Rigel Pharmaceuticals: Push To Profitability Continues, But COVID Beacon Extinguished

My last article on Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) in April rated the company a strong buy based on the revenue growth of Tavalisse (fostamatinib), expense reductions pushing the company towards profitability, and clinical catalysts including a trial of fostamatinib in COVID. This article looks at where RIGL stands now on its push to profitability and its clinical catalysts.

Tavalisse: COVID hopes fade

While I had hoped the company’s immune thrombocytopenia (ITP) drug, Tavalisse would also see success in COVID, that possibility seems to be mostly off the table. RIGL did announce that its 280-patient, phase 3 study in COVID had failed to meet the primary endpoint in November 2022, but a subsequent reanalysis following the discovery of an error found that the study had in fact met the primary endpoint.

Upon further analysis, we discovered an error by the contract research organization (CRO) in the application of a statistical stratification factor. The contracted programming CRO misinterpreted receipt of prior COVID-19 treatment of interest 14 days before randomization (regardless of continuation post-randomization), as those medications were taken 14 days before the date of randomization and ended prior to the day of randomization. After correcting for this statistical error, the primary endpoint of the study was met; those who received fostamatinib had lower mean days on oxygen than those who received placebo (4.8 vs. 7.6 days, p=0.0136)… During our continued analysis regarding fostamatinib in hospitalized COVID-19 patients, we provided the updated analysis to the FDA and our partner, the US Department of Defense. Given the end of the federal COVID-19 Public Health Emergency (PHE) in May 2023, and based on feedback from the FDA, US Department of Defense, and other advisors regarding the program’s regulatory requirements, costs, timeline and potential for success, we decided not to submit an Emergency Use Authorization (EUA) or sNDA.

From RIGL’s 10-Q for Q2’23.

Unfortunately, RIGL didn’t issue a press release on this, and instead only reported it in a 10-Q for Q2’23. There was nonetheless the possibility that another large study evaluating fostamatinib in COVID, run by the National Heart Lung and Blood Institute, would be successful. The recent announcement with Q3’23 earnings, however, was that that study would now wrap up.

In September, the Data and Safety Monitoring Board (DSMB) recommended that the fostamatinib study arm of the ACTIV-4 Host Tissue (NECTAR) platform cease enrollment. No safety concerns were identified. The National Heart, Lung, and Blood Institute (NHLBI), part of the National Institutes of Health, concurs with the DSMB’s recommendations and has asked the trial investigators to cease enrollment, complete follow-up for participants already enrolled, and complete study closeout. The full study data will be analyzed and disseminated as previously planned.

RIGL earnings press release, November 7, 2023.

It is possible on subgroup analysis that the study shows benefits in subgroups similar to the patient population from RIGL’s 280-patient phase 3 trial, and that could result in the company filing for approval, but that seems like an outside shot. A stockpiling order from the Department of Defense is also still a possibility, but it also seems like an outside shot. I have more or less written off the COVID possibility from my thesis on RIGL. It looks like the company will have to look elsewhere to drive revenue growth.

Tavalisse: Generic competition possible but not immediate

On the Tavalisse patent infringement lawsuit against Annora Pharma, the company expects to have a Markman hearing in early 2024. In a Markman hearing, the companies will dispute the meaning of certain terms relevant to the case. Indeed, the latest filing in the suit (Document 55, Case 2:22-cv-04732-EP-CLW), filed on October 20, 2023, is a letter from part of RIGL’s representation, requesting the Court to schedule the Markman hearing on one of January 24, 25, 26, 30 or 31, 2024.

The time between a Markman hearing and a settlement meeting can be a year. Further, the time between a settlement meeting and a pre-trial conference can be another year again. As such, I could see RIGL having another two years of Tavalisse exclusivity before the case could make it to a trial. At that point, shortly after the pre-trial conference, we might find out there is no trial needed as the parties have entered a settlement. That settlement could involve Annora making a delayed entry to the market as a generic, albeit perhaps slightly before other generic makers. In that instance, RIGL could have many more years of uninterrupted market exclusivity with Tavalisse.

In the short term, I have seen companies report that they have had a favorable outcome at a Markman hearing, so RIGL might do this in early 2024. A favorable outcome would mean that RIGL would have better bargaining power in any settlement agreement.

Q3’23 earnings

RIGL reported total revenue of $28.1M in Q3’23, with Tavalisse contributing $24.5M in net product sales (a 27% increase from $19.2M in Q3’22), and Rezlidhia contributing $2.7M in net product sales. A further $1M came from contract revenues.

Tavalisse has seen increased use in earlier lines of ITP patients, such as the second line, where the addressable market is higher. As such while RIGL is now many years into the launch of Tavalisse, continued sales growth seems plausible thanks to the more recent trend of using Tavalisse in earlier lines of patients.

