AstraZeneca Plc waded into the competitive rheumatoid arthritis market on Tuesday by buying rights to Rigel Pharmaceuticals Inc's next-generation drug R788 for up to $1.245 billion.

The deal is a big vote of confidence in the Rigel product, known chemically as fostamatinib disodium, which failed one mid-stage Phase II study last July.

Despite that setback, AstraZeneca and Rigel believe it can still win through in final-stage Phase III tests, as an oral alternative to injections of anti-TNF medicines.

An AstraZeneca spokesman said there was evidence results in the failed trial were due to technical issues with study design and interpretation. Two other Phase II studies were successful.

R788 is the furthest developed in a new class of drugs called oral spleen tyrosine kinase inhibitors being evaluated for rheumatoid arthritis.

Pfizer Inc is developing a rival oral rheumatoid arthritis pill, CP-690,550, that works through a different mechanism of action. R788 is further behind but it has a quick onset of action and Rigel believes it may have a competitive advantage in terms of bone protection.

Shares in the small biotech company, however, fell 5 percent Tuesday. Rigel shares have risen about 30 percent since it said in November it was moving ahead with late-stage R788 studies.

There is a lot of people who sell on the news and I imagine that is what is happening. People are looking for fast money, Rigel's Chief Operating Officer Raul Rodriguez told Reuters.

NEED FOR DEALS

The large licensing deal is another example of a drive to externalize research at AstraZeneca, which is cutting in-house work as it deals with a wave of patent losses on top medicines.

Mike Ward, an analyst at Ambrian Partners, said AstraZeneca was paying top dollar for the arthritis drug prospect.

The size of the payments are perhaps indicative not only of the compound's potential but also of AstraZeneca's need to boost its late stage pipeline in the face of forthcoming patent expiries, he said.

Under the agreement, AstraZeneca will make an upfront payment of $100 million to Rigel, with up to $345 million more payable after achieving regulatory and first sale milestones, the two companies said in a statement.

The south San Francisco, California-based company will recognize the upfront payment and about $25 million in milestone payment in the calendar year 2010.

Rigel will also be eligible to receive up to an additional $800 million and double-digit royalties on specific sales-related payments.

AstraZeneca will design a Phase III program, anticipated to begin in the second half of 2010, with the goal of filing a new drug application in 2013.

The London-based firm is responsible for all development, manufacturing and global commercialization activities.

Rigel believes its drug has multi-billion dollar sales potential as an alternative to injections of blockbuster anti-TNF drugs like Amgen Inc's Enbrel, Johnson & Johnson's Remicade and Abbott Laboratories' Humira. These drugs work by blocking an inflammatory protein known as a tumor necrosis factor, or TNF.

R788 is designed to help patients who do not respond to the older drug methotrexate, which is the current standard of care for rheumatoid arthritis patients.

For AstraZeneca, buying rights to R788 marks a significant step up in its investment in arthritis, although it is not its first foray in the field.

Its biotech division, MedImmune, has a monoclonal antibody in Phase I trials and AstraZeneca is also seeking approval for a new painkiller, Vimovo, to treat the symptoms of both rheumatoid and osteoarthritis.

AstraZeneca shares ended 0.5 percent lower in a flat European drugs sector.

(Additional reporting by Archana Shankar in Bangalore; Editing by David Cowell)

Medicine Arthritis