**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

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**FORM 10-Q**

 
| **ý** | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**                                                                                                                                              |
|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | **SECURITIES  EXCHANGE ACT OF 1934**                                                                                                                                                                                |
|       |       |                                                                                                                                                                                                                |
|       |       | **FOR THE QUARTERLY PERIOD ENDED  SEPTEMBER 30, 2005.**                                                                                                                                                        |
|       |       |                                                                                                                                                                                                                |
|       |       | **OR**                                                                                                                                                                                                              |
|       |       |                                                                                                                                                                                                                |
| **o**      | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**                                                                                                                                             |
| ** ** | ** ** | **SECURITIES  EXCHANGE ACT OF 1934**                                                                                                                                                                                |
| ** ** | ** ** | ** **                                                                                                                                                                                                          |
|       |       | **FOR THE TRANSITION PERIOD FROM                  TO                .** |
|       |       |                                                                                                                                                                                                                |
|       |       | **Commission File Number 0-29889**                                                                                                                                                                                  |

 

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**Rigel Pharmaceuticals, Inc.**

(Exact name of registrant as specified in itscharter)

 

| **Delaware**                                                    | ** ** | **94-3248524**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of incorporation or organization) |       | (I.R.S. Employer  Identification No.) |
|                                                            |       |                                  |
| **1180 Veterans Blvd.**                                         | ** ** | ** **                            |
| **South San Francisco, CA**                                     | ** ** | **94080**                             |
| (Address of principal  executive offices)                       |       | (Zip Code)                            |
|                                                            |       |                                  |
| **(650) 624-1100**                                         |       |                                  |
| (Registrant’s telephone  number, including area code)      |       |                                  |

 

Indicate by check markwhether the registrant: (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes  ý  No  o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act).  Yes  ý  No  o

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  Yes  o  No  ý

 

As of October 27, 2005,there were 24,162,531 shares of the registrant’s common stock outstanding.

 

 

 

**RIGEL PHARMACEUTICALS, INC.**

**QUARTERLY REPORT ONFORM 10-Q**

**FOR THE QUARTERLY PERIOD ENDEDSEPTEMBER 30, 2005**

 

**INDEX**

 
| **PART I**    | **FINANCIAL  INFORMATION**                                                                      |   |
|--------------------|-------------------------------------------------------------------------------------------------|--------|
| **Item 1.**        | Condensed  Financial Statements (unaudited)                                                     |   |
|               | Condensed  Balance Sheets-September 30, 2005 and December 31, 2004                    |   |
|               | Condensed Statement of Operations-three and nine  months ended September 30, 2005 and 2004 |   |
|               | Condensed Statements  of Cash Flows-nine months ended September 30, 2005 and 2004          |   |
|               | Notes to  Condensed Financial Statements                                                        |   |
|               | Report of  Independent Registered Public Accounting Firm                                        |   |
| **Item 2.**        | Management’s  Discussion and Analysis of Financial Condition and Results of Operations     |   |
| **Item 3.**        | Quantitative and  Qualitative Disclosures About Market Risk                                     |   |
| **Item  4.**       | Controls and Procedures                                                                         |   |
| **PART II**   | **OTHER  INFORMATION**                                                                          |   |
| **Item 6.**        | Exhibits                                                                                        |   |
|               |                                                                                            |   |
| **Signatures**     |                                                                                            |   |
| **Certifications** |                                                                                            |   |

 

 

 

2

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**PART I  FINANCIAL INFORMATION**

 

**Item 1.****   ****CondensedFinancial Statements**

 

**RIGEL PHARMACEUTICALS,INC.CONDENSED BALANCE SHEETS(in thousands, except shares and per share amounts)**

 
| ** **                                                                                                                                                                                   | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                   | ** ** | **(unaudited)**              | ** ** | **(Note 1****)**            | ** ** |
| **Assets**                                                                                                                                                                                   |       |                         |       |                        |       |
| Current assets:                                                                                                                                                                              |       |                         |       |                        |       |
| Cash and cash equivalents                                                                                                                                                                    |       | $                            | 91,756     |                        | $          | 10,495 |   |
| Available-for-sale securities                                                                                                                                                                |       | 36,167                       |       | 60,932                      |       |
| Accounts receivable                                                                                                                                                                          |       | 1,050                        |       | —                      |       |
| Other receivables                                                                                                                                                                            |       | 570                          |       | 699                         |       |
| Prepaid expenses and other current assets                                                                                                                                                    |       | 2,156                        |       | 2,113                       |       |
| Total current assets                                                                                                                                                                         |       | 131,699                      |       | 74,239                      |       |
|                                                                                                                                                                                         |       |                         |       |                        |       |
| Property and equipment,  net                                                                                                                                                                 |       | 2,663                        |       | 2,813                       |       |
| Other assets                                                                                                                                                                                 |       | 1,657                        |       | 1,770                       |       |
|                                                                                                                                                                                         |       | $                            | 136,019    |                        | $          | 78,822 |   |
|                                                                                                                                                                                         |       |                         |       |                        |       |
| Liabilities and  stockholders’ equity                                                                                                                                                   |       |                         |       |                        |       |
| Current liabilities:                                                                                                                                                                         |       |                         |       |                        |       |
| Accounts payable                                                                                                                                                                             |       | $                            | 2,738      |                        | $          | 1,945 |   |
| Accrued compensation                                                                                                                                                                         |       | 1,595                        |       | 1,639                       |       |
| Other accrued liabilities                                                                                                                                                                    |       | 1,746                        |       | 1,555                       |       |
| Deferred revenue                                                                                                                                                                             |       | 8,040                        |       | 3,728                       |       |
| Deferred rent                                                                                                                                                                                |       | —                       |       | 1,230                       |       |
| Capital lease obligations                                                                                                                                                                    |       | 1,022                        |       | 1,321                       |       |
| Total current liabilities                                                                                                                                                                    |       | 15,141                       |       | 11,418                      |       |
|                                                                                                                                                                                         |       |                         |       |                        |       |
| Long-term portion of  capital lease obligations                                                                                                                                              |       | 980                          |       | 781                         |       |
| Long-term portion of  deferred revenue                                                                                                                                                       |       | 4,768                        |       | 4,180                       |       |
| Long-term portion of  deferred rent                                                                                                                                                          |       | 10,830                       |       | 9,685                       |       |
| Other long-term  liabilities                                                                                                                                                                 |       | 420                          |       | 457                         |       |
|                                                                                                                                                                                         |       |                         |       |                        |       |
| Commitments                                                                                                                                                                                  |       |                         |       |                        |       |
|                                                                                                                                                                                         |       |                         |       |                        |       |
| Stockholders’ equity:                                                                                                                                                                   |       |                         |       |                        |       |
| Common stock, $0.001 par value; 100,000,000 shares authorized;  24,154,428 and 19,661,295 shares issued and outstanding on September 30,  2005 and December 31, 2004, respectively |       | 24                           |       | 20                          |       |
| Additional paid-in capital                                                                                                                                                                   |       | 352,590                      |       | 264,823                     |       |
| Deferred stock compensation                                                                                                                                                                  |       | (30                          | )          | (56                         | )          |
| Accumulated other comprehensive loss                                                                                                                                                         |       | (75                          | )          | (220                        | )          |
| Accumulated deficit                                                                                                                                                                          |       | (248,629                     | )          | (212,266                    | )          |
| Total stockholders’ equity                                                                                                                                                              |       | 103,880                      |       | 52,301                      |       |
|                                                                                                                                                                                         |       | $                            | 136,019    |                        | $          | 78,822 |   |
|                                                                                                                                                                                              |            |                              |            |                             |            |  |  |  |  |

 

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Note (1)               The balance sheet atDecember 31, 2004 has been derived from the audited financial statementsat that date included in Rigel’s Annual Report on Form 10-K, for the yearended December 31, 2004.

 

See accompanying notes.

 

 

3

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**RIGEL PHARMACEUTICALS, INC.CONDENSED STATEMENTS OFOPERATIONS(in thousands, except per share amounts)**

 
| ** **                                                                              | ** ** | **Three Months Ended  September  30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                              | ** ** | **2005**                                         | ** ** | **2004**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                              | ** ** | **(unaudited)**                                  | ** ** | **(unaudited****)**                       | ** ** |
| Revenues:                                                                               |       |                                             |       |                                      |       |   |   |   |   |
| Contract revenues from collaborations                                                   |       | $                                                | 3,282      |                                      | $          | 659 |   | $ | 10,506 |   | $ | 3,633 |   |
|                                                                                    |       |                                             |       |                                      |       |   |   |   |   |
| Costs and expenses:                                                                     |       |                                             |       |                                      |       |   |   |   |   |
| Research and development                                                                |       | 13,676                                           |       | 13,266                                    |       | 38,656 |   | 36,228 |   |
| General and administrative                                                              |       | 3,383                                            |       | 3,711                                     |       | 9,686 |   | 9,370 |   |
|                                                                                    |       | 17,059                                           |       | 16,977                                    |       | 48,342 |   | 45,598 |   |
| Loss from operations                                                                    |       | (13,777                                          | )          | (16,318                                   | )          | (37,836 | ) | (41,965 | ) |
| Interest income                                                                         |       | 935                                              |       | 255                                       |       | 1,667 |   | 684 |   |
| Interest expense                                                                        |       | (64                                              | )          | (73                                       | )          | (194 | ) | (248 | ) |
| Net loss                                                                                |       | $                                                | (12,906    | )                                         | $          | (16,136 | ) | $ | (36,363 | ) | $ | (41,529 | ) |
| Net loss per share, basic  and diluted                                                  |       | $                                                | (0.56      | )                                         | $          | (0.88 | ) | $ | (1.74 | ) | $ | (2.37 | ) |
| Weighted average shares used in computing net loss per common share,  basic and diluted |       | 23,235                                           |       | 18,386                                    |       | 20,958 |   | 17,552 |   |

 

See accompanying notes.

 

 

4

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**RIGEL PHARMACEUTICALS,INC.CONDENSED STATEMENTS OFCASH FLOWS(in thousands)**

 
| ** **                                                                   | ** ** | **Nine Months Ended  September 30,** |
|------------------------------------------------------------------------------|------------|-------------------------------------------|
| ** **                                                                   | ** ** | **2005**                                  | ** ** | **2004** | ** ** |
| ** **                                                                   | ** ** | **(unaudited)**                           | ** ** |
| **Operating activities:**                                                    |       |                                      |   |   |   |
| Net loss                                                                     |       | $                                         | (36,363 | ) | $ | (41,529 | ) |
| Adjustments to reconcile  net loss to net cash used in operating activities: |       |                                      |   |   |   |
| Depreciation and amortization                                                |       | 683                                       |   | 1,553 |   |
| Amortization of deferred stock compensation, net                             |       | 17                                        |   | 101 |   |
| Non-cash stock compensation                                                  |       | 121                                       |   | 2,399 |   |
| Changes in assets and liabilities:                                           |       |                                      |   |   |   |
| Accounts receivable                                                          |       | (1,050                                    | ) | 500 |   |
| Other receivables                                                            |       | 129                                       |   | (86 | ) |
| Prepaid expenses and other current assets                                    |       | (43                                       | ) | (124 | ) |
| Other assets                                                                 |       | 113                                       |   | 61 |   |
| Accounts payable                                                             |       | 793                                       |   | 1,105 |   |
| Accrued compensation                                                         |       | (44                                       | ) | 811 |   |
| Other accrued liabilities                                                    |       | 191                                       |   | (110 | ) |
| Deferred revenue                                                             |       | 4,900                                     |   | (1,866 | ) |
| Deferred rent and other long-term liabilities                                |       | (122                                      | ) | 4,309 |   |
| Net cash used in operating activities                                        |       | (30,675                                   | ) | (32,876 | ) |
|                                                                         |       |                                      |   |   |   |
| **Investing activities:**                                                    | ** ** | ** **                                | ** ** | ** ** | ** ** |
| Purchase of available-for-sale securities                                    |       | (45,984                                   | ) | (70,904 | ) |
| Maturities of available-for-sale securities                                  |       | 70,894                                    |   | 41,585 |   |
| Capital expenditures                                                         |       | (533                                      | ) | (853 | ) |
| Net cash provided by/(used in) investing activities                          |       | 24,377                                    |   | (30,172 | ) |
| ** **                                                                   | ** ** | ** **                                | ** ** | ** ** | ** ** |
| **Financing activities:**                                                    | ** ** | ** **                                | ** ** | ** ** | ** ** |
| Proceeds from capital lease financing                                        |       | 1,191                                     |   | 454 |   |
| Payments on capital lease obligations                                        |       | (1,291                                    | ) | (1,743 | ) |
| Net proceeds from issuances of common stock                                  |       | 87,659                                    |   | 60,331 |   |
| Net cash provided by financing activities                                    |       | 87,559                                    |   | 59,042 |   |
|                                                                         |       |                                      |   |   |   |
| Net increase (decrease) in  cash and cash equivalents                        |       | 81,261                                    |   | (4,006 | ) |
| Cash and cash equivalents at beginning of period                             |       | 10,495                                    |   | 9,621 |   |
| Cash and cash equivalents at end of period                                   |       | $                                         | 91,756 |   | $ | 5,615 |   |

 

See accompanying notes.

