment and RIGL being stuck in a trading range (Figure 8).
Figure 8: RIGL Daily (Source Trendspider)
However, I will look to add to my position at some point before the Q3 ER in anticipation of another beat (Figure 9) and potential catalysts including an EU approval for TAVALISSE. I expect to do the same around the Q4 ER and will utilize options to manage my position for the rest of 2020.
Figure 9: Quarterly Revenue Estimates (Source Seeking Alpha)
I am going to hold onto my RIGL share for at least five years with the expectation of a large return on my investment.
What is my price target? Using the sector's average price-to-sales of 5x and the Street's 2024 revenue estimate of $372.37M, I get a price target of ~$11 per share.
Disclosure: I am/we are long RIGL. 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.