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Relypsa: Don't Rely On Rumors


Relypsa surged 60% last week on renewed buyout rumors.

Reuters said that the company has received overtures from potential buyers and that it has hired an investment bank to review offers.

While I think that the rumors are likely true, I do not believe that a deal announcement is likely in the near-term.

Reviewing the potential buyers and the buyout price.

Relypsa is worth more than $22 and I haven’t sold a single share last week, but investors should not rely on rumors and should not buy just based on them.

Relypsa (NASDAQ:RLYP) surged more than 60% last week on renewed buyout rumors. The same thing happened last year and its share price went up and back down in a matter of weeks, though the move down was helped by the sector meltdown in the first two months of 2016. Reuters said that Relypsa is exploring a sale following overtures from a number of potential buyers and that the company is working with investment bank Centerview Partner Holdings LLC to review offers. Given the strong interest in ZS Pharma and its acquisition by AstraZeneca (NYSE:AZN) last year, I am not surprised to see the resurfacing of these speculations and think that the rumors are most likely true. However, I am not that certain that a deal will be announced in the near-term. The PDUFA date for ZS-9 is approaching and a buyer is not likely to step up before we see what ZS-9's label will look like (since I think that the approval is almost certain). I remain bullish on Relypsa despite the 60% surge and believe that the company is worth more than $22. I haven't sold a single share yet. The stock remains a long-term holding in one of my Growth Stock Forum portfolios and in this article, I will discuss the potential buyout price and who might step up and acquire the company.

Why is Relypsa an attractive takeover target?

Veltassa is the first FDA-approved treatment for hyperkalemia in over 50 years and "nephrologists report a high unmet need with a large pool of patients who would be considered candidates for Veltassa", according to Spherix Global Insights, which conducted a survey with 101 U.S. nephrologists in January 2016. Spherix Global Insights notes that unaided awareness of Veltassa was high prior to launch, that 20% of surveyed nephrologists have prescribed Veltassa to at least one patient and that 17% report that they intend to start prescribing "right away." Drug-drug interaction was the main concern for nephrologists but the survey was done prior to Relypsa's updated information on DDI, which suggested that a shorter dose separation is possible. I think that a follow-up survey following the new DDI results will show diminished concerns about DDI and that the potential black box warning removal and an updated label might positively impact Veltassa's uptake in 2017 and beyond.

Image source: Relypsa

There are around 3 million patient in the U.S. who suffer from high levels of potassium and the current standard of care, Kayexalate, is not considered to be effective for long-term treatment and has severe side-effects, including death of intestinal cells and GI bleeding. Veltassa's better binding capabilities and tolerability make it a much better choice than Kayexalate and should lead to solid uptake over the next few years.

Analyst U.S. peak sales estimates are around $1...