 

 

5

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**Rigel Pharmaceuticals, Inc.**

**Notesto Condensed Financial Statements**

**(unaudited)**

 

In this Quarterly Report, “Rigel,” “we,” “us” and “our”refer to Rigel Pharmaceuticals, Inc.

 

**1. Nature of Operations**

 

We were incorporated in the state of Delaware onJune 14, 1996. We are engaged in the discovery and development of a broadrange of new small molecule product candidates.

 

**2. Basis of Presentation**

 

Our accompanying unaudited condensed financialstatements have been prepared in accordance with generally accepted accountingprinciples for interim financial information and pursuant to the instructionsto Form 10-Q and Article 10 ofRegulation S-X.  In our opinion, theseunaudited condensed financial statements include all adjustments, consistingonly of normal recurring adjustments, which we consider necessary to fairlystate our financial position and the results of our operations and cash flows.Interim-period results are not necessarily indicative of results of operationsor cash flows for a full-year period. The balance sheet at December 31,2004 has been derived from audited financial statements at that date, but doesnot include all disclosures required by generally accepted accountingprinciples for complete financial statements.

 

These unaudited condensed financial statements andthe notes accompanying them should be read in conjunction with our AnnualReport on Form 10-K for the year ended December 31, 2004.

 

Comprehensive loss did not differ materially fromthe net loss as reported.

 

**3. Net Loss Per Share**

 

Basic net loss per share is computed based on thenumber of weighted average shares outstanding. The calculation of diluted net loss per share excludes shares ofpotential common stock, consisting of stock options and warrants, because theireffect is anti-dilutive.

 

**4.  Stock Award Plans**

 

We have elected to continue to follow AccountingPrinciples Board Opinion No. 25, or APB 25, “Accounting for Stock Issuedto Employees,” to account for employee stock options because the alternativefair value method of accounting prescribed by Statement of Financial AccountingStandards, or FAS, No. 123, as amended by FAS No. 148 “Accounting forStock-Based Compensation,” requires the use of option valuation models thatwere not developed for use in valuing employee stock options. Under APB 25, theintrinsic value method of accounting, no compensation expense is recognizedbecause the exercise price of our employee stock options equals the marketprice of the underlying stock on the date of grant.

 

Pro forma information regarding net loss and netloss per share has been determined as if we had accounted for our employeestock options and employee stock purchase plan under the fair value methodprescribed by FAS No. 123, as amended by FAS No. 148. Thefair value for these options was estimated at the date of grant using theBlack-Scholes model.

 

 

6

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For purposes of pro forma disclosures, the estimated fair value of theoptions is amortized to expense over the vesting period of the options. Our proforma information follows (in thousands, except per share amounts):

 
| ** **                                                                                                        | ** ** | **Three Months Ended  September  30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                                        | ** ** | **2005**                                    | ** ** | **2004**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                                              |       |                                        |       |                                      |       |   |   |   |   |
| Net loss-as reported:                                                                                             |       | $                                           | (12,906    | )                                         | $          | (16,136 | ) | $ | (36,363 | ) | $ | (41,529 | ) |
| Less: Total stock-based employee compensation expense determined  under APB 25                                    |       | 645                                         |       | 1,979                                     |       | 114 |   | 1,973 |   |
| Add: Total stock-based employee compensation expense determined under  the fair value based method for all awards |       | 2,451                                       |       | 1,613                                     |       | 7,344 |   | 5,466 |   |
| Pro forma net loss                                                                                                |       | $                                           | (14,712    | )                                         | $          | (15,770 | ) | $ | (43,593 | ) | $ | (45,022 | ) |
| Basic and diluted net loss  per common share:                                                                     |       |                                        |       |                                      |       |   |   |   |   |
| As reported                                                                                                       |       | $                                           | (0.56      | )                                         | $          | (0.88 | ) | $ | (1.74 | ) | $ | (2.37 | ) |
| Pro forma                                                                                                         |       | $                                           | (0.63      | )                                         | $          | (0.86 | ) | $ | (2.08 | ) | $ | (2.57 | ) |
|                                                                                                                   |            |                                             |            |                                           |            |  |  |  |  |  |  |  |  |  |  |

 

**5. Revenue Recognition**

 

Non-refundable, up-front payments received inconnection with research and development collaboration agreements, includingtechnology access fees, are deferred and recognized on a straight-line basisover the relevant periods of continuing involvement, generally the researchterm.

 

Revenues related to collaborative research with ourcorporate collaborators are recognized as research services are performed overthe related development funding periods for each contract. Under theseagreements, we are required to perform research and development activities asspecified in each respective agreement. The payments received are notrefundable and are generally based on a contractual cost per full-timeequivalent employee working on the project. Research and development expensesunder the collaborative research agreements, except for the Merck collaborationsigned in November 2004 related to ubiquitin ligases, approximate orexceed the revenue recognized under such agreements over the term of therespective agreements.  For the Merckcollaboration, we are recognizing a pro-rata portion of the invoiced amountsfor funding of our research scientists based on the headcount dedicated to theproject.  It is our policy to recognizerevenue based on our level of effort expended, however, revenue recognized willnot exceed amounts billable under the arrangement which corresponds to cashreceipts.

 

Milestones are recognized pursuant to collaborativeagreements upon the achievement of these at risk milestones.

 

Royalties will be recognized as earned in accordancewith the contract terms when the third party results are reliably measurable andcollectibility is reasonably assured.

 

 

7

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**6. Cash, Cash Equivalents, and Available-For-SaleSecurities**

 

Available-for-sale securities consist of thefollowing (in thousands):

 

| ** **                     | ** ** | **Estimated  Fair Value at** | ** ** |
|--------------------------------|------------|------------------------------|------------|
| ** **                     | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
| ** **                     | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Checking account               |       | $                            | 1,542      |   | $ | 240 |   |
| Money market funds             |       | 13,899                       |       | 9,261 |   |
| Federal agency securities      |       | 10,434                       |       | 15,684 |   |
| Corporate bonds and notes      |       | 102,048                      |       | 46,242 |   |
|                           |       | $                            | 127,923    |   | $ | 71,427 |   |
|                           |       |                         |       |   |   |
| Reported as:                   |       |                         |       |   |   |
| Cash and cash equivalents      |       | $                            | 91,756     |   | $ | 10,495 |   |
| Available-for-sale  securities |       | 36,167                       |       | 60,932 |   |
|                           |       | $                            | 127,923    |   | $ | 71,427 |   |

 
| ** **                  | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Estimated  Fair Value** | ** ** |
|-----------------------------|------------|---------------------|------------|------------------------------|------------|-------------------------------|------------|---------------------------|------------|
| **September 30, 2005** |       |                |       |                         |       |                          |       |                      |       |
| Federal agency securities   |       | $                   | 8,227      |                         | $          | —                        |       | (9                        | )          | $ | 8,218 |   |
| Corporate bonds and notes   |       | $                   | 28,015     |                         | 2          |                          | (68        | )                         | 27,949     |   |
| Total                       |       | $                   | 36,242     |                         | $          | 2                             |       | $                         | (77        | ) | $ | 36,167 |   |
|                             |            |                     |            |                              |            |                               |            |                           |            |  |  |  |  |  |  |  |  |

 
| ** **                 | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair Value** | ** ** |
|----------------------------|------------|---------------------|------------|------------------------------|------------|-------------------------------|------------|----------------|------------|
| **December 31, 2004** |       |                |       |                         |       |                          |       |           |       |
| Federal agency securities  |       | $                   | 15,709     |                         | $          | 2                             |       | $              | (27        | ) | $ | 15,684 |   |
| Corporate bonds and notes  |       | 46,437              |       | 6                            |       | (201                          | )          | 46,242         |       |
| Total                      |       | $                   | 62,146     |                         | $          | 8                             |       | $              | (228       | ) | $ | 61,926 |   |
|                            |            |                     |            |                              |            |                               |            |                |            |  |  |  |  |  |  |  |  |

 

At September 30, 2005, the above debtsecurities had a weighted average maturity of approximately 55 days with onesecurity with a fair market value of $2.0 million having a maturity greaterthan 360 days.

 

The following table shows the gross unrealizedlosses and fair values of our investments in individual securities that are inan unrealized loss aggregated by investment category, (in thousands):

 

| ** **                     | ** ** | **Fair Value** | ** ** | **Unrealized  (Losses)/gains** | ** ** |
|--------------------------------|------------|----------------|------------|--------------------------------|------------|
| ***September 30,  2005*** |       |           |       |                           |       |
| Federal agency securities      |       | $              | 5,475      |                           | $          | (9 | ) |
| Corporate bonds and notes      |       | 23,967         |       | (68                            | )          |
| Total                          |       | $              | 29,442     |                           | $          | (77 | ) |
| ***December 31,  2004***  |       |           |       |                           |       |
| Federal agency securities      |       | $              | 11,706     |                           | $          | (27 | ) |
| Corporate bonds and notes      |       | 37,294         |       | (201                           | )          |
| Total                          |       | $              | 49,000     |                           | $          | (228 | ) |
|                                |            |                |            |                                |            |  |  |  |  |  |

 

At September 30, 2005, we had investments inindividual securities with a fair market value of approximately $10.5 millionthat have been in a continuous unrealized loss position for more than twelvemonths. As of September 30, 2005, this unrealized loss position wasapproximately $33,000.  We have not recordedan impairment charge as of  September 30,2005, since we have the ability and intent to hold these investments tomaturity at which time no gain or loss would be recognized.  All of these investments will mature byDecember 31, 2005.  During theperiods presented, there were no recorded realized gains or losses oninvestments.

 

 

8

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As of September 30,2005 a total of  18 individual securitieswere in an unrealized loss position.   Asof December 31, 2004, 32 individual securities were in an unrealized lossposition.

 

**7. Merck Collaboration**

 

In November 2004, we entered into a broadcollaboration agreement with Merck & Co., Inc. to investigateubiquitin ligases, a new class of drug target, to find treatments for cancerand potentially other diseases. At the time we entered into the agreement, wereceived an initial cash payment of $7.6 million and funding for our researchscientists for two and a half years. We are recognizing the upfront paymentratably over the two and a half year term of the research agreement.   We are recognizing a pro-rata portion of theinvoiced amounts for funding of our research scientists based on the headcountdedicated to the project.  The amountthat is deferred is currently anticipated to be recognized as revenue at theend of the research phase of the agreement (May 2007) when all of ourobligations have been fulfilled under the terms of the contract.  As of September 30, 2005, $859,000remains deferred which represents amounts invoiced to Merck from the initiationof the research term in excess of the required headcount to be allocated to theproject through the balance sheet date.  We are also eligible to receive milestone payments for preclinical andclinical events in the future. Merck is responsible for worldwide developmentand commercialization of any resulting compounds and will pay Rigel royaltieson future product sales, if any. The collaboration is based on a number of newtargets delivered by Merck and does not include our current ligase targets. Inaddition, we may nominate our own targets for potential inclusion in thecollaboration.

 

**8. Pfizer Collaboration**

 

In January 2005, wesigned a collaborative research and license agreement with Pfizer for thedevelopment of intrapulmonary products for the treatment of allergic asthma andchronic obstructive pulmonary disease (COPD). The collaboration is focused onour preclinical small molecule compounds, which inhibit IgE receptor signalingin respiratory tract mast cells by blocking the signaling enzyme Syk kinase.  The goal of the collaboration is for Pfizerto nominate two of the licensed compounds in order to commence advancedpreclinical development with our assistance.   We will earn milestone payments upon the selection of each of the two compounds, as well as inconnection with other clinical events and royalties from sales of the resultingproducts upon marketing approval.  Pfizeris responsible for the manufacture of all preclinical and clinical materialsfor each compound/product and all costs associated with development andcommercialization.

 

In connection with thiscollaboration, Pfizer paid us $10.0 million upfront and purchased $5.0 millionof our common stock at a premium.  We areamortizing the upfront amount into revenue over 24 months which we consider tobe the overall amount of time it will take Pfizer to nominate two of ourcompounds for advanced pre-clinical development.

 

**9. Equipment Lease Line**

 

In June 2005, our equipment credit line underan original master agreement was extended to create a total borrowing limit of$1.5 million.  We have the ability todraw down on this line through June 2006. The payment period will be for three years with the interest rate on theline fixed at drawdown.  Each line has abargain purchase buyout provision of $101. As of September 30, 2005, no amounts have been drawn on this creditline.

 

**10. Equity Financing**

 

In July 2005, wecompleted a public offering in which we sold 4,197,500 shares of our commonstock, including 547,500 shares issued upon exercise of anoption granted to the underwriters to cover over-allotments, at a priceto the public of $20.75 per share.  Wereceived net proceeds of approximately $81.6 million after deductingunderwriting discounts and commissions and related expenses.

