Rigel forges new partnership with AstraZeneca

We think the new deal should take some R&D pressure off AstraZeneca and some financial pressure off Rigel

Debbie S. Wang 24 February, 2010 | 4:21PM
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Rigel Pharmaceutical's newly announced partnership with AstraZeneca to develop and commercialise its lead product for rheumatoid arthritis is a huge feather in Rigel's cap. The upfront payment and potential milestones later in 2010 are very close to what we'd projected, and we're leaving our fair value estimates unchanged at 3,169p for AstraZeneca and $10 for Rigel. Rigel has had a solid history of partnering with blue chip pharmaceutical companies like Novartis and Johnson & Johnson, but we've been waiting to see who would sign up for Rigel's R788, which is poised to enter Phase III trials this year.

We have long been enthusiastic about R788's potential as a blockbuster, as it offers more convenient oral dosing (possibly just once a day), quick onset of action, and a novel mechanism of action that can actually protect joints from the progressive nature of the disease. Thanks to an upfront $100 million payment from AstraZeneca, and additional milestones that should come along once the drug enters its Phase III trial in the second half of 2010, Rigel will have a comfortable cash cushion to move its earlier-stage candidates along the development path. AstraZeneca is also taking responsibility for the R&D costs of R788 going forward, which should take some financial weight off Rigel's shoulders, especially considering how expensive the upcoming large-scale study will be.

From AstraZeneca's perspective, we believe this potentially blockbuster deal will serve to take some pressure off of internal research and development efforts, which need to improve as the company faces one of the steepest patent cliffs in the pharmaceutical industry. Furthermore, if the Phase III data is compelling, we believe AstraZeneca’s interest in R788 could extend enough to justify acquiring Rigel. In our recent Healthcare Observer ranking of likely biotechnology acquisition targets, Rigel captured the 11th position.

Damien Conover, senior pharma analyst, contributed to this note.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
AstraZeneca PLC12,026.00 GBX5.94Rating

About Author

Debbie S. Wang  Debbie S. Wang is a senior analyst with Morningstar.

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