Rigel Pharmaceuticals– Crisis or Opportunity?

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The past two weeks were anything but easy for Rigel’s (RIGL) shareholders, who saw their shares crash more than 50%. Rigel started 2008 on the right foot after a 200% jump in a single day last December, following impressive data for the company’s flagship product, R788, in Rheumatoid arthritis (RA) patients. Less than one year after, Rigel has given back all its gains, following the disclosure of additional data from the same trial. 


R788 was perceived as such a promising drug because it represented a highly anticipated paradigm shift in the treatment of RA: An oral drug that may be as effective as the current standard of care biologic agents. RA is a severe auto-immune disease, where the patient’s immune system attacks the body’s tissues, leading to a gradual destruction of the joints, which results in severe pains and disabilities. The rate of disease progression varies from patient to patient, but in the vast majority of cases, the disease is incurable, progressing over the patient’s lifetime. Therefore, despite the relatively low incidence of the disease, it has a high prevalence, affecting 1.3 million patients in the United States alone. Since there is no cure for the disease, patients must be treated indefinitely in order to delay disease progression and reduce its debilitating symptoms. This makes RA one of the most lucrative indications in the pharmaceutical industry, estimated at more than $10 billion annually.


The field of RA therapy saw great advances in the past decade, with multiple new drugs that managed to treat the disease itself and not just its symptoms. The most important and widely used agents for RA are TNF-inhibitors. These are biologic drugs that bind and neutralize the effect of one of the most important factors responsible for the disease- tumor necrosis factor (TNF). There are currently three marketed TNF-inhibitors: Wyeth’s (WYE) and Amgen’s (AMGN) Enbrel, Johnson and Johnson’s (JNJ) Remicade and Abbott Laboratories’ (ABT) Humira. The three drugs generate annual sales of $5B, $4B and $3B, respectively, most of which are derived from the RA market.   


Despite their ability to induce long lasting responses in approximately two thirds of patients, TNF inhibitors have three main issues. The first issue, which is still controversial due to contradicting evidence from different studies, has to do with potential side effects. These side effects include increased risk for severe infections and cancer, but even if there is an effect, it is regarded by many as insignificant. The second issue has to do strictly with patient convenience, as all TNF inhibitors are injectable drugs, which are given to patients for many years as frequently as once a week. The third issue is the cost of lifetime treatment with these biologic agents, amounting to $15,000 per year. Therefore, the holy grail in RA drug development is considered to be a drug that is as effective as TNF inhibitors, but can be given orally and has lower costs.


Rigel’s R788 is one of the most promising oral agents in development for RA, although it is not alone in the race, as both Pfizer (PFE) and Incyte (INCY) have oral drugs for RA. Each of the three companies presented promising data at last month’s ACR (American College of Rheumatology) meeting, showing a meaningful benefit in comparative placebo-controlled trials. With respect to stages of development, Pfizer is furthest along, with the largest number of patients tested and longest treatment periods, followed by Rigel and Incyte, who presented data from smaller trials. Although comparing results from different clinical trials is problematic for obvious reasons, the different trials shared some similarities, as all three compounds were evaluated in combination with the same drug (MTX) in comparison with a placebo arm that received MTX alone among similar patient populations. The clinical efficacy of the three investigational drugs seemed comparable, but it does not mean that all three will get approved, as results from larger trials may be differ materially from those of smaller trials. While Pfizer’s and Incyte’s compounds hit closely-related but not identical targets, Rigel’s R788 inhibits a totally different target (Syk), which might serve as a good differentiator.

Because the three drugs do not inhibit the exact same target, each compound may have different safety and efficacy profiles, and there may be patients who will derive more benefit from one drug and no benefit from the other. Consequently, the company that will be able to identify the right patient populations for its drug should have a great edge over competition. Even if all three drugs become approved in RA, the market is big enough for everybody, as demonstrated in the case of anti-TNF drugs.


Despite the exciting activity Rigel’s R788 demonstrated, the company presented some safety and efficacy data the market did not like.


On the efficacy side, investors were concerned with the response rate in patients who received the drug in Mexico, which was higher than the response rate in the American patients. The company explained that the response rate in the placebo arm in Mexico was also higher than that of placebo patients in the US, making the relative response in the two groups similar. The reason for the difference between the groups can be explained by cultural differences that impact the way patients and doctors assess the disease, but it can also be partially explained by the relatively limited number of patients in the trial (less than 200). Regardless of the basis for the phenomenon, it is important to note that such geography-based differences were also observed with other approved RA drugs, including Orencia (approved in 2005) and Rituxan (approved in 2006).


