Investors were taken on a roller-coaster ride with Rigel Pharmaceuticals (NASDAQ:RIGL) in 2018. There were ups, downs, and finally, a stomach-churning plunge in December.
Despite receiving its first-ever marketing approval for fostamatinib, branded as Tavalisse, for treating a rare blood disorder, shares ended the year down 40.7%. Some investors may see its current price as overly punitive, and it's worth asking if Wall Street is properly valuing the company's potential.
Rigel Pharmaceuticals sports a market cap of just $350 million, but most analysts estimate Tavalisse could have peak sales of at least $300 million per year. The company also has plans to launch a phase 3 trial for its most advanced pipeline asset and will soon have data for an intriguing early stage drug candidate with broad potential in treating inflammatory and immune diseases.
How's the Tavalisse launch going?
The U.S. Food and Drug Administration (FDA) granted marketing approval for Tavalisse to treat immune thrombocytopenia, a condition in which an individual has low levels of platelets in their blood, in April 2018. It launched at the end of May 2018. Rigel Pharmaceuticals recently disclosed that it sold 1,794 bottles for the year and more than 45% of eligible patients remained on the treatment for four consecutive months. What does that mean?
Rigel Pharmaceuticals previously said that it had shipped 891 bottles of Tavalisse and generated $6.6 million in product revenue through the first nine months of 2018. Given the new latest disclosure of the number of bottles sold for the entire year, investors can infer the business sold or shipped 903 bottles and therefore generated about $6.6 million in product revenue in the fourth quarter of 2018.
The average analyst estimate for the company's full-year 2019 revenue is $40 million, according to Yahoo! Finance. That includes expectations for only $6.6 million in revenue in the first quarter of 2019, which might be a little low given the estimated performance from the final quarter of 2018.
Does it have enough cash?
Even if Tavalisse ends up topping analyst estimates for $40 million in product sales in 2019, that won't be enough to deliver the company to profitability.
Rigel Pharmaceuticals reported an operating loss of $24 million in the third quarter of 2018. The company's selling, general, and administrative expense more than doubled in the first nine months of last year compared to the same period of 2017 as a result of the drug's launch. It seems costs are relatively high right now given the drug's early performance, so investors will want to see those increases slow or stabilize in the year ahead.
Management said the business exited 2018 with $128 million in cash, cash equivalents, and short-term investments, which should be enough to fund operations into the first quarter of 2020. That's right around the corner -- and this approaching deadline will increase the importance and scrutiny of Tavalisse sales each quarter this year. That said, there could be some help on the way soon.
In late January 2019, Rigel Pharmaceuticals announced it had signed a deal with Spain's $16 billion pharma leader Grifols that grants it rights to market fostamatinib in Europe and Turkey. Rigel Pharmaceuticals will receive a $30 million upfront cash payment, tiered royalties on potential sales, and up to $297 million in milestone payments, including a $20 million payment if the drug is approved to treat autoimmune hemolytic anemia (AIHA). European regulators are expected to announce a decision for that indication by the end of 2019.
The $30 million payment will immediately extend the company's cash runway, perhaps into the second quarter of 2020. Earning marketing approval in Europe at the end of this year would add to that cushion, as well as give analysts another revenue source to account for when estimating probable growth.
Is Wall Street overlooking Rigel Pharmaceuticals?
There can be plenty of choppiness in the performance of new drug products, especially when an inexperienced company is leading sales and marketing. Investors will need to remain patient and be careful not to prematurely conclude that the drug is a raging success or an abject failure until more quarters of data are in.
That said, Rigel Pharmaceuticals appears to be spending a little too much money on sales and marketing expenses in the early goings for Tavalisse. Given the slow expected sales ramp-up, there isn't much room for error.
While it has a relatively strong cash position in early 2019, Rigel Pharmaceuticals has a few question marks ahead. For instance, if fostamatinib doesn't gain marketing approval in Europe by 2021, then Rigel will be forced to repay $25 million to Grifols for its troubles.
Meanwhile, judging from the company's greatly reduced market cap, Wall Street doesn't seem optimistic about the pace of revenue growth for the drug in the U.S.
Simply put, there's still too much risk facing the business going forward, and investors would be better suited to wait until the company gets a few more quarters of product sales under its belt before determining if the risk profile leans in their favor.
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