 

 

**11. Subsequent Event**

 

On October 24, 2005 , we signed a licensing agreement with Serono that grants to Serono an exclusivelicense to develop and commercialize product candidates from our Aurora kinaseinhibitor program which includes R763. Under the terms of the agreement, wereceived initial payments totaling $25.0 million, comprised of a license fee of$10.0 million and the purchase of $15.0 million of our common stock, at apremium.

 

 

 

9

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**Report of Independent****Registered Public AccountingFirm**

 

TheBoard of Directors

RigelPharmaceuticals, Inc.

 

Wehave reviewed the condensed balance sheet of Rigel Pharmaceuticals, Inc.as of  September 30, 2005, and therelated condensed statements of operations for the three-month and nine-monthperiods ended September 30, 2005 and 2004, and the condensed statements ofcash flows for the nine-month periods ended September 30, 2005 and2004.  These interim financial statementsare the responsibility of the Company’s management.

 

Weconducted our review in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). A review of interim financialinformation consists principally of applying analytical procedures and makinginquiries of persons responsible for financial and accounting matters. It issubstantially less in scope than an audit conducted in accordance with thestandards of the Public Company Accounting Oversight Board, the objective ofwhich is the expression of an opinion regarding the financial statements takenas a whole. Accordingly, we do not express such an opinion.

 

Basedon our review, we are not aware of any material modifications that should bemade to the condensed interim financial statements referred to above for themto be in conformity with U.S. generally accepted accounting principles.

 

Wehave previously audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the condensed balance sheet ofRigel Pharmaceuticals, Inc. as of December 31, 2004, and the relatedstatements of operations, shareholders’ equity, and cash flows for the yearthen ended not presented herein, and in our report dated March 10, 2005,we expressed an unqualified opinion on those financial statements. In ouropinion, the information set forth in the accompanying balance sheet as ofDecember 31, 2004, is fairly stated, in all material respects, in relationto the balance sheet from which it has been derived.

 
|                  | /s/ Ernst & Young LLP |
|-----------------------|--------------------------------|
| Palo Alto, California |                           |
| November 7, 2005      |                           |

 

 

10

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**Item 2.****   ****Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

*This discussion and analysis should be read in conjunction with ourfinancial statements and accompanying notes included in this report and the2004 audited financial statements and accompanying notes included in our AnnualReport on Form 10-K for the year ended December 31, 2004. Operatingresults for the three and nine months ended September 30, 2005 are notnecessarily indicative of results that may occur in future periods.*

 

*Except for the historical information containedherein, the following discussion contains forward-looking statements that arebased upon current expectations. Forward-looking statements involve risks anduncertainties and include statements related to:*

 

•                    *our strategy;*

 

•                    *the progress of our researchprograms, including clinical testing;*

 

•                    *sufficiency of our cash resources;*

 

•                    *revenues from existing and newcollaborations;*

 

•                    *product development; and*

 

•                    *our research and development andother expenses.*

 

*Words such as “believe,” “anticipate,”“expect,” “estimate,” “plan” and similar expressions are intended to identifysuch forward-looking statements. There can be no assurance that thesestatements will prove to be correct. Our actual results and the timing ofevents could differ significantly from those discussed here. Factors that couldcause or contribute to such differences include, but are not limited to, thosediscussed in “Risk Factors,” as well as those discussed elsewhere in thisquarterly report.  You should considerour forward-looking statements in light of the risks discussed in “RiskFactors,” as well as our financial statements, related notes, and the otherfinancial information appearing elsewhere in this report. Rigel undertakes noobligation to update any of the forward- looking statements contained herein toreflect any future events or developments.*

 

**Overview**

 

Rigel is a clinical stage drug development company that discovers anddevelops novel, small-molecule drugs for the treatment of inflammatorydiseases, cancer and viral diseases. Our goal is to move one new productcandidate for a significant indication into the clinic each year. We haveachieved this goal since 2002. Our research focuses on intracellular signalingpathways and related targets that are critical to disease mechanisms. Ourproductivity has resulted in strategic collaborations with large pharmaceuticalpartners to develop and market our product candidates. We have three productdevelopment programs in allergy/asthma, rheumatoid arthritis and cancer*.*

 

Over the last couple of years, we have matured intoa  clinical stage drug developmentcompany with multiple product candidates in various stages of development.

 

•                    *R112—Product Candidate for Allergic Rhinitis.*  In April 2004, we initiated a Phase II “parkstudy” clinical trial in which we measured allergic symptom improvement.   This randomized, placebo-controlled Phase II“park study” enrolled 319 patients with the primary objective of measuring thesafety and efficacy of R112 as an intranasal treatment for allergic rhinitis.On August 2, 2004, we announced the results of this trial, whichdemonstrated that, in the study population, R112 reduced certain symptoms ofallergic rhinitis in a statistically significant manner compared to placebo,had a favorable safety profile and had a rapid onset of action in symptomimprovement. There were no significant drug-related adverse events reported inthe trial, and adverse event frequencies were indistinguishable fromplacebo.  As early as the 30 to 45 minutetime interval after dosing, R112 showed a significant improvement in symptomscores over placebo and demonstrated a rapid onset of action in symptom improvement.  Furthermore, these beneficial effects lastedthroughout the entire

 

 

11

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measurement period until the end of the parkday.  In particular, symptoms mostclosely associated with chronic nasal congestion (e.g., stuffy nose) weredramatically improved with R112 over placebo. Based on the results of the single and multi-dose trials, as well as thePhase II “park study,” we initiated an additional Phase II trial inAugust 2005 with top line data planned for by the end this year.  This trial, which enrolled 397 patients, is arandomized, double-blind study comparing R112 to placebo and Beconase AQ®(beclomethasone) nasal spray over a seven day period. We are also activelyseeking to partner with a pharmaceutical company with respect to R112. Underthe terms of an agreement with Pfizer, Inc., Pfizer has a limited right ofnegotiation for R112 under certain circumstances, but the agreement does notpreclude us from partnering with other pharmaceutical companies with respect toR112.

 

•                    *R406/788—ProductCandidate for Rheumatoid Arthritis.*InJanuary 2004, we selected R406 as our lead product candidate to treatrheumatoid arthritis.  R406 is a novel,oral Syk kinase inhibitor that, in preclinical studies, blocked the activationof mast cells and B cells that promote the swelling and inflammatoryresponse.  Data from pre-clinical studiesindication that R406 was effective in a rodent arthritis model and was withoutsignificant toxicity at doses well above the effective dose.  We initiated an escalating single-does andmultiple-dose, placebo-controlled Phase I clinical trial of R406 inDecember 2004 and we announced the preliminary results of the trial inMarch 2005.   The results of thisstudy indicated that R406 was well tolerated at plasma levels of R406 that weplan to use moving forward. The study also generatedpharmacokinetic/pharmacodynamic data establishing a correlation between R406plasma levels and the inhibition of its target. We are also studying an oral solid dosage formulation of R406 calledR788 (and sometimes referred to as R406/788). We completed a Phase I clinicalstudy of R788 in a single center, double-blind, randomized, placebo-controlledtrial to investigate the safety and pharmacokinetics of escalating single andmultiple doses of R788. The results from this study are expected later thisyear.   We anticipate that the resultsfrom these studies will allow us to conduct broader, longer-term safety, efficacyand pharmacokinetic studies in 2006.

 

•                    *R763—ProductCandidate for Oncology. *In July 2004, we identified R763 as a lead compound in our aurorakinase inhibition program, targeting cancer cell proliferation.  R763 is a potent, highly-selective,small-molecule inhibitor of aurora kinase. We expect to file an IND by the end of 2005.  In October 2005 , we signeda licensing agreement with Serono that grants to Serono an exclusive license todevelop and commercialize product candidates from our Aurora kinase inhibitorprogram which includes R763.  Under theagreement, we are responsible for filing the IND for R763 while Serono  will be responsible for the furtherdevelopment and commercialization of R763, as well as any other productcandidates arising from our Aurora kinase inhibitor program.

 

In July 2005, we announced that we will undertakethe development of other chemical scaffolds in our Hepatitis C virus programbecause preliminary findings from pre-clinical studies of a pro-drug of R803showed insufficient bioavailability. We expect to bring these alternatescaffolds into pre-clinical studies in 2006.

 

In addition to the above mentioned productcandidates, we have ongoing research programs involving back-up candidates forthe product candidates above as well as drug discovery efforts in ourimmunology/inflammation, virology, and oncology programs.

 

**Corporate Collaborations**

 

We carry on research and development programs inconnection with our corporate collaborations. As of  October  30, 2005, wehave collaborations with six major pharmaceutical/biotech companies, includingone with Janssen Pharmaceutica N.V., a division of Johnson & Johnson,relating to oncology therapeutics and diagnostics, two with Pfizer Inc.,one initiated in 1999 and the other in the first quarter of  2005, relating to asthma and allergytherapeutics, one with Novartis Pharma AG with respect to four differentprograms relating to immunology, oncology and chronic bronchitis, one withDaiichi Pharmaceuticals Co., Ltd. in the area of oncology, one with Merck,in the area of oncology, and one with Serono in the area of oncology . All ofthese collaborations, excluding the recent Pfizer and the Seronocollaborations, have a research phase during which we receive or receivedfunding based on the level of headcount allocated to a program. In all of thesecollaborations if certain conditions are met, we are entitled to receive futuremilestone payments and royalties. We cannot guarantee that these conditionswill be met or that research and development efforts will be successful.  As a result, we may be precluded fromreceiving any milestone payments or royalties under these agreements. Only theMerck program currently provides for regular research reimbursement payments asthe research phase of the Daiichi collaboration ended in August 2005.

 

 

We are exploring new opportunities with existing andpotential collaborators. Our earliest partnerships focused on the early stagesof drug discovery, specifically on target discovery and validation. Ourcollaborations with Daiichi and recently with Merck are both later stagefocusing on drug discovery and development. Our 2005 collaboration with Pfizer

 

 

12

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covers compounds at the preclinical and leaddesignation stages while our 2005 collaboration with Serono covers a compoundfor which an IND will be filed before the end of 2005.  We currently anticipate that in order tosupport our current research programs we will need to self-fund our ownresearch programs, which involve an increased rate of spending, to later stagesof development prior to partnering with collaborative partners. Therefore, itis expected that future collaborations may have an expanded focus and couldinclude HTS, combinatorial and medicinal chemistry, preclinical evaluationsand/or clinical development of compounds we have discovered. In addition, webelieve these future collaborations could be structured to consist of upfrontpayments, the purchase of our common stock, milestone payments upon meetingcertain conditions, research reimbursement payments and/or royalties uponcommercialization of products resulting from the collaboration.

 

**Critical Accounting Policies and the Use of Estimates**

 

Our discussion and analysis of our financialcondition and results of operations are based upon our financial statements,which have been prepared in accordance with U.S generally accepted accountingprinciples. The preparation of these financial statements requires us to makeestimates and judgments that affect the reported amounts of assets,liabilities, revenues and expenses, and related disclosure of contingent assetsand liabilities. On an on-going basis, we evaluate our estimates, includingthose related to terms of the research collaborations, investments, stockcompensation, impairment issues, the estimated useful life of assets andcontingencies. We base our estimates on historical experience and on variousother assumptions that we believe to be reasonable under the circumstances, theresults of which form the basis for making judgments about the carrying valuesof assets and liabilities that are not readily apparent from other sources.Actual results may differ from these estimates under different assumptions orconditions. We believe the following critical accounting policies affect ourmore significant judgments and estimates used in the preparation of ourfinancial statements.

 

We believe that there have been no significantchanges in our critical accounting policies during the period endedSeptember 30, 2005 as compared to those previously disclosed in our AnnualReport on Form 10-K for the year ended December 31, 2004.

 

*Revenue Recognition*

 

We recognize revenue from our contract arrangements.Our revenue arrangements with multiple elements are divided into separate unitsof accounting if certain criteria are met, including whether the deliveredelement has stand-alone value to the customer and whether there is objectiveand reliable evidence of the fair value of the undelivered items. Theconsideration we receive is allocated among the separate units based on theirrespective fair values, and the applicable revenue recognition criteria areapplied to each of the separate units. Advance payments received in excess ofamounts earned are classified as deferred revenue until earned.

 

Non-refundable, up-front payments received inconnection with research and development collaboration agreements, includingtechnology access fees, are deferred and recognized on a straight-line basisover the relevant periods of continuing involvement, generally the researchterm.

 

Revenues related to collaborative research with ourcorporate collaborators are recognized as research services are performed overthe related development funding periods for each contract. Under theseagreements, we are required to perform research and development activities asspecified in each respective agreement. The payments received are notrefundable and are generally based on a contractual cost per full-timeequivalent employee working on the project. Research and development expensesunder the collaborative research agreements, except for the Merck collaborationsigned in November 2004 related to ubiquitin ligases approximate or exceedthe revenue recognized under such agreements over the term of the respectiveagreements.  For the Merck collaboration,we are recognizing a pro-rata portion of the invoiced amounts for funding ofour research scientists based on the headcount dedicated to the project.  It is our policy to recognize revenue basedon our level of effort expended, however, revenue recognized will not exceedamounts billable under the arrangement which corresponds to cash receipts.

