AstraZeneca, RIGL in Licensing Deal

AstraZeneca (AZN - Analyst Report) and Rigel Pharmaceuticals, Inc. (RIGL - Snapshot Report) recently announced that they have entered into a licensing agreement for Rigel’s asthma candidate, R256. Per the terms of the agreement, AstraZeneca will make an upfront payment of $1 million. The value of the deal could extend to $100 million. Moreover, AstraZeneca is obliged to make royalty payments to Rigel on net sales of R256, following its approval.

In exchange of the payments made by AstraZeneca, the company will get exclusive worldwide development and commercialization rights to R256. AstraZeneca will undertake the responsibility of further development of R256.

R256, an inhaled JAK inhibitor, has been developed for the treatment of moderate-to-severe chronic asthma. In the preclinical studies, R256 demonstrated promising efficacy in reducing airway inflammation and improving lung function.

AstraZeneca’s Respiratory & Inflammation segment boasts of Symbicort for asthma and chronic obstructive pulmonary disease (COPD) and Pulmicort for asthma. These two products together contributed approximately 13% of AstraZeneca’s total revenue. We believe that the successful development and commercialization of R256 will further strengthen AstraZeneca’s Respiratory & Inflammation segment.

Neutral on AstraZeneca

We are encouraged by the company’s focus on high-potential emerging markets and are pleased with its effort to drive the bottom line through cost-cutting initiatives and share buybacks.

However, we remain concerned about the generic competition faced by the company’s key products. In 2011, the company lost revenues worth almost $2 billion to generic competition. The weak late-stage pipeline coupled with the slow Brilinta uptake also bothers us. We currently have a Neutral recommendation on AstraZeneca. The stock carries a Zacks #3 Rank (Hold rating) in the short run.