BST Trade Alert: July 18, 2014
July 18, 2014
Recommendation:
Buy Rigel Pharmaceuticals (NASDAQ: RIGL) up to $3.30
About the Company:
Rigel Pharmaceuticals is an exciting clinical-stage drug development company based in San Francisco, California. It’s focused on developing novel, small-molecule drugs for the treatment of inflammatory and autoimmune diseases as well as muscle disorders.
Rigel currently has five product candidates in various stages of development:
- Fostamatinib – an oral spleen tyrosine kinase (SYK) inhibitor that has just begun a phase 3 trial for immune thrombocytopenic purpura (ITP) and is expected to begin a phase 2 trial for immunoglobulin A nephropathy (IgAN) later this year
- R348 – a topical JAK/SYK inhibitor currently in phase 2 testing for chronic dry eye disease
- R118 – an adenosine monophosphate (AMP) activated protein kinase (AMPK) activator is currently in a phase 1 study for intermittent claudication, a painful and debilitating outcome of peripheral artery disease (PAD)
- And two cancer product candidates are in phase 1 development with partners BerGenBio AS and Daiichi Sankyo
For this trade, we’re focusing on the upcoming phase 2 trial results for R348. Those results are expected during the third quarter of 2014.
In addition to a robust pipeline, Rigel also boasts a rock solid financial condition.
The company’s sitting on a veritable mountain of cash with $195 million in the bank and no debt. This is more than enough money to fund the company’s operations and clinical programs through our approaching catalyst.
Let’s now take a closer look at one of the company’s leading drug candidates…
About the Drug:
The drug candidate with the nearest potential upside catalyst is R348. It’s a topical ophthalmic (eye drop) Janus Kinase / spleen tyronise (JAK/SYK) inhibitor.
R348 is designed to reduce the inflammation responsible for the symptoms of chronic dry eye disease. Since both JAK and SYK are important components in the body’s immune and inflammatory responses, the drug’s combined JAK/SYK inhibition is expected to offer relief directly to the eye.
How has R348 performed in clinical testing?
Rigel recently completed a phase 1 study of the drug involving patients with dry eye disease. The results showed it was well tolerated. And based on the results, Rigel decided to advance R348 to phase 2 testing.
The drug is now undergoing a multi-center, randomized, double-masked phase 2 clinical trial called DROPS. This study will evaluate two different doses of R348 versus placebo over a three-month period in approximately 210 patients with dry eye disease.
The efficacy endpoints include change from baseline in corneal staining, tear production, and dry eye symptom scores. Results are expected in the third quarter of 2014.
About the Market for This Drug:
Chronic dry eye disease is an inflammatory disease that often affects the tear producing glands of the eye.
Over five million Americans suffer with this disorder. And many patients with chronic dry eye may also suffer with autoimmune conditions, including lupus and rheumatoid arthritis.
Allergan’s Restasis is the only FDA approved drug on the market for the treatment of dry eye disease. Last year, it was the best-selling ophthalmic product in the US with sales of over $1 billion.
Restasis sales have increased more than ten-fold since the drug first became available a decade ago. But the market for dry eye medications has hardly peaked.
In fact, dry eye disease is likely to become much more prevalent in the years ahead due to aging of the global population.
Check out this recent bullish forecast for dry eye disease therapeutics from Global Data. They estimate sales of these medications across the US, France, Germany, Italy, Spain, the UK, Japan, China, and India will grow from $1.6 billion in 2012 to $5.5 billion in 2022.
That’s a projected compound annual growth rate of 12.8% per year.
As you can see, R348 is being developed for a large and growing market. If the drug is ultimately approved by the FDA, it should generate sales in the hundreds of millions of dollars per year range for Rigel.
And if the drug ends up being just as effective as or more so than Restasis with fewer side effects, it could turn into a blockbuster drug.
About the Potential Catalyst:
Results from the phase 2 trial of R348 in patients with dry eye disease are expected in the third quarter of 2014.
About the Shares:
We have a fortuitous opportunity to snap up shares of RIGL at a terrific price right now. As you can see on the chart below, the stock has declined from a high of over $11.00 set in July 2013 to a recent price of $3.04.
That’s a dramatic drop to be sure, but we think the stock is now heavily oversold.
At $3.04, RIGL is changing hands at just 1.4x its $2.23 in cash per share. If we subtract out the cash from the company’s market cap of $266 million, investors are valuing Rigel at just $77 million.
That’s far too low for a biotech with two promising drugs in mid-to-late stage testing and several more in phase one. And it looks especially low when you consider the company’s later stage drugs have combined sales potential of over $1 billion per year.
Grab your shares of RIGL as soon as possible. This biotech stock’s a great buy up to $3.30 per share.
Key Facts:
| Company: | Rigel Pharmaceuticals |
| Ticker: | RIGL |
| Recent Price: | $3.04 |
| Market Cap: | $266 million |
| Avg. Daily Volume: | 623,352 shares |
Chart:
Category: BST Trade Alert