 

Milestones are recognized pursuant to collaborativeagreements upon the achievement of these at risk milestones.

 

Royalties will be recognized as earned in accordancewith the contract terms when the third party results are reliably measurableand collectibility is reasonably assured.

 

 

13

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*Stock-based Compensation*

 
| ** **                              | ** ** | ** **             | ** ** | ** **    | ** ** | **Aggregate**          | ** ** | ** **    | ** ** | ** ** | ** ** | **Aggregate** | ** ** |
|-----------------------------------------|------------|------------------------|------------|---------------|------------|------------------------|------------|---------------|------------|------------|------------|---------------|------------|
| ** **                              | ** ** | **Three months ended** | ** ** | **Change**    | ** ** | **Nine months ended**  | ** ** | **Change**    | ** ** |
| ** **                              | ** ** | **September 30,** | ** ** | **2005 from** | ** ** | **September 30,** | ** ** | **2005 from** | ** ** |
| ** **                              | ** ** | **2005**               | ** ** | **2004**      | ** ** | **2004**               | ** ** | **2005**      | ** ** | **2004**   | ** ** | **2004**      | ** ** |
| ** **                              | ** ** | **(in thousands)**     | ** ** |
| **Stock—based compensation from:** |       |                   |       |          |       |                   |       |          |       |       |       |          |       |
|                                    |       |                   |       |          |       |                   |       |          |       |       |       |          |       |
| ***Re-priced  employee options***       |       | $                      | 633        |          | $          | 1,953                  |       | $             | (1,320     | )          | $          | 82            |       | $ | 1,787 |   | $ | (1,705 | ) |
| ***Consultant  options***               |       | 139                    |       | 310           |       | (171                   | )          | 24            |       | 424        |       | (400          | )          |
| ***Other  employee options***           |       | 12                     |       | 26            |       | (14                    | )          | 32            |       | 187        |       | (155          | )          |
| ***Total***                             |       | $                      | 784        |          | $          | 2,289                  |       | $             | (1,505     | )          | $          | 138           |       | $ | 2,398 |   | $ | (2,260 | ) |
|                                         |            |                        |            |               |            |                        |            |               |            |            |            |               |            |  |  |  |  |  |  |  |  |  |

 

We record charges associatedwith the stock options that were eligible for re-pricing under a tender offerinitiated in June 2003. All replacement options, as well as the eligibleoptions that were not surrendered under the original offer to exchange, arebeing treated for financial reporting purposes as variable awards. Therefore,we are recording a non-cash charge, generally for the intrinsic value of theoptions as they vest, utilizing the graded vesting method, reflecting increasesand decreases (down to, but not below, the exercise price) in the price of ourcommon stock as compensation expense (recovery) in connection with thereplacement options and the eligible options that were not exchanged. We expectto continue to reflect increases and decreases in the price of our common stockin our statement of operations with respect to these options until they areexercised, forfeited or terminated. The higher the market value of our commonstock, the greater the compensation expense. For the three months endedSeptember 30, 2005, we recorded non-cash compensation of $0.6 millionrelated to all employee options eligible for replacement options.  This expense resulted from the increase inthe market price of our common stock during this period.  For the three months ended September 30,2004, we recorded non-cash compensation of $2.0 million related to alloptions eligible for the replacement. This expense resulted from the increase in the market price of ourcommon stock during this period.  We are currentlyevaluating option valuation methodologies and assumptions in light ofSFAS 123R related to our employee stock option and employee stock purchaseplans.

 

We also record charges associated with optionsgranted to consultants reflecting the periodic revaluation of outstandingconsultant options based upon the current market value of our common stock andother assumptions, including the expected future volatility of our stock price.For the three months ended September 30 2005, we recorded non-cash compensationof $139,000 for revaluation of consultant options.   For the three months endedSeptember 30, 2004, we recorded non-cash compensation of $310,000 forrevaluation of consultant options.   Weexpect to see continued fluctuations in the future as a portion of theseoptions are revalued based on the changes in the current market price of ourcommon stock through the application of the graded vesting method.

 

**Three and Nine Months Ended September 30, 2005 and 2004**

 

**Revenues**

 
| ** **                                  | ** ** | ** **             | ** ** | ** **    | ** ** | **Aggregate**          | ** ** | ** **    | ** ** | ** ** | ** ** | **Aggregate** | ** ** |
|---------------------------------------------|------------|------------------------|------------|---------------|------------|------------------------|------------|---------------|------------|------------|------------|---------------|------------|
| ** **                                  | ** ** | **Three months ended** | ** ** | **Change**    | ** ** | **Nine months ended**  | ** ** | **Change**    | ** ** |
| ** **                                  | ** ** | **September 30,** | ** ** | **2005 from** | ** ** | **September 30,** | ** ** | **2005 from** | ** ** |
| ** **                                  | ** ** | **2005**               | ** ** | **2004**      | ** ** | **2004**               | ** ** | **2005**      | ** ** | **2004**   | ** ** | **2004**      | ** ** |
| ** **                                  | ** ** | **(in thousands)**     | ** ** |
|                                        |       |                   |       |          |       |                   |       |          |       |       |       |          |       |
| ***Contract  revenue from collaborations*** |       | $                      | 3,282      |          | $          | 659                    |       | $             | 2,623      |       | $          | 10,506        |       | $ | 3,633 |   | $ | 6,873 |   |
|                                             |            |                        |            |               |            |                        |            |               |            |            |            |               |            |  |  |  |  |  |  |

 

 

14

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Revenues by collaborator were:

 
| ** **     | ** ** | ** **             | ** ** | ** **    | ** ** | **Aggregate**          | ** ** | ** **    | ** ** | ** ** | ** ** | **Aggregate** | ** ** |
|----------------|------------|------------------------|------------|---------------|------------|------------------------|------------|---------------|------------|------------|------------|---------------|------------|
| ** **     | ** ** | **Three months ended** | ** ** | **Change**    | ** ** | **Nine months ended**  | ** ** | **Change**    | ** ** |
| ** **     | ** ** | **September 30,** | ** ** | **2005 from** | ** ** | **September 30,** | ** ** | **2005 from** | ** ** |
| ** **     | ** ** | **2005**               | ** ** | **2004**      | ** ** | **2004**               | ** ** | **2005**      | ** ** | **2004**   | ** ** | **2004**      | ** ** |
| ** **     | ** ** | **(in thousands)**     | ** ** |
|           |       |                   |       |          |       |                   |       |          |       |       |       |          |       |
| ***Merck***    |       | $                      | 1,812      |          | $          | —                 |       | $             | 1,812      |       | $          | 5,072         |       | $ | — |   | $ | 5,072 |   |
| ***Pfizer***   |       | 1,250                  |       | —        |       | 1,250                  |       | 2,991         |       | —     |       | 2,991         |       |
| ***Daiichi***  |       | 220                    |       | 659           |       | (439                   | )          | 2,443         |       | 1,967      |       | 476           |       |
| ***Novartis*** |       | —                 |       | —        |       | —                 |       | —        |       | 1,666      |       | (1,666        | )          |
| ***Total***    |       | $                      | 3,282      |          | $          | 659                    |       | $             | 2,623      |       | $          | 10,506        |       | $ | 3,633 |   | $ | 6,873 |   |

 

Contract revenues from collaborations for the threeand nine months ended September 30, 2005 and 2004 consisted primarily ofresearch support and amortization of upfront fees from our collaborations withMerck, Daiichi, Pfizer and, for the nine months ended September 30, 2004 only,Novartis.  In the nine months endedSeptember 30, 2005, revenues included a $900,000 milestone payment from Daiichi which primarily related to theacceptance by Daiichi of two compounds to move toward pre-clinicaltesting.  The increase in revenues forthe three and nine months ended September 30, 2005 was due to the initiationof the Merck and Pfizer collaborations and the Daiichi milestone payment offsetby the termination of the research phase of the Novartis oncology program in2004.   We have deferred approximately$859,000 of research reimbursement revenue from Merck in order to only accountfor the headcount effort expended by us. We expect this amount will be recognized as revenue no later than at theend of the research phase of the collaboration which will beMay 2007.  We expect contractrevenues from collaborations to be the significant component of our totalrevenues for the foreseeable future.

 

**Research and Development Expenses**

 
| ** **                                                                          | ** ** | ** **             | ** ** | ** **    | ** ** | **Aggregate**          | ** ** | ** **    | ** ** | ** ** | ** ** | **Aggregate** | ** ** |
|-------------------------------------------------------------------------------------|------------|------------------------|------------|---------------|------------|------------------------|------------|---------------|------------|------------|------------|---------------|------------|
| ** **                                                                          | ** ** | **Three months ended** | ** ** | **Change**    | ** ** | **Nine months ended**  | ** ** | **Change**    | ** ** |
| ** **                                                                          | ** ** | **September 30,** | ** ** | **2005 from** | ** ** | **September 30,** | ** ** | **2005 from** | ** ** |
| ** **                                                                          | ** ** | **2005**               | ** ** | **2004**      | ** ** | **2004**               | ** ** | **2005**      | ** ** | **2004**   | ** ** | **2004**      | ** ** |
| ** **                                                                          | ** ** | **(in thousands)**     | ** ** |
|                                                                                |       |                   |       |          |       |                   |       |          |       |       |       |          |       |
| ***Research and development expenses***                                             |       | $                      | 13,676     |          | $          | 13,266                 |       | $             | 410        |       | $          | 38,656        |       | $ | 36,228 |   | $ | 2,428 |   |
|                                                                                |       |                   |       |          |       |                   |       |          |       |       |       |          |       |
| **Stock based compensation expense included in  research and development expenses** |       | $                      | 570        |          | $          | 1,634                  |       | $             | (1,064     | )          | $          | 109           |       | $ | 1,863 |   | $ | (1,754 | ) |
|                                                                                     |            |                        |            |               |            |                        |            |               |            |            |            |               |            |  |  |  |  |  |  |  |  |  |  |  |

 

The increase in research and development expenses of$0.4 million for the three months ended September 30, 2005 was primarilyattributable to an increase in our preclinical and clinical costs and personnelcosts offset by a reduction in stock-based compensation expense related to the re-priced stock optionssubject to variable accounting, as discussed previously under “Stock-BasedCompensation” in the “Critical Accounting Policies and the Use of Estimates”section.  The increase in our preclinicaland clinical costs for the three months ended September 30, 2005 wasattributable to costs associated with our R763, R112 and R788 programs.  The costs attributable to R763 were relatedto ongoing IND enabling studies, as well as the production of material for ourupcoming clinical trials.  The costsattributable to R112 were related to clinical costs associated with the PhaseII study initiated in August 2005.  Thecosts attributable to R788 were related to our ongoing clinical trials as wellas continuing IND enabling studies. The increase in research and developmentexpenses of $2.4 million for the nine months ended September 30, 2005 wasprimarily attributable to an increase in our preclinical and clinical costs andpersonnel costs offset by  a reduction instock-based compensation expense related to the re-priced stock options subjectto variable accounting.  The increase inour pre-clinical and clinical costs for the nine months endedSeptember 30, 2005 was attributable to costs associated with our R788  and R763 programs, offset by a decrease incosts related to the R803 program, which was discontinued in July 2005.   We expect that research and developmentexpenses will increase through the remainder of 2005 due to the completion ofthe Phase II study for R112.

 

The scope and magnitude of future research anddevelopment expenses are difficult to predict at this time given the number ofstudies that will need to be conducted for any of our potential products, aswell as our limited capital resources. In general,biopharmaceutical-development involves a series of steps—beginning withidentification of a potential target and including, among others, proof ofconcept in animals and Phase I, II and III clinical studies in humans—eachof which is typically more expensive than the previous step. Success indevelopment, therefore, results in increasing expenditures. Our

 

 

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research and development expenditurescurrently include costs for scientific personnel, supplies, equipment,consultants, sponsored research, allocated facility costs, costs related topreclinical and clinical trials, and stock-based compensation.

