AstraZeneca will pay Rigel Pharmaceuticals up to $1.25 billion for rights to its rheumatoid arthritis drug, R788, delivering a much-needed victory for the company, which sacrificed staff and other programs to forge ahead with the drug.

 

Astra is giving Rigel $100 million upfront and could deliver $345 million in milestone payments plus sales-related milestone payouts totaling $800 million. Rigel will also receive stepped double-digit royalty payments on sales worldwide.

 

"We believe that given the drug’s blockbuster potential, any early signs of confirmation of its efficacy and safety in the phase 3 program would make Rigel an obvious acquisition target by partner AstraZeneca," says Simos Simeonidis, a senior biotechnology analyst at Rodman & Renshaw.

 

The deal also stipulates that Astra will handle all development, regulatory filings, manufacturing and global marketing of the drug in rheumatoid arthritis and additional indications covered by the contract.

 

Astra will design a global late-stage trial for R788, also known as fostamatinib disodium. The company expects to start that trial in the second half of 2010, with the goal of filing new drug applications in the U.S. and Europe by 2013.

 

Rheumatoid arthritis, which primarily impacts joints, affects 1.3 million Americans, according to the Arthritis Foundation. Astra and Rigel estimate that the global market for treating the disease might be worth $13 billion annually.

 

It's a fairy-tale twist for a R788, which suffered a near-shelf experience when a mid-stage study scared investors into a panicked sell-off of Rigel's shares in late October, 2008. The brush scared Rigel too, which cut 36 staffers and shelved its virology and cancer pipeline in February 2009, making way.

 

Studies of R788 have shown that its leading side affect is increased blood pressure, but the companies believe it to be manageable with adjusted or new prescriptions for blood pressure medications.

 

Investors didn’t appear too happy with the deal, which sent Rigel’s share price down 16 percent for the week. One of the reasons why they might have been unimpressed was that $800 million of the deal total comes in the form of specified sales related milestones if the product achieves “considerable” levels if commercial success, levels that remained undisclosed. As a clinical stage company, Rigel has no revenue and needs the $100 million upfront cash that AstraZeneca is handing out. But the company also needs a strong share price so it can raise money in the market when it needs to.