A Rebuttal To A Short Thesis On Relypsa

| About: Relypsa, Inc. (RLYP)
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Summary

A short thesis was presented on small biopharma stock Relypsa the other day on Seeking Alpha.

The article was presented by a source that was short the stock and thus naturally tilted to a negative stance on the company's prospects.

In my opinion the article gave a very biased and inaccurate view of Relypsa's future, competition and challenges. This is my rebuttal presenting a more optimistic outlook on the stock.

Yesterday an article was presented on Seeking Alpha around a small biopharma I own and follow closely named Relypsa (NASDAQ:RLYP). It was written by a source that is short the stock, so it was naturally tilted to a large bias to any perceived negatives on the company and the stock. The article was one of the most commented on this week here on Seeking Alpha as it drew the ire of many investors who are long the stock.

This is not unusual as almost every negative article concerns a stock that other investors happen to be long. I'm not in the habit of offering rebuttals to another contributors' work, but in this case I found the article misleading, inaccurate in certain areas and devoid of a clear or likely picture on the company's prospects or the likely direction of the stock. So let me rebut some of the key assertions in that negative viewpoint on Relypsa.

The Bold represents the assertions of the original article. My response is in italics.

"Unbiased Researchers Say Veltassa Trials Were Inconclusive And Biased" - If anything the FDA has been accused of being overly cautious on approving new drugs. One just has to review the saga of Eteplirsen by Sarepta Therapeutics (NASDAQ:SRPT) in recent weeks to see evidence of that caution despite huge political pressure to approve the drug. After extensive trial results, the FDA chose decisively to approve Veltassa late last year.

"Researchers Find There Is No Evidence To Suggest Veltassa Is Superior To Similar Treatment Options" - Again the opinion that matters here is the FDA which made Veltassa the first new drug approved for hyperkalemia in decades. Furthermore, script numbers after the bell last night showed better than expected growth which shows the compound is gaining acceptance by doctors in this specialty.

"While Veltassa Is Only Used For Chronic Hyperkalemia, ZS-9 Is Used For Both Acute And Chronic" - Veltassa is not as suitable for the Acute market as ZS-9, if or when it gets approved. However, Veltassa is going to be the winner in the larger Chronic part of the market as it has beneficial qualities for people with hypertension and/or peripheral edema, ZS-9 is at least slightly detrimental for both populations which is a high percentage of the hyperkalemia market.

This matches almost every analyst firm's conclusion and AstraZeneca (NYSE:AZN), the company that bought ZS Pharma (ZSPH) for $2.7 billion in November of last year, has alluded to in recent comments that ZS-9 will be primarily aimed at the Acute market. My own projection is that ZS-9 does get approved sometime in the first half of 2017, probably with a label for hypertension if not pulmonary edema; and will get most of the Acute market while Veltassa remains the market share leader in the larger Chronic market.

Medicare And Most Insurance Companies Don't Cover Veltassa For A Reason - Anyone who covers this space in depth knows it takes 6-12 months to go through the various approval processes for reimbursement and to get in the formularies of insurance and government program coverage, especially for Medicare part D. Veltassa continues to make good progress expanding coverage and this is a core reason scripts are showing good growth on a month over month basis.

"The Chronic Hyperkalemia Treatment Market Is Small" - Again, all one needs to read is almost any analyst report from a reputable analyst firm. The hyperkalemia market is projected at $1 billion to $2 billion a year depending on how optimistic or pessimistic the analyst, hardly a small market for company like Relypsa with under a $1 billion market cap.

"No Savvy, Reputable Biotech Investors Own Relypsa" - This must be news to Janus, State Street and a half dozen other well-known and respected managers who own significant stakes in Relypsa.

"Potential Veltassa Risks, And Relypsa's CEO, John Orwin's Previous Company's Deadly Drug" - I know given the state of the economy since the financial crisis, attacks on the reputations of CEOs have escalated. However, I think it is out of bounds to smear a CEO because of the impacts of an FDA approved drug.

Finally, little mention is focused on the complete response letter Veltassa's competitor in the hyperkalemia space "ZS-9" recently received from the FDA. This will knock back any approval for that drug until at least late summer and more likely into the first half of 2017. This will give Veltassa over a year on the market without competition to build up its sales force, acceptance and market share.

So is Relypsa a risk-free investment? Of course not. The company is not profitable yet even if it is seeing good revenue growth. Relypsa also is burning up cash as its builds out its sales force and ramps up the rollout of Veltassa. The company did recently secure some $150 million in a debt offering that put off any funding needs until at least 2017.

Relypsa is currently a "battleground" stock with varying analyst opinions on the direction of the shares. This is why analyst price targets have such a large range of $9 to $51 a share with a median price target by the dozen analyst firms that cover the stock of $33.50 a share, about 80% upside from current trading levels.

My personal opinion is that Relypsa offers an attractive risk/reward profile at current levels. It also is a likely buyout target given it has been one of most speculated acquisition possibilities in the market for some time. Its competitor ZS Pharma also was bought out for a huge premium late last year after multiple bidders emerged. This gives an accurate picture of the value the drug giants see in the hyperkalemia space.

I just wanted to take the opportunity to present a more nuanced view to this biopharma company.

Note: To get these types of articles on attractive biotech and pharma stocks as soon as they are published, just click on my profile and hit the big orange "follow" button and choose the real-time alerts option.

Thank You and Happy Hunting

Bret Jensen

Founder, Biotech Forum

Disclosure: I am/we are long RLYP.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.