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Here's Why Rigel Pharmaceuticals Is Erupting This Week

What happened

Shares of Rigel Pharmaceuticals (NASDAQ: RIGL) rose as much as 14% today and have gained 35% in the last week. On Monday the company reported preliminary fourth-quarter and full-year 2019 operating results showing that its lead drug product, Tavalisse, could be back on a promising growth trajectory in the United States. The company also announced that Tavalisse had received marketing approval in Europe, which swipes away a big source of uncertainty concerning a partnership with Grifols (NASDAQ: GRFS).

Rigel Pharmaceuticals expects to report total fourth-quarter 2019 revenue of $15.4 million, including Tavalisse product revenue of $13.8 million. The revenue figure would top the consensus on Wall Street, which is all the more impressive considering product revenue had lagged estimates in previous quarters and therefore had more ground to make up in the final three months of the year.

As of 10:54 a.m. EST, the pharma stock had settled to a 7.4% gain.

Image source: Getty Images.

So what

Tavalisse is approved to treat chronic immune thrombocytopenia (ITP), which is characterized by low platelet count and red markings on the skin. Analysts expected the drug to achieve peak annual sales of $300 million at the time of approval, but investors began to doubt the drug's market potential following disappointing sales growth in 2019.

The preliminary results suggest the drug could be back on a promising trajectory. If they hold up when financials are finalized in the coming months, Tavalisse will have achieved a respectable $44 million in revenue in 2019.

Perhaps most important is the announcement that Tavalisse received marketing approval in the European Union (though the drug will be called something else on the continent). That triggers a $20 million milestone payment from Grifols, which owns the marketing rights in Europe and Turkey, and likely salvages the partnership. Investors had feared that Grifols might walk away if the drug didn't earn marketing approval. Assuming that risk has been removed for now, Rigel Pharmaceuticals stands to receive up to $277 million in additional milestone payments from its deep-pocketed partner.

Now what

This week's news is a good way for Rigel Pharmaceuticals to kick off 2020. While it removes a significant amount of uncertainty surrounding the business and the Tavalisse franchise, the company still has to deliver. If Tavalisse product revenue disappoints in the first quarter or two of 2020, investors might have to deal with still more uncertainty and volatility.

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Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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