 

**General and Administrative Expenses**

 
| ** **                                                                            | ** ** | ** **             | ** ** | ** **    | ** ** | **Aggregate**          | ** ** | ** **    | ** ** | ** ** | ** ** | **Aggregate** | ** ** |
|---------------------------------------------------------------------------------------|------------|------------------------|------------|---------------|------------|------------------------|------------|---------------|------------|------------|------------|---------------|------------|
| ** **                                                                            | ** ** | **Three months ended** | ** ** | **Change**    | ** ** | **Nine months ended**  | ** ** | **Change**    | ** ** |
| ** **                                                                            | ** ** | **September 30,** | ** ** | **2005 from** | ** ** | **September 30,** | ** ** | **2005 from** | ** ** |
| ** **                                                                            | ** ** | **2005**               | ** ** | **2004**      | ** ** | **2004**               | ** ** | **2005**      | ** ** | **2004**   | ** ** | **2004**      | ** ** |
| ** **                                                                            | ** ** | **(in thousands)**     | ** ** |
|                                                                                  |       |                   |       |          |       |                   |       |          |       |       |       |          |       |
| ***General  and administrative expenses***                                            |       | $                      | 3,383      |          | $          | 3,711                  |       | $             | (328       | )          | $          | 9,686         |       | $ | 9,370 |   | $ | 316 |   |
|                                                                                  |       |                   |       |          |       |                   |       |          |       |       |       |          |       |
| **Stock based compensation expense included in  general and administrative expenses** |       | $                      | 214        |          | $          | 655                    |       | $             | (441       | )          | $          | 29            |       | $ | 535 |   | $ | (506 | ) |
|                                                                                       |            |                        |            |               |            |                        |            |               |            |            |            |               |            |  |  |  |  |  |  |  |  |

 

The decrease in general and administrative expensesof $0.3 million  for the three monthsended September 30, 2005 was primarily attributable to a reduction instock-based compensation expense related to the re-priced stock options subjectto variable accounting, as discussed previously under “Stock-Based Compensation”in the “Critical Accounting Policies and the Use of Estimates” section.  The increase in general and administrativeexpenses of $0.3 million for the nine months ended September 30, 2005 wasprimarily attributable to increased legal costs associated with the expansionof our patent estate and personnel costs offset by a reduction in stock-basedcompensation expense related to the re-priced stock options subject to variableaccounting.

 

**Net Interest Income**

 
| ** **                 | ** ** | ** **             | ** ** | ** **    | ** ** | **Aggregate**          | ** ** | ** **    | ** ** | ** ** | ** ** | **Aggregate** | ** ** |
|----------------------------|------------|------------------------|------------|---------------|------------|------------------------|------------|---------------|------------|------------|------------|---------------|------------|
| ** **                 | ** ** | **Three months ended** | ** ** | **Change**    | ** ** | **Nine months ended**  | ** ** | **Change**    | ** ** |
| ** **                 | ** ** | **September 30,** | ** ** | **2005 from** | ** ** | **September 30,** | ** ** | **2005 from** | ** ** |
| ** **                 | ** ** | **2005**               | ** ** | **2004**      | ** ** | **2004**               | ** ** | **2005**      | ** ** | **2004**   | ** ** | **2004**      | ** ** |
| ** **                 | ** ** | **(in thousands)**     | ** ** |
|                       |       |                   |       |          |       |                   |       |          |       |       |       |          |       |
| ***Net  interest income*** |       | $                      | 871        |          | $          | 182                    |       | $             | 689        |       | $          | 1,473         |       | $ | 436 |   | $ | 1,037 |   |
|                            |            |                        |            |               |            |                        |            |               |            |            |            |               |            |  |  |  |  |  |  |

 

Interest income results from our interest-bearingcash and investment balances, whereas interest expense is the result of ourcapital lease obligations associated with fixed asset purchases.  The increase in both the three and ninemonths ended September 30, 2005 is attributable to an increase in our overall investment balances as wellas an increase in the interest rates earned on our investment balances.

 

**Liquidity and Capital Resources**

 

**Cash Requirements**

 

We have financed ouroperations from inception primarily through sales of equity securities,contract payments payable to us under our collaboration agreements andequipment financing arrangements.  InJuly 2005, we completed a public offering in which we sold 4,197,500 shares ofour common stock, including 547,500 shares issued upon exercise of anoption granted to the underwriters to cover over-allotments, at a priceto the public of $20.75 per share which resulted in net proceeds to us ofapproximately $81.6 million after deducting underwriting discounts andcommissions and related expenses.  Webelieve that our existing capital resources and anticipated proceeds fromcurrent collaborations will be sufficient to support our current operating planthrough at least the next 18 months. Our operations will require significantadditional funding in large part due to our research and development expenses,future preclinical and clinical-testing costs, our facility lease commitmentsand the absence of any meaningful revenues for the foreseeable future. Theamount of future funds needed will depend largely on the timing and structureof potential future collaborations. We do not know whether additional financingwill be available when needed, or that, if available, we will obtain financingon terms favorable to our stockholders or us. We have consumed substantialamounts of capital to date, and operating expenditures are expected to increaseover the next several years as we expand our research and developmentactivities.

 

On October 24, 2005 , we signed a licensing agreement with Serono that grants to Serono an exclusivelicense to develop and commercialize product candidates from our Aurora kinaseinhibitor program which includes R763. Under the terms of the agreement, wereceived initial payments totaling $25.0 million, comprised of a license fee of$10.0 million and the purchase of $15.0 million of our common stock, at apremium.

 

 

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To the extent we raise additional capital by issuingequity securities, our stockholders could at that time experience substantialdilution. To the extent that we raise additional funds through collaborationand licensing arrangements, we may be required to relinquish some rights to ourtechnologies or product candidates, or grant licenses on terms that are notfavorable to us. Our future funding requirements will depend upon many factors,including, but not limited to:

 

•                    the progress and success of preclinical studies andclinical trials of our product candidates conducted by us or our collaborativepartners or licensees;

 

•                    our ability to establish new collaborations and tomaintain our existing collaboration partnerships;

 

•                    the progress of research programs carried out atRigel;

 

•                    any changes in the breadth of our research and developmentprograms;

 

•                    our ability to meet the milestones identified in ourcollaborative agreements that trigger payments;

 

•                    the progress of the research and development effortsof our collaborators;

 

•                    our ability to acquire or license other technologiesor compounds that we seek to pursue;

 

•                    our ability to manage our growth;

 

•                    competing technological and market developments;

 

•                    the costs and timing of obtaining, enforcing anddefending our patent and intellectual rights;

 

•                    the costs and timing of regulatory approvals; and

 

•                    expenses associated with unforeseen litigation.

 

Insufficient funds may require us to delay, scaleback or eliminate some or all of our research or development programs, to loserights under existing licenses or to relinquish greater or all rights toproduct candidates at an earlier stage of development or on less favorableterms than we would otherwise choose or may adversely affect our ability tooperate as a going concern.

 

As of September 30, 2005, we had$127.9 million in cash, cash equivalents and available-for-salesecurities, as compared to $71.4 million as of December 31, 2004, anincrease of $56.5 million.  Theincrease is primarily attributable to net proceeds of $81.6 million receivedfrom our public offering in July 2005, offset by operating spending for thenine months ended September 30, 2005. We also received $1.2 million under our equipment financing arrangementswhich was offset by $1.3 million in debt service payments during thisperiod.   For the three and nine monthsended September 30, 2005 and 2004, we maintained an investment portfolioprimarily in depository accounts and corporate commercial paper. Cash in excessof immediate requirements is invested with regard to liquidity and capitalpreservation. Wherever possible, we seek to minimize the potential effects ofconcentration and degrees of risk.

 

 

 

 

 

 

 

 

 

 

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**Contractual Obligations**

 

The following are our contractual commitments (byfiscal year) as of September 30, 2005 associated with debt obligations,contracted research obligations, and lease obligations:

 
| ** **                                | ** ** | **Total**          | ** ** | **2005** | ** ** | **2006 -2008** | ** ** | **2009 -2010** | ** ** | **2011-2018** | ** ** |
|-------------------------------------------|------------|--------------------|------------|----------|------------|----------------|------------|----------------|------------|---------------|------------|
| ** **                                | ** ** | **(in thousands)** | ** ** |
| Debt obligations(1)                       |       | $2,109             |       | $259     |       | $1,850         |       | $—        |       | $—       |       |
| License commitments                       |       | 300                |       | —   |       | 300            |       | —         |       | —        |       |
| Facilities leases, net of  sublease(2)(3) |       | 170,564            |       | 1,943    |       | 39,591         |       | 26,878         |       | 102,152       |       |
| Total                                     |       | $172,973           |       | $2,202   |       | $41,741        |       | $26,878        |       | $102,152      |       |

 

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(1)                                  As ofSeptember 30, 2005, we had $2.0 million in debt obligationsassociated with our equipment additions. All existing debt agreements as ofSeptember 30, 2005 are secured by the equipment financed and are due inmonthly installments through 2008.

 

(2)                                  DuringMay 2004, we initiated a sublease of approximately 15,000 square feet ofour premises to a tenant for a period of two years.  This sublease was amended in September 2005to extend the term for one additional year. The facilities lease obligations above are reflective of the newsublease income stream.

 

(3)                                  The paymentsabove reflect the fifteen years of the lease term of our facility throughJanuary 2018.

 

 

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**Risk Factors**

 

*In evaluating our business, youshould carefully consider the following risks, as well as the other informationcontained in this quarterly report on Form 10-Q. If any of the followingrisks actually occurs, our business could be harmed. The risks anduncertainties described below are not the only ones facing us. Additional risksand uncertainties not presently known to us, or that we currently see asimmaterial, may also harm our business.*

 

**We will need additional capital in the future to sufficiently fund ouroperations and research.**

 

We have consumed substantial amounts ofcapital to date, and operating expenditures are expected to increase over thenext several years.  In July 2005, wecompleted a public offering in which we sold 4,197,500 shares of our commonstock, including 547,500 sharesissued upon exercise of an option granted to the underwriters to cover over-allotments, at a price tothe public of $20.75 per share, which resulted in net proceeds to us ofapproximately $81.6 million after deducting underwriting discounts andcommissions and related expenses.  Webelieve that our existing capital resources and anticipated proceeds fromcurrent collaborations will be sufficient to support our current operating planthrough at least the next 18 months. Our operations will requiresignificant additional funding in large part due to our research and developmentexpenses, future preclinical and clinical-testing costs, and the absence of anymeaningful revenues for the foreseeable future. The amount of future fundsneeded will depend largely on the timing and structure of potential futurecollaborations. We do not know whether additional financing will be availablewhen needed, or that, if available, we will obtain financing on terms favorableto our stockholders or us. We have consumed substantial amounts of capital todate, and operating expenditures are expected to increase over the next severalyears as we expand our infrastructure and research and development activities.

 

On October 24, 2005 , we signed  a licensing agreement with Serono that grantsto Serono an exclusive license to develop and commercialize product candidatesfrom our Aurora kinase inhibitor program which includes R763. Under the termsof the agreement, we received initial payments totaling $25.0 million,comprised of a license fee of $10.0 million and the purchase of $15.0 millionof our common stock, at a premium.

 

To the extent we raise additional capital byissuing equity securities, our stockholders could at that time experiencesubstantial dilution. To the extent that we raise additional funds throughcollaboration and licensing arrangements, we may be required to relinquish somerights to our technologies or product candidates, or grant licenses on termsthat are not favorable to us.

 

**Our future funding requirements will depend on many uncertain factors.**

 

Our future funding requirements will dependupon many factors, including, but not limited to:

 

•                    the progress and success of preclinical studies andclinical trials of our product candidates conducted by us or our collaborativepartners or licensees;

 

•                    our ability to establish new collaborations and tomaintain our existing collaboration partnerships;

 

•                    the progress of research programs carried out by us;

 

•                    any changes in the breadth of our research anddevelopment programs;

 

•                    our ability to meet the milestones identified in ourcollaborative agreements that trigger payments;

 

•                    the progress of the research and development effortsof our collaborative partners;

 

•                    our ability to acquire or license other technologiesor compounds that we seek to pursue;

 

•                    our ability to manage our growth;

 

•                    competing technological and market developments;

 

•                    the costs and timing of obtaining, enforcing anddefending our patent and intellectual rights;

 

•                    the costs and timing of regulatory approvals andfilings by us and our collaborators; and

 

•                    expenses associated with unforeseen litigation.

 

 

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Insufficient funds may require us to delay,scale back or eliminate some or all of our research or development programs, tolose rights under existing licenses or to relinquish greater or all rights toproduct candidates at an earlier stage of development or on less favorableterms than we would otherwise choose or may adversely affect our ability tooperate as a going concern.

 

**Our success as a company is uncertain due to our history of operatinglosses and the uncertainty of future profitability.**

 

Due in large part to the significant researchand development expenditures required to identify and validate new productcandidates and pursue our development efforts, we have not been profitable andhave incurred operating losses since we were incorporated in June 1996.The extent of our future losses and the timing of potential profitability arehighly uncertain, and we may never achieve profitable operations. We incurrednet losses of $36.4 million for the first nine months of 2005,$56.3 million in 2004 and $41.2 million in 2003. Currently, ourrevenues are generated solely from research payments pursuant to ourcollaboration agreements and licenses and are insufficient to generateprofitable operations. As of September 30, 2005, we had an accumulated deficitof approximately $248.6 million. We expect to incur losses for at leastthe next several years and expect that these losses could increase as we expandour research and development activities and incur significant clinical andtesting costs.