While Rezlidhia’s $2.7M in net product sales is barely up from the $2.6M reported in Q2’23, I see it as likely that this modest growth merely represents seasonality and a bit of fluctuation in channel (bottles shipped to patients/clinics vs. bottles sold, see Figure 2). Rezlidhia was only launched in late 2022 and compares favorably to a key competitor (ivosidenib) in terms of efficacy in the relevant acute myeloid leukemia (AML) patients. As such, the idea that growth has topped out after just a few full quarters of sales seems very unlikely. Indeed, RIGL had previously suggested that its $1.5M in sales in Q1’23 represented 10% or more of the addressable US market in the current indication (relapsed or refractory AML with an IDH1 mutation).

…we Believe REZLIDHIA was used in more than 10% of our target patient population last quarter.

Dave Santos, RIGL, Q1’23 earnings call.

Based on that the fact Rezlidhia had only captured a fraction of the target patient population when it produced net product sales of $1.5M, the idea that $2.7M in net product sales now represents Rezlidhia’s share of the market seems unlikely. Instead, I expect Rezlidhia to return to some more robust growth numbers in Q4’23 and that represents a potential catalyst for the stock.

RIGL reported a net loss of $5.7M which represents a further reduction in net loss from Q2’23 ($6.6M) and Q1’23 ($13.5M). R&D expenses were $6.5M in Q3’23 and SG&A expenses were $24.9M. Total costs and expenses were $32.6M for the quarter. RIGL had cash, cash equivalents, and short-term investments of $62.4M as of September 30, 2023. Net cash provided by operating activities was $0.5M in the first 9 months of 2023. As of September 30, 2023, the outstanding principal balance on RIGL’s loan from MidCap Financial Trust was $60M. The interest-only period on the loan is through October 1, 2024, with the maturity date for the loan being September 1, 2026. Considering the continued revenue growth and narrowing net loss, I believe RIGL’s cash balance should be sufficient until it reaches cash flow positivity, which I see as achievable within a few quarters.

I view RIGL as likely to be able to pay off this loan due to its current cash balance and future revenues, especially as the company continues its push to profitability. Further, milestone payments from RIGL’s collaborators represent a potential source of cash. Namely, RIGL’s RIPK1 inhibitor is under development by Eli Lilly and Company (LLY) and progress through clinical trials could trigger a milestone payment, although the exact details of each potential milestone haven’t been disclosed.

There were 174,369,503 shares of RIGL’s common stock outstanding as of November 2, 2023. There were also 34,283,826 stock options outstanding. RIGL currently trades with a market cap of $198.8M. This market cap is despite revenues of $81.1M in the first 9 months of 2023, putting the company on track for revenues of $105M or more in 2023. A that rate RIGL would trade at under twice revenues. Indeed, net product sales of $74.8M in the first 9 months of 2023 represent a 38.6% increase from net product sales of $53.9 in the first 9 months of 2022, so revenue growth continues in earnest.

Conclusions, rating and risks

I have no issue rating RIGL a strong buy at the current prices, it looks particularly cheap below $1, but even at $1.14, it looks good value, trading at twice 2023 revenues, pushing towards profitability and growing product sales at over a 30% rate, year-over-year. A long in RIGL now, even if the stock traded back to $1.50 would represent a 30% gain, which I see as achievable in the short term.

While the COVID beacon has been extinguished, or so I believe, there are obvious near-term and 2024 catalysts to help the stock return to the mid $1 range. Notably, RIGL is reporting more data at the American Society of Hematology conference from its work with Rezlidhia in December 2023. Based on the abstracts, Rezlidhia continues to look good relative to the key competitor ivosidenib, especially as Rezlidhia was able to produce responses in patients refractory to other treatments including ivosidenib. Further, a return to more robust growth from Rezlidhia looks likely with Q4’23 earnings, although RIGL has previously provided an update prior to official Q4 numbers. At that point then, we might get a January update showing Rezlidhia continues to grow. Beyond that, in mid-2024 we can expect some data from RIGL’s trial of its IRAK1/4 inhibitor, R289 in a trial in lower-risk myelodysplastic syndromes.

The risks of any long are several-fold. Firstly, if Rezlidhia does not return to growth, then it will look like RIGL overpaid for the asset, and concerns about RIGL’s ability to reduce its dependence upon Tavalisse would be more relevant.

Secondly, if RIGL doesn’t see a favorable outcome at the Markman hearing, concern over the outcome of any settlement negotiations with Annora, or the outcome of a future trial would come into focus. Since Tavalisse remains the major source of revenue for RIGL, the stock could fall very heavily if the market perceives RIGL’s exclusivity could be within a couple of years of ending.

Lastly, if RIGL sees any safety issues with R289 or the efficacy data in MDS patients is simply subpar, then the stock could fall.