IPO Preview: ZS Pharma

Jun.18.14 | About: ZS Pharma, (ZSPH)

Summary

ZSPH is a biopharmaceutical company focused on the development and commercialization of highly selective, non-absorbed drugs to treat renal, cardiovascular, liver and metabolic diseases.

ZSPH's initial focus is on the development of ZS-9, a product candidate in Phase III development for the treatment of elevated potassium levels.

One other company, Relypsa, is developing a potassium removal drug that is currently in Phase III clinical development.

Based in Coppell, TX, ZS Pharma (NASDAQ:ZSPH) scheduled an $80 million IPO on the Nasdaq with a market capitalization of $300 million at a price range midpoint of $16 for Wednesday, June 18, 2014.

The full IPO calendar is available at IPOpremium.

SEC Documents
Manager, Joint managers: J.P. Morgan, Credit Suisse

Co-Managers: BMO Capital Markets, William Blair

End of lockup (180 days): Monday, December 15, 2014

End of 25-day quiet period: Monday, July 14, 2014

Summary

ZSPH is a biopharmaceutical company focused on the development and commercialization of highly selective, non-absorbed drugs to treat renal, cardiovascular, liver and metabolic diseases.

ZSPH's initial focus is on the development of ZS-9, its product candidate in Phase III development for the treatment of hyperkalemia, a life-threatening condition in which elevated levels of potassium in the blood (greater than 5.0 mEq/L) increase the risk of muscle dysfunction, including cardiac arrhythmias and sudden cardiac death.

ZSPH is aware of one other company, Relypsa, which is developing a potassium removal drug that is currently in Phase III clinical development. Relypsa (NASDAQ:RLYP) has a market cap of $759 million.

Valuation

Glossary

Valuation Ratios

Mrkt Cap (MM)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

annualizing Q1'14

ZS Pharma

$300

no rev

-7.1

3.1

3.1

27%

Click to enlarge

Conclusion

The rating on ZSPH is neutral.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business

ZSPH is a biopharmaceutical company focused on the development and commercialization of highly selective, non-absorbed drugs to treat renal, cardiovascular, liver and metabolic diseases.

ZSPH's proprietary zirconium silicate technology allows ZSPH to create highly selective ion traps that can reduce toxic levels of specific electrolytes without disturbing the balance of other electrolytes.

Initial focus

ZSPH's initial focus is on the development of ZS-9, its product candidate in Phase III development for the treatment of hyperkalemia, a life-threatening condition in which elevated levels of potassium in the blood (greater than 5.0 mEq/L) increase the risk of muscle dysfunction, including cardiac arrhythmias and sudden cardiac death.

ZSPH is advancing ZS-9 through clinical development with the goal of obtaining approval for the treatment of acute and chronic hyperkalemia, regardless of the underlying disease state.

Regulatory strategy

ZSPH designed its development program based on input from the United States Food and Drug Administration, or FDA, and European Medicines Agency, or EMA, and plan to submit its New Drug Application, or NDA, in the United States and its Marketing Authorization Application, or MAA, in Europe in the first half of 2015.

If ZSPH receives regulatory approval, it intends to commercialize ZS-9 for the treatment of hyperkalemia in the United States with its specialty sales force targeting nephrologists and cardiologists and intend to seek one or more partners for commercialization in markets outside of the United States.

Clinical studies

ZSPH has completed two clinical studies with ZS-9 that together enrolled 843 patients with hyperkalemia, including patients with chronic kidney disease, or CKD, heart failure, or HF, diabetes and those on renin-angiotensin aldosterone system, or RAAS, inhibitor therapy.

ZSPH's first in man study, ZS002, was completed in May 2012 and its first Phase III study, ZS003, was completed in November 2013. Both trials met their pre-specified primary and secondary efficacy endpoints with clinically meaningful and statistically significant results.

ZSPH initiated a second Phase III study, ZS004, in the first quarter of 2014, and will initiate a long-term safety study, ZS005, in the second quarter of 2014. Upon successful completion of ZS004, ZSPH expects to file its NDA with the FDA and its MAA with the EMA.

Potassium selectivity

ZS-9 is an insoluble, non-absorbed zirconium silicate with a clearly defined three dimensional crystalline lattice structure that was designed and engineered to preferentially trap potassium ions.

Sodium polystyrene sulfonate, or SPS (e.g., Kayexalate), the current standard of care for hyperkalemia in the United States, is a nonselective polymer resin. In contrast to nonselective polymer resins, the potassium selectivity of ZS-9 enables high in-vitro binding capacity for potassium ions even in the presence of other ions.

Dividend Policy

No dividends are planned.

Intellectual Property

ZSPH has licensed certain patent rights relating to zirconium silicates from UOP. These patents include claims covering ZS-9 and methods of oral administration of ZS-9.

During its development of ZS-9, ZSPH has made certain improvements to the ZS-9 composition.

For example, ZSPH found that reducing the level of ZS-9 particles with a particle size below 3 microns that are contained in a composition was advantageous for avoiding systemic exposure during oral administration. ZSPH also found that the ZS-9 production method can be controlled to reduce the levels of more soluble forms of zirconium silicate impurities, such as ZS-8, in the composition.

ZSPH has filed several non-provisional and provisional patent applications directed to these improvements and other novel zirconium silicate compositions, methods of treating various indications with ZS-9, and methods of manufacturing ZS-9.

Competition

Other companies are developing drugs for the treatment of hyperkalemia.

ZSPH is aware of one other company, Relypsa, which is developing a potassium removal drug that is currently in Phase III clinical development.

ZSPH does not know whether these drugs will be introduced to the market and if so, the timing or success of such introduction.

However, in the event that Relypsa, or other companies developing treatment options for hyperkalemia, are successful, ZSPH will face additional competition for ZS-9.

5% stockholders

Alta Partners VIII, L.P. 21.73%

Entities affiliated with Devon Park Bioventures, L.P. 17.40%

Entities affiliated with 3x5 Special Opportunity Fund, L.P. 15.70%

Entities affiliated with John Dyett 11.71%

Use of proceeds

ZSPH expects to net $72 million from its IPO. Proceeds are allocated as follows:

$3.0 million to complete its ongoing Phase III (ZS004) clinical trial;

$9.0 million to advance its planned long-term safety trial, ZS005, through the end of 2015;

$5.0 million to seek FDA, EMA and other international approvals to market ZS-9 for the treatment of hyperkalemia;

$18.0 million to fund the scale-up of its manufacturing facilities for ZS-9 for commercial launch;

$29.0 million to build a specialty sales force infrastructure and to complete pre-commercialization marketing activities for ZS-9 in the United States; and

the balance for working capital and other general corporate purposes.

Disclaimer: This ZSPH IPO report is based on a reading and analysis of ZSPH's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.