But it seems that the panic selling in the stock can be primarily attributed to a slight blood pressure increase in the patients who received the drug. Because R788 is intended to be taken for very long time periods, the concern about its safety profile is obvious, especially given the current FDA’s stance on safety issues. Nevertheless, when things are put in perspective, it seems that the market reaction to this issue was somewhat exaggerated.


There is little doubt that R788 leads to an elevation in blood pressure, but the real issues here are the magnitude of this effect and its clinical relevance in a “real-world” setting. The average blood pressure in the trial increased from a level of 120-130 mmHg  to 125-135 mmHg. In most cases, this increase did not necessitate any action, and in the few cases (5% of patients) in which physicians decided to lower the patient’s blood pressure, they were able to do so with conventional blood pressure medicines. Moreover, even when a patient that had already been taking a blood pressure drug had an increase in blood pressure, it was completely manageable by increasing the dose of the anti-hypertension drug. This may be particularly important since RA patients have a higher tendency of developing elevated blood pressure and  are often treated with blood pressure medicines in parallel to RA treatment. In addition, there was no constant increase in blood pressure, but instead, blood pressure levels increased shortly after treatment initiation with R788 and stabilized for the rest of the trial period. The drug has not been evaluated for long periods of time, so the burden of proof still lies on the company, but to date, there is no sign of accumulative effect, including an extension trial where the drug has been given for up to 15 months.


In summary, assuming that the data presented by the company represents the genuine effect of R788 on patients’ blood pressure, it does not seem likely that this issue will have a material impact on chances for regulatory approval or market acceptance. There are many approved drugs that result in increased blood pressure, but as long as this side effect can be dealt with by standard drugs, the benefits of these drugs outweigh the risk. With respect to market acceptance, a slight elevation in blood pressure is not something that may deter patients and physicians because, unlike other side effects, it can be easily monitored and treated. Even if a small minority of the patients has a meaningful increase in blood pressure, it will be detected very early in the course of treatment, without any risk to the patient.  There is obviously plenty of risk with any clinical program, as larger trials that involve prolonged dosing typically uncover more side effects. However, like the company’s CEO said at the ACR presentation, the real risk is in safety issues that might emerge in larger trials rather than the minor safety issues that have been observed so far.


Rigel’s next challenge will be striking a partnership deal for the development of R788, which the company expects to have in place in the first quarter of 2009. Rigel was wise enough to raise capital earlier this year ahead of any licensing negotiation, so it is coming to the negotiation table with more negotiating leverage than most companies in this position usually do. Based on the current stock price, the market is obviously factoring in a substantially less attractive deal, or even a failure to get a licensing deal done by that time frame. On recent company events, company’s officers were going out of their way to reassure investors that the terms of the anticipated deal will not be affected by the ACR fiasco, and that they are still on track for having a partnership in place early next year.


Based on the data presented at the ACR meeting, the excitement around the field of oral drugs for RA, and management remarks, there is a high likelihood that Rigel will sign a lucrative licensing deal it hopes to get. After all, there is a real need for promising drug candidates and there are many companies which would love to get their hands on the second most advanced oral RA drug, right after Pfizer’s compound. It is also noteworthy that potential partners were probably familiar with the data before it got published, so not a lot has changed, fundamentally.


It seems that Rigel managers are not the only ones frustrated by market reaction to the data they submit. CV Therapeutics (CVTX), another company in our biotech portfolio announced last week that its flagship product, Ranexa, had been approved by the FDA as a primary treatment for angina. Ranexa is already approved as a second-line angina treatment, with an annual sales rate of over $120 million, but the recent change should substantially increase its use, particularly given the broad labeling that allows the combination of Ranexa with standard angina drugs and the potential anti-diabetic effect. Despite management’s excitement with this approval, the market and analysts gave CV Therapeutics the cold shoulder, based on the company’s “disappointing” revenue guidance and weak balance sheet.

The company has rights for Ranexa in the US and Japan, after licensing the European rights to The Menarini Group. Although sales of Ranexa are expected to grow at a fast pace, the real near-term catalyst for the stock could be a licensing deal that includes the marketing and distribution of Ranexa outside of Europe. This may also enable CV Therapeutics to better cope with its convertible debt obligations, which amount to $330 million, higher than the company’s expected cash balance for year-end 2008.


We decided to go against the market this time and increase our holdings in Rigel and CV Therapeutics, based on expectations for large partnership deals in the first half of 2009. In addition, we are initiating a new position in Allergan (AGN) and selling Gilead (GILD), Poniard (PARD) and ROSG (ROSG).




Biotech Portfolio as of November 7th 2008



2 thoughts on “Rigel Pharmaceuticals– Crisis or Opportunity?

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