 

**There is a high risk that  drugdiscovery and development efforts might not successfully generate good productcandidates.**

 

At the present time, the majority of ouroperations are in various stages of drug identification and development. Wecurrently have two product compounds in the clinical testing stage. In ourindustry, it is statistically unlikely that the limited number of compoundsthat we have identified as potential product candidates will actually lead tosuccessful product development efforts, and we do not expect any drugsresulting from our research to be commercially available for several years, ifat all. Our product compounds in the clinic and our future leads for potentialdrug compounds are subject to the risks and failures inherent in thedevelopment of pharmaceutical products. These risks include, but are notlimited to, the inherent difficulty in selecting the right drug and drug targetand avoiding unwanted side effects as well as unanticipated problems relatingto product development, testing, regulatory compliance, manufacturing,marketing, competition and costs and expenses that may exceed currentestimates. The results of preliminary studies do not necessarily predictclinical or commercial success, and larger later-stage clinical trials may failto confirm the results observed in the preliminary studies. With respect to ourown compounds in development, we have established anticipated timelines forclinical development based on existing knowledge of the compound. However, wecannot provide assurance that we will meet any of these timelines with respectto the initiation or completion of clinical studies.

 

We expect to initiate clinical trials of R763in the beginning of 2006. Because of the uncertainty of whether the accumulatedpreclinical evidence (pharmacokinetic, pharmacodynamic, safety and/or otherfactors) or early clinical results will be observed in later clinical trials,we can make no assurance regarding the likely results from our future clinicaltrials or the impact of those results on our business.

 

**We might not be able to commercialize our product candidatessuccessfully if problems arise in the clinical testing and approval process.**

 

Commercialization of our product candidatesdepends upon successful completion of preclinical studies and clinical trials.Preclinical testing and clinical development are long, expensive and uncertainprocesses. We do not know whether we, or any of our collaborative partners,will be permitted to undertake clinical trials of potential products beyond thetrials already concluded and the trials currently in process. It will take usor our collaborative partners several years to complete any such testing, andfailure can occur at any stage of testing. Interim results of trials do notnecessarily predict final results, and acceptable results in early trials maynot be repeated in later trials. A number of companies in the pharmaceuticalindustry, including biotechnology companies, have suffered significant setbacksin advanced clinical trials, even after achieving promising results in earliertrials. Moreover, we or our collaborative partners or regulators may decide todiscontinue development of any or all of these projects at any time forcommercial, scientific or other reasons. For example, if patients experienceundesirable adverse events, we may be required to halt or suspend a clinicaltrial.

 

 

 

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**Delays in clinical testing could result in increased costs to us.**

 

Significant delays in clinical testing couldmaterially impact our product development costs. We do not know whether plannedclinical trials will begin on time, will need to be halted or revamped or willbe completed on schedule, or at all. Clinical trials can be delayed for avariety of reasons, including delays in obtaining regulatory approval tocommence a study, delays in reaching agreement on acceptable clinical studyagreement terms with prospective clinical sites, delays in obtaininginstitutional review board approval to conduct a study at a prospectiveclinical site or delays in recruiting subjects to participate in a study.Environmental conditions may impact the execution of some clinical trials,particularly during the allergy season for our allergic rhinitis program.

 

In addition, we typically rely on third-partyclinical investigators to conduct our clinical trials and other third-partyorganizations to oversee the operations of such trials and to perform datacollection and analysis. As a result, we may face additional delaying factorsoutside our control if these parties do not perform their obligations in atimely fashion. While we have not yet experienced delays that have materiallyimpacted our clinical trials or product development costs, delays of this sortcould occur for the reasons identified above or other reasons. If we havedelays in testing or approvals, our product development costs will increase.For example, we may need to make additional payments to third-partyinvestigators and organizations to retain their services or we may need to payrecruitment incentives. If the delays are significant, our financial resultsand the commercial prospects for our product candidates will be harmed, and ourability to become profitable will be delayed.

 

**We lack the capability to manufacture compounds for development andrely on third parties to manufacture our product candidates, and we may beunable to obtain required material in a timely manner, at an acceptable cost orat a quality level required to receive regulatory approval.**

 

We currently do not have manufacturingcapabilities or experience necessary to produce our product candidates,including R112, R788 and R763 for preclinical testing and clinical trials. Werely on a single third-party contractor to produce R112 bulk drug substance andanother single third-party contractor to produce R763.  We also rely on different singlemanufacturers for finished R112 and R788 product for preclinical and clinicaltesting. We will rely on manufacturers to deliver materials on a timely basisand to comply with applicable regulatory requirements, including the U.S. Foodand Drug Administration’s, or FDA’s current Good Manufacturing Practices, orGMP. These outsourcing efforts with respect to manufacturing preclinical andclinical supplies will result in a dependence on our suppliers to timelymanufacture and deliver sufficient quantities of materials produced under GMPconditions to enable us to conduct planned preclinical studies, clinical trialsand, if possible, to bring products to market in a timely manner.

 

Our current and anticipated future dependenceupon these third-party manufacturers may adversely affect our ability todevelop and commercialize product candidates on a timely and competitive basis.These manufacturers may not be able to produce material on a timely basis ormanufacture material at the quality level or in the quantity required to meetour development timelines and applicable regulatory requirements. We may not beable to maintain or renew our existing third-party manufacturing arrangements,or enter into new arrangements, on acceptable terms, or at all. Our third-partymanufacturers could terminate or decline to renew our manufacturing arrangementsbased on their own business priorities, at a time that is costly orinconvenient for us. If we are unable to contract for the production ofmaterials in sufficient quantity and of sufficient quality on acceptable terms,our planned clinical trials may be significantly delayed. Manufacturing delayscould postpone the filing of our IND applications and/or the initiation ofclinical trials that we have currently planned.

 

Our third-party manufacturers may not be ableto comply with the GMP regulations, other applicable FDA regulatoryrequirements or similar regulations applicable outside of the United States.Additionally, if we are required to enter into new supply arrangements, we maynot be able to obtain approval from the FDA of any alternate supplier in atimely manner, or at all, which could delay or prevent the clinical developmentand commercialization of any related product candidates. Failure of ourthird-party manufacturers or us to obtain approval from the FDA or to complywith applicable regulations could result in sanctions being imposed on us,including fines, civil penalties, delays in or failure to grant marketingapproval of our product candidates, injunctions, delays, suspension orwithdrawal of approvals, license revocation, seizures or recalls of productsand compounds, operating restrictions and criminal prosecutions, any of whichcould significantly and adversely affect our business.

 

**Because most of our expected future revenues are contingent uponcollaborative and license agreements, we might not meet our strategicobjectives.**

 

Our ability to generate revenue in the nearterm depends on our ability to enter into additional collaborative agreementswith third parties and to maintain the agreements we currently have in place.Our ability to enter into new collaborations and the revenue, if any, that maybe recognized under these collaborations is highly uncertain. If we are unableto enter into new

 

 

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collaborations, our businessprospects could be harmed, which could have an immediate adverse effect on thetrading price of our stock.

 

To date, most of our revenues have beenrelated to the research phase of each of our collaborative agreements. Suchrevenues are for specified periods, and the impact of such revenues on ourresults of operations is partially offset by corresponding research costs.Following the completion of the research phase of each collaborative agreement,additional revenues may come only from milestone payments and royalties, whichmay not be paid, if at all, until some time well into the future. The risk isheightened due to the fact that unsuccessful research efforts may preclude usfrom receiving any milestone payments under these agreements. Our receipt ofrevenues from collaborative arrangements is also significantly affected by thetiming of efforts expended by us and our collaborators and the timing of leadcompound identification. In late 2001, we recorded the first revenue fromachievement of milestones in both the Pfizer and Johnson & Johnsoncollaborations. During 2002, we recorded our first milestone for both Novartisand Daiichi. Under many agreements, however, milestone payments may not beearned until the collaborator has advanced products into clinical testing,which may never occur or may not occur until some time well into the future. Ifwe are not able to generate revenue under our collaborations when and inaccordance with our expectations or the expectations of industry analysts, thisfailure could harm our business and have an immediate adverse effect on thetrading price of our stock.

 

Our business requires us to generatemeaningful revenue from royalties and licensing agreements. To date, we havenot received any revenue from royalties for the commercial sale of drugs, andwe do not know when we will receive any such revenue, if at all. Likewise, wehave not licensed any lead compounds or drug development candidates to thirdparties, and we do not know whether any such license will be entered into on acceptableterms in the future, if at all.

 

**If our current corporate collaborations or license agreements areunsuccessful, our research and development efforts could be delayed.**

 

Our strategy depends upon the formation andsustainability of multiple collaborative arrangements and license agreementswith third parties in the future. We rely on these arrangements for not onlyfinancial resources, but also for expertise that we expect to need in thefuture relating to clinical trials, manufacturing, sales and marketing, and forlicenses to technology rights. To date, we have entered into several sucharrangements with corporate collaborators; however, we do not know if suchthird parties will dedicate sufficient resources or if any development orcommercialization efforts by third parties will be successful. Should acollaborative partner fail to develop or commercialize a compound or product towhich it has rights from us, such failure might delay ongoing research anddevelopment efforts at Rigel because we might not receive any future milestonepayments and we would not receive any royalties associated with such compoundor product. In addition, the continuation of some of our partnered drugdiscovery and development programs may be dependent on the periodic renewal ofour corporate collaborations.

 

The research phase of our collaboration withJohnson & Johnson ended in December 2003, and the research phasesconducted at our facilities under our broad collaboration with Novartis endedin July 2004. The research phase of our corporate collaboration agreementwith Daiichi ended in August 2005. In November 2004, we signed a new corporate collaboration withMerck, in January 2005 we signed an additional collaboration with Pfizer,and in October 2005 we signed an additional collaboration with Serono. Theseagreements could be terminated by the other party, and we may not be able torenew these collaborations on acceptable terms, if at all, or negotiateadditional corporate collaborations on acceptable terms, if at all. If thesecollaborations terminate or are not renewed, any resultant loss of revenuesfrom these collaborations or loss of the expertise of our collaborativepartners could adversely affect our business.

 

Conflicts also might arise with collaborativepartners concerning proprietary rights to particular compounds. While ourexisting collaborative agreements typically provide that we retain milestonepayments and royalty rights with respect to drugs developed from certainderivative compounds, any such payments or royalty rights may be at reducedrates, and disputes may arise over the application of derivative paymentprovisions to such drugs, and we may not be successful in such disputes.

 

We are also a party to various licenseagreements that give us rights to use specified technologies in our researchand development processes. The agreements pursuant to which we have in-licensedtechnology permit our licensors to terminate the agreements under certaincircumstances. If we are not able to continue to license these and futuretechnologies on commercially reasonable terms, our product development andresearch may be delayed.

 

**If conflicts arise between our collaborators or advisors and us, any ofthem may act in their self-interest, which may be adverse to our stockholders’interests.**

 

If conflicts arise between us and ourcorporate collaborators or scientific advisors, the other party may act in itsself-interest and not in the interest of our stockholders. Some of ourcorporate collaborators are conducting multiple product

 

 

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development efforts withineach disease area that is the subject of the collaboration with us. In some ofour collaborations, we have agreed not to conduct, independently or with anythird party, any research that is competitive with the research conducted underour collaborations. Our collaborators, however, may develop, either alone orwith others, products in related fields that are competitive with the productsor potential products that are the subject of these collaborations. Competingproducts, either developed by our collaborators or to which our collaboratorshave rights, may result in their withdrawal of support for our productcandidates.

 

If any of our corporate collaborators were tobreach or terminate its agreement with us or otherwise fail to conduct thecollaborative activities successfully and in a timely manner, the preclinicalor clinical development or commercialization of the affected product candidatesor research programs could be delayed or terminated. We generally do notcontrol the amount and timing of resources that our corporate collaboratorsdevote to our programs or potential products. We do not know whether current orfuture collaborative partners, if any, might pursue alternative technologies ordevelop alternative products either on their own or in collaboration withothers, including our competitors, as a means for developing treatments for thediseases targeted by collaborative arrangements with us.

 

**Our success is dependent on intellectual property rights held by us andthird parties, and our interest in such rights is complex and uncertain.**

 

Our success will depend to a large part onour own, our licensees’ and our licensors’ ability to obtain and defend patentsfor each party’s respective technologies and the compounds and other products,if any, resulting from the application of such technologies. We have over 150pending patent applications and over 50 issued patents in the United Statesthat are owned or exclusively licensed in our field as well as pendingcorresponding foreign patent applications. In the future, our patent positionmight be highly uncertain and involve complex legal and factual questions. Forexample, we may be involved in interferences before the United States Patentand Trademark Office. Interferences are complex and expensive legal proceedingsand there is no assurance we will be successful in such proceedings. Aninterference could result in our losing our patent rights and/or our freedom tooperate and/or require us to pay significant royalties. Additional uncertaintymay result because no consistent policy regarding the breadth of legal claimsallowed in biotechnology patents has emerged to date. Accordingly, we cannotpredict the breadth of claims allowed in our or other companies’ patents.

 

Because the degree of future protection forour proprietary rights is uncertain, we cannot ensure that:

 

•                    we were the first to make the inventions covered byeach of our pending patent applications;

 

•                    we were the first to file patent applications forthese inventions;

 

•                    others will not independently develop similar oralternative technologies or duplicate any of our technologies;

 

•                    any of our pending patent applications will resultin issued patents;

 

•                    any patents issued to us or our collaborators willprovide a basis for commercially-viable products or will provide us with anycompetitive advantages or will not be challenged by third parties;

 

•                    we will develop additional proprietary technologiesthat are patentable; or

 

•                    the patents of others will not have a negativeeffect on our ability to do business.

