Assuming this trend continues in 2009, it is crucial to identify small and medium companies with candidates whose activity has already been proven in clinical trials. One of the most interesting companies that fall into this category is Rigel Pharmaceutical (RIGL). The company is currently developing a validated drug with blockbuster potential, and is expected to announce major collaboration deal during the first quarter.

Despite the imminent nature of the deal, investors should be aware of the risk factors that naturally come along with negotiations of this type. In addition, there are specific issues with Rigel that might affect the exact terms of the deals, let alone the ability to finalize it. Nevertheless, when all aspects are taken into account, it seems that at current price levels, Rigel represents an attractive investment opportunity. 

In contrast to other companies that try to be as vague as possible about the timing of future deals, Rigel is going out of its way to reassure investors that it will have a deal in place by the end of the first quarter. Rigel’s lead drug, R788, is currently being evaluated in two comparative trials in patients with rheumatoid arthritis (RA), a $14 billion indication. During most of 2008, R788 was considered to be one the most promising drugs in the biotech industry, but an update at last year’s ACR meeting raised doubts regarding the safety profile of R788, as reviewed in my recent article on Rigel. According to the company, the safety data from the ACR meeting did not affect its negotiation leverage, as the potential partners had access to the data before it was published, so nothing came as a surprise to them. Trying to be as explicit as possible, Rigel managers state that none of the companies with whom it was in advanced discussions dropped out of the race as a result of the safety issues.

The safety issue most investors are worried about is the increase in blood pressure R788 seems to induce. With current regulatory climate, and considering that RA patients are more prone to develop high blood pressure, this safety signal will probably be closely watched in future trials. Nevertheless, for the same reason, future trials will probably demonstrate that there is no material risk because in the vast majority of cases, the slight blood pressure increase will be manageable by hypertension drugs. Even in cases where the elevation in blood pressure is not manageable, the patient can be taken off the drug and the blood pressure returns to its normal levels. Evidently, if R788 gets approved, it is plausible that some patients will be more sensitive to this side effect and show a too steep of an increase in blood pressure. These patients will have to be taken of the drug but they still represent a small portion of the overall market.

In order to become a successful drug, R788 does not have to outperform the currently approved drugs for RA, instead, it should just offer patients a more convenient treatment with comparable efficacy. The mainstay treatment in RA is TNF-inhibitors, which are injectable biologics. As an oral agent, R788 could be preferred by patients who will have to pick between a monthly injection and a twice-a-day pill. Having an oral drug in the market will certainly help Rigel and its partner to squeeze R788 before the injectable agents, and become a standard first line treatment. This is in contrast to recently approved agents for RA such as Orencia and Rituxan, which are usually given to patients who do not derive sufficient benefit from TNF inhibitors. 

According to Rigel, the deal will include a profit sharing arrangement in the U.S, royalties on sales outside of the U.S and a generous upfront payment. Therefore, Rigel will have to fund some of the development costs as well as establish a dedicated sales force in the U.S in return to the co-promotion rights. Building a sales infrastructure in some parts of the U.S typically requires substantial investment, but from Rigel’s perspective, this move makes a lot of sense given the unique nature of the RA market.