Updated from 9:56 a.m. EST

Rigel Pharmaceuticals ( RIGL) was taken to the woodshed Thursday after the company said a trial of its lead product candidate, a hay fever treatment, fell short of the study's main goal.

Shares of Rigel were plunging $13.79, or 63%, to $8.13 on tremendous volume. More than 18 million shares have changed hands, compared with an average of about 273,000 for a full session during the last three months.

The South San Francisco, Calif., company said that a midstage study compared its R112, a prospective treatment for hay fever, or allergic rhinitis, and GlaxoSmithKline's ( GSK) Beconase AQ nasal spray to a placebo over a seven-day period. In the trial, the treatment with R112 failed to show a statistically significant difference vs. the placebo in improving seasonal nasal allergy symptoms, the study's primary endpoint.

Beconase AQ was superior to the placebo, Rigel said in a press release.

The results were especially discouraging because a previous study conducted at two sites during peak pollen season found that R112 showed a statistically significant improvement in symptoms of seasonal hay fever. Rigel says the drug began working in as little as 30 minutes.

Regarding the latest trial, analysts said the twice-daily dosing schedule and a greater number of test sites may have contributed to the negative results by creating too much variance in the test environment. The most recent study was conducted in 25 centers across the U.S.

At least two analysts say this particular Rigel drug may have come to the end of the road, but they believe the company has other promising avenues to pursue.

"We think R112 is probably now a dead program, but believe Rigel will consider advancing more potent nasal-administered Syk inhibitors into human allergy testing in the future," analyst Martin Auster of Wachovia Capital Markets wrote in a research report. Syk inhibitors target an enzyme called syk kinase and are meant to reduce chronic inflammation in patients with nasal allergies.

Auster doesn't see any meaningful catalysts that would lift the stock in the next 12 months, but he notes that the company is starting a phase II trial for a proposed rheumatoid arthritis treatment in 2006. In addition, he says that through a strategic collaboration, Pfizer ( PFE) may help take a Rigel asthma drug into human testing next year.

Rigel is also working with companies like Johnson & Johnson ( JNJ), Merck ( MRK) and Novartis ( NVS) on development and marketing plans for its drugs.

"After the dust settles, we believe RIGL may present an interesting value play for patient, long-term-oriented investors," Auster says. However he downgraded the stock to market perform. Wachovia Capital Markets does and seeks to do business with companies covered in its research reports.

Mark Monane at equity research firm Needham also expects Rigel to discontinue R112 development. Needham says it expects to receive or intends to seek compensation for investment banking services from Rigel in the next three months.

Lei Zhong, an analyst at Banc of America Securities, says his firm has never viewed Rigel as "a one-drug wonder." He adds that "we continue to like Rigel's drug discovery platform focused on Syk kinase." Still, he downgraded the stock from neutral from buy and slashed his price target to $10 from $30. Banc of America Securities intends to seek or expects to receive compensation for investment banking services from Rigel in the next three months.

Rigel will conduct a conference call after the market closes Thursday to discuss the trial data.

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