 

We rely on trade secrets to protecttechnology where we believe patent protection is not appropriate or obtainable.However, trade secrets are difficult to protect. While we require employees,collaborators and consultants to enter into confidentiality agreements, we maynot be able to adequately protect our trade secrets or other proprietaryinformation in the event of any unauthorized use or disclosure or the lawfuldevelopment by others of such information.

 

We are a party to certain in-licenseagreements that are important to our business, and we generally do not controlthe prosecution of in-licensed technology. Accordingly, we are unable toexercise the same degree of control over this intellectual property as weexercise over our internally-developed technology. Moreover, some of ouracademic institution licensors, research collaborators and scientific advisorshave rights to publish data and information in which we have rights. If wecannot maintain the confidentiality of our technology and other confidentialinformation in connection with our collaborations, then our ability to receivepatent protection or protect our proprietary information will be impaired. Inaddition, some of the technology we have licensed relies on patented inventionsdeveloped using U.S. government resources. The U.S. government retains certainrights, as defined by law, in such patents, and may choose to exercise suchrights. Certain of our in-licenses may be terminated if

 

 

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we fail to meet specifiedobligations. If we fail to meet such obligations and any of our licensorsexercise their termination rights, we could lose our rights under thoseagreements. If we lose any of our rights, it may adversely affect the way weconduct our business. In addition, because certain of our licenses aresublicenses, the actions of our licensors may affect our rights under thoselicenses.

 

**If a dispute arises regarding the infringement or misappropriation ofthe proprietary rights of others, such dispute could be costly and result indelays in our research and development activities and partnering.**

 

Our success will also depend, in part, on ourability to operate without infringing or misappropriating the proprietaryrights of others. There are many issued patents and patent applications filedby third parties relating to products or processes that are similar oridentical to ours or our licensors, and others may be filed in the future.There can be no assurance that our activities, or those of our licensors, willnot infringe patents owned by others. We believe that there may be significantlitigation in the industry regarding patent and other intellectual propertyrights, and we do not know if we or our collaborators would be successful inany such litigation. Any legal action against our collaborators or us claimingdamages or seeking to enjoin commercial activities relating to the affectedproducts, our methods or processes could:

 

•                    require our collaborators or us to obtain a licenseto continue to use, manufacture or market the affected products, methods orprocesses, which may not be available on commercially reasonable terms, if atall;

 

•                    prevent us from using the subject matter claimed inthe patents held by others;

 

•                    subject us to potential liability for damages;

 

•                    consume a substantial portion of our managerial andfinancial resources; and

 

•                    result in litigation or administrative proceedingsthat may be costly, whether we win or lose.

 

**If we are unable to obtain regulatory approval to market products inthe United States and foreign jurisdictions, we might not be permitted tocommercialize products from our research and development.**

 

Due, in part, to the early stage of ourproduct candidate research and development process, we cannot predict whetherregulatory clearance will be obtained for any product that we, or ourcollaborative partners, hope to develop. Satisfaction of regulatoryrequirements typically takes many years, is dependent upon the type, complexityand novelty of the product and requires the expenditure of substantialresources. Of particular significance to us are the requirements relating toresearch and development and testing.

 

Before commencing clinical trials in humansin the United States, we, or our collaborative partners, will need to submitand receive approval from the FDA of an IND. Clinical trials are subject tooversight by institutional review boards and the FDA and:

 

•                    must be conducted in conformance with the FDA’s goodclinical practices and other applicable regulations;

 

•                    must meet requirements for institutional reviewboard oversight;

 

•                    must meet requirements for informed consent;

 

•                    are subject to continuing FDA oversight;

 

•                    may require large numbers of test subjects; and

 

•                    may be suspended by us, our collaborators or the FDAat any time if it is believed that the subjects participating in these trialsare being exposed to unacceptable health risks or if the FDA finds deficienciesin the IND or the conduct of these trials.

 

While we have stated that we intend to fileadditional INDs, this is only a statement of intent, and we may not be able todo so because we may not be able to identify potential product candidates. Inaddition, the FDA may not approve any IND in a timely manner, or at all.

 

 

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Before receiving FDA approval to market aproduct, we must demonstrate that the product is safe and effective in thepatient population and the indication that will be treated. Data obtained frompreclinical and clinical activities are susceptible to varying interpretationsthat could delay, limit or prevent regulatory approvals. In addition, delays orrejections may be encountered based upon additional government regulation fromfuture legislation or administrative action or changes in FDA policy during theperiod of product development, clinical trials and FDA regulatory review.Failure to comply with applicable FDA or other applicable regulatoryrequirements may result in criminal prosecution, civil penalties, recall orseizure of products, total or partial suspension of production or injunction,as well as other regulatory action against our potential products or us.Additionally, we have limited experience in conducting and managing theclinical trials necessary to obtain regulatory approval.

 

If regulatory approval of a product isgranted, this approval will be limited to those indications or disease statesand conditions for which the product is demonstrated through clinical trials tobe safe and efficacious. We cannot ensure that any compound developed by us,alone or with others, will prove to be safe and efficacious in clinical trialsand will meet all of the applicable regulatory requirements needed to receivemarketing approval.

 

Outside the United States, our ability, orthat of our collaborative partners, to market a product is contingent uponreceiving a marketing authorization from the appropriate regulatoryauthorities. This foreign regulatory approval process typically includes all ofthe risks associated with FDA approval described above and may also includeadditional risks.

 

**If our competitors develop technologies that are more effective thanours, our commercial opportunity will be reduced or eliminated.**

 

The biotechnology and pharmaceuticalindustries are intensely competitive and subject to rapid and significanttechnological change. Many of the drugs that we are attempting to discover willbe competing with existing therapies. In addition, a number of companies arepursuing the development of pharmaceuticals that target the same diseases andconditions that we are targeting. We face competition from pharmaceutical andbiotechnology companies both in the United States and abroad.

 

Our competitors may utilize discoverytechnologies and techniques or partner with collaborators in order to developproducts more rapidly or successfully than we, or our collaborators, are ableto do. Many of our competitors, particularly large pharmaceutical companies,have substantially greater financial, technical and human resources than we do.In addition, academic institutions, government agencies and other public andprivate organizations conducting research may seek patent protection withrespect to potentially competitive products or technologies and may establishexclusive collaborative or licensing relationships with our competitors.

 

We believe that our ability to compete isdependent, in part, upon our ability to create, maintain and licensescientifically-advanced technology and upon our and our collaborators’ abilityto develop and commercialize pharmaceutical products based on this technology,as well as our ability to attract and retain qualified personnel, obtain patentprotection or otherwise develop proprietary technology or processes and securesufficient capital resources for the expected substantial time period betweentechnological conception and commercial sales of products based upon ourtechnology. The failure by us or any of our collaborators in any of those areasmay prevent the successful commercialization of our potential drug targets.

 

Our competitors might develop technologiesand drugs that are more effective or less costly than any that are beingdeveloped by us or that would render our technology and potential drugsobsolete and noncompetitive. In addition, our competitors may succeed inobtaining the approval of the FDA or other regulatory agencies for productcandidates more rapidly. Companies that complete clinical trials, obtainrequired regulatory agency approvals and commence commercial sale of theirdrugs before their competitors may achieve a significant competitive advantage,including certain patent and FDA marketing exclusivity rights that would delayor prevent our ability to market certain products. Any drugs resulting from ourresearch and development efforts, or from our joint efforts with our existingor future collaborative partners, might not be able to compete successfullywith competitors’ existing or future products or obtain regulatory approval inthe United States or elsewhere.

 

**Our ability to generate revenues will be diminished if ourcollaborative partners fail to obtain acceptable prices or an adequate level ofreimbursement for products from third-party payors or government agencies.**

 

The drugs we hope to develop may be rejectedby the marketplace due to many factors, including cost. Our ability tocommercially exploit a drug may be limited due to the continuing efforts ofgovernment and third-party payors to contain or reduce the costs of health carethrough various means. For example, in some foreign markets, pricing andprofitability of prescription pharmaceuticals are subject to governmentcontrol. In the United States, we expect that there will continue to be anumber of federal and state proposals to implement similar government control.In addition, increasing emphasis on managed care in the United States willlikely continue to put pressure on the pricing of pharmaceutical products. Costcontrol initiatives could decrease the price that any of our collaboratorswould receive for any products in the future. Further, cost control

 

 

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initiatives could adverselyaffect our collaborators’ ability to commercialize our products and our abilityto realize royalties from this commercialization.

 

Our ability to commercialize pharmaceuticalproducts with collaborators may depend, in part, on the extent to whichreimbursement for the products will be available from:

 

•                    government and health administration authorities;

 

•                    private health insurers; and

 

•                    other third-party payors.

 

Significant uncertainty exists as to thereimbursement status of newly-approved healthcare products. Third-party payors,including Medicare, are challenging the prices charged for medical products andservices. Government and other third-party payors increasingly are attemptingto contain healthcare costs by limiting both coverage and the level ofreimbursement for new drugs and by refusing, in some cases, to provide coveragefor uses of approved products for disease indications for which the FDA has notgranted labeling approval. Third-party insurance coverage may not be availableto patients for any products we discover and develop, alone or withcollaborators. If government and other third-party payors do not provideadequate coverage and reimbursement levels for our products, the marketacceptance of these products may be reduced.

 

**If product liability lawsuits are successfully brought against us, wemay incur substantial liabilities and may be required to limitcommercialization of our products.**

 

The testing and marketing of medical productsentail an inherent risk of product liability. If we cannot successfully defendourselves against product liability claims, we may incur substantialliabilities or be required to limit commercialization of our products althoughwe are not currently aware of any specific causes for concern with respect toclinical liability claims. We currently do not have product liabilityinsurance, and our inability to obtain sufficient product liability insuranceat an acceptable cost to protect against potential product liability claimscould prevent or inhibit the commercialization of pharmaceutical products wedevelop, alone or with corporate collaborators. We, or our corporatecollaborators, might not be able to obtain insurance at a reasonable cost, ifat all. While under various circumstances we are entitled to be indemnifiedagainst losses by our corporate collaborators, indemnification may not beavailable or adequate should any claim arise.

 

**Our research and development efforts will be seriously jeopardized, ifwe are unable to attract and retain key employees and relationships.**

 

As a small company with only 151 employees asof September 30, 2005, our success depends on the continued contributionsof our principal management and scientific personnel and on our ability todevelop and maintain important relationships with leading academicinstitutions, scientists and companies in the face of intense competition forsuch personnel. In particular, our research programs depend on our ability toattract and retain highly skilled chemists, other scientists, and development,regulatory and clinical personnel. If we lose the services of any of ourpersonnel, our research and development efforts could be seriously andadversely affected. Our employees can terminate their employment with us at anytime.

 

**We depend on various scientific consultants and advisors for thesuccess and continuation of our research and development efforts.**

 

We work extensively with various scientificconsultants and advisors. The potential success of our drug discovery anddevelopment programs depends, in part, on continued collaborations with certainof these consultants and advisors. We, and various members of our managementand research staff, rely on certain of these consultants and advisors forexpertise in our research, regulatory and clinical efforts. Our scientificadvisors are not our employees and may have commitments to, or consulting oradvisory contracts with, other entities that may limit their availability tous. We do not know if we will be able to maintain such consulting agreements orthat such scientific advisors will not enter into consulting arrangements,exclusive or otherwise, with competing pharmaceutical or biotechnologycompanies, any of which would have a detrimental impact on our researchobjectives and could have a material adverse effect on our business, financialcondition and results of operations.

 

 

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**If we use biological and hazardous materials in a manner that causesinjury or violates laws, we may be liable for damages.**

 

Our research and development activitiesinvolve the controlled use of potentially harmful biological materials as wellas hazardous materials, chemicals and various radioactive compounds. We cannotcompletely eliminate the risk of accidental contamination or injury from theuse, storage, handling or disposal of these materials. In the event ofcontamination or injury, we could be held liable for damages that result, andsuch liability could exceed our resources. We are also subject to federal,state and local laws and regulations governing the use, storage, handling anddisposal of these materials and specified waste products. The cost ofcompliance with, or any potential violation of, these laws and regulationscould be significant.

 

**Our facilities are located near known earthquake fault zones, and theoccurrence of an earthquake or other catastrophic disaster could cause damageto our facilities and equipment, which could require us to cease or curtailoperations.**

 

Our facilities are located in the San FranciscoBay Area near known earthquake fault zones and are vulnerable to significantdamage from earthquakes. We are also vulnerable to damage from other types ofdisasters, including fires, floods, power loss, communications failures andsimilar events. If any disaster were to occur, our ability to operate ourbusiness at our facilities would be seriously, or potentially completely,impaired, and our research could be lost or destroyed. In addition, the uniquenature of our research activities and of much of our equipment could make itdifficult for us to recover from a disaster. The insurance we maintain may notbe adequate to cover our losses resulting from disasters or other businessinterruptions.

