Shares of Rigel Pharmaceuticals (RIGL 2.44%) recently popped after the company announced a collaboration deal with one of America's largest drugmakers, Eli Lilly (LLY +0.80%). Despite more than doubling over the past year, this underappreciated biotech stock could climb a lot further.
A new collaboration deal with a big pharmaceutical company isn't the only reason to keep an eye on this often overlooked biotech stock. Here's why investors can look forward to outstanding returns from Rigel Pharmaceuticals in the years to come.
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1. Eli Lilly's hungry for R552
On Feb. 18, 2021, Eli Lilly coughed up $125 million upfront to license R552 from Rigel Pharmaceuticals. This is a small molecule drug designed to inhibit RIPK1, a protein that regulates which cells get to survive and which ones need to be killed off.
So far, Rigel has presented results from a phase 1 study with healthy people that tried R552, but the company hasn't aimed it at any particular indication yet. While there are plenty of autoimmune disorders that could use better treatment options, Eli Lilly will most likely test R552 as a potential new Alzheimer's disease treatment.
Eli Lilly also agreed to a series of milestone payments that could reach $835 million if R552 goes on to become a highly successful drug. Rigel could also receive a royalty percentage in the high-teens from sales of R552, or less if the smaller biotech decides to let Eli Lilly pay for a higher percentage of development and commercialization costs.
2. Tavalisse sales for thrombocytopenia
Developing new treatments for Alzheimer's disease is an ultra-risky venture, but investors that buy shares of Rigel Pharmaceuticals don't need R552 to succeed to produce big gains. In 2018, the FDA approved Tavalisse to protect platelets in the bloodstream from destruction by their own immune systems for patients with a rare condition called chronic immune thrombocytopenia (cITP).
In 2020, sales of Tavalisse grew 41% year over year to $62 million as a treatment for cITP patients that respond poorly to standard care. Physicians are becoming more comfortable prescribing Rigel's first-in-class drug to cITP patients before they exhaust other available options, which could keep sales growing at this pace for years to come.
3. Tavalisse sales for COVID-19 and more
In January, the U.S. Department of Defense awarded Rigel Pharmaceuticals $16.5 million to support an ongoing phase 3 trial testing Tavalisse as a treatment for hospitalized COVID-19 patients.
Severely ill COVID-19 patients often exhibit a hyperinflammatory response that includes the destruction of platelets and other critical blood components. We'll know more about Tavalisse's chance in this indication when a phase 2 study that began last year reads out results this spring.
Following encouraging mid-stage trial results, Rigel's also running a phase 3 trial with Tavalisse as a potential treatment for warm autoimmune hemolytic anemia (wAIHA). This is a rare disorder where patients' immune systems attack their own red blood cells and there aren't any treatments approved to treat wAIHA yet.
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Numbers ahead
Rigel Pharmaceuticals finished September with around $73 million in cash after losing about $14 million in the third quarter of 2020. Product sales have already caught up with selling, general, and administrative costs. By the end of 2021, Tavalisse sales will probably reach a level that covers the company's research and development outlay too.
Rigel's collaboration deal with Eli Lilly is a long shot because we still haven't seen evidence R552 provides a benefit for people with Alzheimer's disease or any other disorder. With Eli Lilly responsible for a majority of development costs, though, it's a long shot well worth taking.
While there's a good chance we'll never see huge milestone payments from Lilly, the upfront sum gives Rigel Pharmaceuticals enough cash to push Tavalisse forward at a much faster pace without subjecting shareholders to a dilutive secondary offering.
Despite a clear path to profitability with Tavalisse, and a free shot at the Alzheimer's disease indication, Rigel Pharmaceuticals' market cap at recent prices is still less than $800 million. That's a lot less than you'd expect for a company approaching profitability within a few years of its first new drug launch. In fact, it's probably one of the best bargains in the biotech space right now.
