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Relypsa’s Drug Treatment Success Threatened By Looming New Player Entranceent as Big Pharma

Biopharmaceutical company Relypsa Inc. (NASDAQ: RLYP) continues to enjoy being the sole provider of a drug used to treat hyperkalemia. Its stock is up and analysts are bullish that it has more room to run.

However, there are some catalysts that could move the stock downward. Because of some issues that could affect shareholder value, investors considering whether or not they should jump on the bandwagon now and buy the stock may want to hold off for now.

The stock’s price has increased steadily since May 19, when it closed $14.14, just shy of its 52-week low of $14. The company is trading around $19 now. The catalyst behind that upward move stemmed from the bad news AstraZeneca received concerning a drug it has developed to compete with Relypsa’s drug.
 

 · Winner by default?

 
Relypsa has benefitted from being the only supplier of a drug meant to treat patients with potentially life threatening levels of potassium in their blood. The condition is called hyperkalemia. Relypsa’s drug, which is called Veltassa, had been the only FDA-approved drug in the market used to treat the condition.

But then came Big Pharma company AstraZeneca (NASDAQ: AZN) with its ZS-9 drug, which can also be used to treat hyperkalemia. Its approval by the FDA was thought to be a slam dunk, and observers thought Relypsa’s days of being the sole treatment provider would be over once ZS-9 was approved.

In May, the Food and Drug Administration shocked AstraZeneca and investors when it did not approve the company’s ZS-9 drug. The FDA found fault in the manufacturing of ZS-9, and rejected the drug’s approval. That means Relypsa maintains its position as the sole provider of an FDA-approved drug to treat hyperkalemia in the U.S. – at least for now.

That’s huge considering the market for treating the condition has been estimated to be potentially worth $6 billion.
 

 · Not so fast, say some observers

 
Morgan Stanley on Tuesday downgraded Relypsa to underweight from equal-weight. Morgan Stanley has a $9 price target on Relypsa.

Irina Rivkind Koffler, an analyst at Mizuho, noted that the delay of ZS-9 was the “best possible” outcome for Relyspa because it gives its drug “more time to gain traction in the market as first-mover.”

It may very well need that time.

Koffler is one of the naysayer’s about Relyspa’s future value to stockholders. Her stance is despite her acknowledgement that Veltassa received positive coverage around its launch with one reason being that it is the first drug in 50 years to be approved to treat hyperkalemia. Mizuhu upgraded Relypsa to neutral from underperform on June 1.

In addition to calling the Veltassa’s launch trajectory “quite slow.” Koffler said the stock is expected to remain relatively range-bound until growth becomes more tangible.

Koffler has a $12 price target on Relypsa, marking a 33% potential downside. but notes that this price target will be re-evaluated after speaking with management.
Despite Koffler concerns, of the analysts that cover Relypsa, 80% of them are bullish, 10% are neutral, and 10% are bearish, according to Tip Ranks, which TipRanks is a comprehensive investing tool that allows private investors and day traders to see the measured performance of anyone who provides financial advice.

TipRanks points out that the average 12-month price target between these analysts is $31, marking a 72% potential upside from where shares last closed. Koffler is one of the analysts featured on the site.

On the news of the FDA not approving ZS-9, Relypsa’s stock soared more than 23%, but observers had mixed feelings as to whether the small cap firm would be able to maintain its higher stock price.

For example, Maria Goldstein, an analyst at Cantor Fitzgerald, said the approval delay of AstraZeneca’s drug was a positive factor for Relypsa’s share price appreciation. Furthermore, the lack of competition could go a long way in removing what the firm sees as an overhang on Relypsa’s valuation. It could also drive short covering. The amount of Relypsa’s float that is shorted was a whopping 36.74%.

“We think Relypsa’s shares reflect execution risk for Veltassa’s launch in spite of what we see as a positive trend line,” Goldstein said. “We continue to believe that Veltassa sales will be back-end loaded in 2016, and the ultimate arrival of ZS-9 in the market at some point is likely to serve as a positive driver of market growth overall.”





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