 

**Our stock price may be volatile, and our stockholders’ investment inour stock could decline in value.**

 

The market prices for our securities and those of other biotechnologycompanies have been highly volatile and may continue to be highly volatile inthe future. The following factors, in addition to other risk factors describedin this section, may have a significant impact on the market price of ourcommon stock:

 

•                    the receipt or failure to receive the additionalfunding necessary to conduct our business;

 

•                    the progress and success of preclinical studies andclinical trials of our product candidates conducted by us or our collaborativepartners or licensees;

 

•                    selling by large stockholders;

 

•                    announcements of technological innovations or newcommercial products by our competitors or us;

 

•                    developments concerning proprietary rights,including patents;

 

•                    developments concerning our collaborations;

 

•                    publicity regarding actual or potential medicalresults relating to products under development by our competitors or us;

 

•                    regulatory developments in the United States andforeign countries;

 

•                    litigation;

 

•                    economic and other external factors or otherdisaster or crisis; and

 

•                    period-to-period fluctuations in financial results.

 

**Anti-takeover provisions in our charter documents and under Delawarelaw may make an acquisition of us, which may be beneficial to our stockholders,more difficult.**

 

Provisions of our amended and restated certificate of incorporation andbylaws, as well as provisions of Delaware law, could make it more difficult fora third party to acquire us, even if doing so would benefit our stockholders.These provisions:

 

•                    establish that members of the board of directors maybe removed only for cause upon the affirmative vote of stockholders owning amajority of our capital stock;

 

 

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•                    authorize the issuance of “blank check” preferredstock that could be issued by our board of directors to increase the number ofoutstanding shares and thwart a takeover attempt;

 

•                    limit who may call a special meeting ofstockholders;

 

•                    prohibit stockholder action by written consent,thereby requiring all stockholder actions to be taken at a meeting of ourstockholders;

 

•                    establish advance notice requirements fornominations for election to the board of directors or for proposing mattersthat can be acted upon at stockholder meetings;

 

•                    provide for a board of directors with staggeredterms; and

 

•                    provide that the authorized number of directors maybe changed only by a resolution of our board of directors.

 

In addition, Section 203 of the DelawareGeneral Corporation Law, which imposes certain restrictions relating totransactions with major stockholders, may discourage, delay or prevent a thirdparty from acquiring us.

 

 

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**Item 3.**           **Quantitative and QualitativeDisclosures About Market Risk**

 

The primary objective of our investment activitiesis to preserve principal while at the same time maximizing the income wereceive from our investments without significantly increasing risk. Some of thesecurities in which we invest may have market risk. This means that a change inprevailing interest rates may cause the fair value amount of the investment tofluctuate. For example, if we hold a security that was issued with a fixedinterest rate at the then-prevailing rate and the prevailing interest ratelater rises, the market value amount of our investment will decline. Tominimize this risk in the future, we intend to maintain our portfolio of cashequivalents, short-term investments and other long-term investments in avariety of securities, including commercial paper, money market funds andgovernment and non-government debt securities For the three months endedSeptember 30, 2005 and 2004, we maintained an investment portfolioprimarily in depository accounts and corporate commercial paper. Due to theshort-term nature of the majority of these investments, we believe we do nothave a material exposure to interest rate risk arising from our investments.Therefore, no quantitative tabular disclosure is provided.

 

We have operated primarily in the United States, andall funding activities with our collaborators to date have been made in U.S.dollars. Accordingly, we have not had any exposure to foreign currency ratefluctuations.

 

**Item 4.**    **Controls and Procedures**

 

*Evaluation of Disclosure Controls and Procedures.*  Based on our management’s evaluation (withthe participation of our chief executive officer and chief financial officer),our chief executive officer and chief financial officer have concluded that,subject to limitations described below, our disclosure controls and procedures(as defined in Rules 13a-15(e) and 15d-15(e) under theSecurities Exchange Act of 1934, as amended), were effective as of September 30,2005 to ensure that information required to be disclosed by us in reports thatwe file or submit under Exchange Act is recorded, processed, summarized andreported within the time periods specified in the Securities and ExchangeCommission’s rules and forms, and is accumulated and communicated to ourmanagement including our chief executive officer and chief financial officer,to allow timely decisions regarding required disclosure.

 

*Changes in Internal Controls.*  There were no changes in our internalcontrols over financial reporting during the quarter ended September 30,2005 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 

*Limitations on the Effectiveness of Controls*. A controlsystem, no matter how well conceived and operated, can provide only reasonable,not absolute, assurance that the objectives of the controls are met. Because ofthe inherent limitations in all control systems, no evaluation of controls canprovide absolute assurance that all control issues, if any, within a companyhave been detected. Accordingly, our disclosure controls and procedures aredesigned to provide reasonable, not absolute, assurance that the objectives ofour disclosure control system are met and, as set forth above, our chiefexecutive officer and chief financial officer have concluded, based on theirevaluation as of the end of the period covered by this quarterly report onForm 10-Q, that our disclosure controls and procedures were sufficientlyeffective to provide reasonable assurance that the objectives of our disclosurecontrol system were met.

 

 

 

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**PART IIOTHER INFORMATION**

 

 

**Item 6.****   ****Exhibits**

 

a)             Exhibits:

 

The exhibits listed on the accompanying index toexhibits are filed or incorporated by reference (as stated therein) as part ofthis Quarterly Report on Form 10-Q.

 

 

 

 
| **Exhibit Number** | ** ** | **Description  of Document**                                                                                                                                                                               |
|-------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                     |       | Amended and Restated Certificate of Incorporation.(1)                                                                                                                                                      |
| 3.2                     |       | Amended and Restated Bylaws.(2)                                                                                                                                                                            |
| 4.1                     |       | Specimen Common Stock Certificate.(1)                                                                                                                                                                      |
| 4.2                     |       | Amended and Restated Investor Rights Agreement, between Rigel and  holders of Rigel’s Series B, Series C, Series D and  Series E preferred stock, dated February 3, 2000.(2) |
| 4.3                     |       | Form of warrant to purchase shares of common stock.(2)                                                                                                                                                |
| 4.7                     |       | Amended and Restated Warrant issued to Kwacker Limited for the purchase  of shares of common stock.(3)                                                                                                     |
| 4.8                     |       | Warrant issued to TBCC Funding Trust II for the purchase of shares of  common stock.(4)                                                                                                                    |
| 4.10                    |       | Warrant issued to Kwacker Limited for the purchase of shares of  common stock.(3)                                                                                                                          |
| 4.23                    |       | Second Investor Rights Agreement between Rigel and certain investors,  dated June 26, 2003.(5)                                                                                                        |
| 4.24                    |       | Common Stock Purchase Agreement by and between Rigel and Pfizer Inc.,  dated March 10, 2005(6)                                                                                                        |
| 10.14                   |       | License and  Research Agreement (Amended and Restated) between Rigel and Cell Genesys,  Inc., dated September 2, 1999, as amended and restated on March 26, 2001.(7)                                       |
| 15.1                    |       | Letter re: unaudited interim financial information.                                                                                                                                                        |
| 31.1                    |       | Certification required by Rule 13a-14(a) or  Rule 15d-14(a) of the Exchange Act.                                                                                                       |
| 31.2                    |       | Certification required by Rule 13a-14(a) or  Rule 15d-14(a) of the Exchange Act.                                                                                                       |
| 32.1                    |       | Certification required by Rule 13a-14(b) or  Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter  63 of Title 18 of the United States Code (18 U.S.C. 1350).           |

 

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| (1) |   | Filed as an exhibit to Rigel’s Current Report on Form 8-K on  June 24, 2003 and incorporated herein by reference.                                                                                                                                                                    |
|-----|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Filed as an exhibit to Rigel’s Registration Statement on  Form S-1, as amended, and incorporated herein by reference.                                                                                                                                                                     |
| (3) |   | Filed as an exhibit to Rigel’s Annual Report on Form 10-K for  the fiscal year ended December 31, 2002 and incorporated herein by  reference.                                                                                                                                        |
| (4) |   | Filed as an exhibit to Rigel’s Quarterly Report on Form 10-Q for  the quarter ended March 31, 2002 and incorporated herein by reference.                                                                                                                                             |
| (5) |   | Filed as an exhibit to Rigel’s Annual Report on Form 10-K for  the fiscal year ended December 31, 2003 and incorporated herein by  reference.                                                                                                                                        |
| (6) |   | Filed as Exhibit B to the Collaborative Research and License  Agreement by and between Rigel and Pfizer Inc., dated January 18, 2005,  filed as an exhibit to Rigel’s Quarterly Report on Form 10-Q for the  quarter ended March 31, 2005 and incorporated herein by reference. |
| (7) |   | Confidential  treatment requested as to specific portions, which portions are omitted and  filed separately with the Securities and Exchange Commission.                                                                                                                                            |

 

 

 

 

 

 

 

 

 

 

 

 

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, as amended, the registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.

 

 
|   | RIGEL PHARMACEUTICALS, INC. |
|--------|-----------------------------|
|   |                        |   |
|   |                        |   |
|   | By:                         | /s/ JAMES M. GOWER |
|   |                        | James M. Gower |
|   |                        | Chief Executive Officer |
|   |                        |   |
|   |                        |   |
|   | Date:                       | November 8, 2005 |
|   |                        |   |
|   |                        |   |
|   | By:                         | /s/ JAMES H. WELCH |
|   |                        | James H. Welch |
|   |                        | Vice President, Chief Financial Officer and Corporate |
|   |                        | Secretary |
|   |                        | (Principal Financial and Accounting Officer) |
|   |                        |   |
|   |                        |   |
|   | Date:                       | November 8, 2005 |

 

 

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**INDEX TO EXHIBITS**

 
| **Exhibit Number** | ** ** | **Description  of Document**                                                                                                                                                                               |
|-------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                     |       | Amended and Restated Certificate of Incorporation.(1)                                                                                                                                                      |
| 3.2                     |       | Amended and Restated Bylaws.(2)                                                                                                                                                                            |
| 4.1                     |       | Specimen Common Stock Certificate.(1)                                                                                                                                                                      |
| 4.2                     |       | Amended and Restated Investor Rights Agreement, between Rigel and  holders of Rigel’s Series B, Series C, Series D and  Series E preferred stock, dated February 3, 2000.(2) |
| 4.3                     |       | Form of warrant to purchase shares of common stock.(2)                                                                                                                                                |
| 4.7                     |       | Amended and Restated Warrant issued to Kwacker Limited for the purchase  of shares of common stock.(3)                                                                                                     |
| 4.8                     |       | Warrant issued to TBCC Funding Trust II for the purchase of shares of  common stock.(4)                                                                                                                    |
| 4.10                    |       | Warrant issued to Kwacker Limited for the purchase of shares of  common stock.(3)                                                                                                                          |
| 4.23                    |       | Second Investor Rights Agreement between Rigel and certain investors,  dated June 26, 2003.(5)                                                                                                        |
| 4.24                    |       | Common Stock Purchase Agreement by and between Rigel and Pfizer Inc.,  dated March 10, 2005(6)                                                                                                        |
| 10.14                   |       | License and  Research Agreement (Amended and Restated) between Rigel and Cell Genesys,  Inc., dated September 2, 1999, as amended and restated on March 26, 2001.(7)                                       |
| 15.1                    |       | Letter re: unaudited interim financial information.                                                                                                                                                        |
| 31.1                    |       | Certification required by Rule 13a-14(a) or Rule 15d-14(a) of  the Exchange Act.                                                                                                       |
| 31.2                    |       | Certification required by Rule 13a-14(a) or  Rule 15d-14(a) of the Exchange Act.                                                                                                       |
| 32.1                    |       | Certification required by Rule 13a-14(b) or  Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter  63 of Title 18 of the United States Code (18 U.S.C. 1350).           |

 

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| (1) |   | Filed as an exhibit to  Rigel’s Current Report on Form 8-K on June 24, 2003 and  incorporated herein by reference.                                                                                                                                                                    |
|-----|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Filed as an exhibit to  Rigel’s Registration Statement on Form S-1, as amended, and incorporated  herein by reference.                                                                                                                                                                     |
| (3) |   | Filed as an exhibit to  Rigel’s Annual Report on Form 10-K for the fiscal year ended  December 31, 2002 and incorporated herein by reference.                                                                                                                                         |
| (4) |   | Filed as an exhibit to  Rigel’s Quarterly Report on Form 10-Q for the quarter ended  March 31, 2002 and incorporated herein by reference.                                                                                                                                             |
| (5) |   | Filed as an exhibit to  Rigel’s Annual Report on Form 10-K for the fiscal year ended  December 31, 2003 and incorporated herein by reference.                                                                                                                                         |
| (6) |   | Filed as Exhibit B to  the Collaborative Research and License Agreement by and between Rigel and  Pfizer Inc., dated January 18, 2005, filed as an exhibit to Rigel’s  Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 and  incorporated herein by reference. |
| (7) |   | Confidential treatment requested as to specific  portions, which portions are omitted and filed separately with the Securities  and Exchange Commission.                                                                                                                                             |

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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