Why Rigel Pharmaceuticals Shares Soared 13.9% Today

By Markets Fool.com

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What: Shares in Rigel Pharmaceuticals (NASDAQ: RIGL) jumped by 13.9% today after the company updated investors on its clinical-drug pipeline yesterday.

So What: The company doesn't have any drugs on the market yet, but it did report second-quarter revenue from contracts of $8.6 million, stemming from collaboration deals with Bristol Myers Squibb and BerGenBio AS. The biotech also reported that expenses were $22.2 million in Q2, up from $19.2 million a year ago. The bump up in costs is due to higher costs associated with its clinical-drug pipeline, including costs associated with its most-advanced drug fostamatinib.

Fostamatinib is in phase 3 trials as a therapy for the treatment of ITP, an immune-systemdisorder in which a patient's immune system attacks blood platelets, resulting in abnormally low platelet counts. Rigel estimates that 100,000 people suffer from chronic ITP.

Currently, treatment typically involves the use of steroids; however, if treatment fails, the patient's spleen can be removed, creating additional patient risks. Phase 2 results for fostamatinib were solid, and results from the first of two phase 3 trials is expected in August. If the trial is a success, the company plans to file a new drug application with the FDA as soon as Q1, 2017.

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Now What: A positive outcome forfostamatinib would be a big win for Rigel. If approved, fostamatinib could provide doctors witha convenient oral formulation that doesn't require weekly office visits or dietary restrictions. Those advantages could help fostamatinib establish a foothold in the indication.

Rigel's stock, however, is risky because a trial failure couldsignificantlyset back any path toward eventual profitability. Forthat reason, most investors ought to focus on other ideas to avoid the risk of a stumble in the trial, or with FDA regulators. Investors should also recognize that Rigel's $95 million in cash is expected to get it only through Q3 of next year. Therefore, there's a good chance that the company will need to do a dilutive stock offering sometime in the next year.

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Todd Campbell has no position in any stocks mentioned.Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. Like this article? Follow him onTwitter where he goes by the handle@ebcapital to see more articles like this.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.