Relypsa (RLYP) Could Be Next High-Profile Takeout, Says Citi

November 6, 2015 10:09 AM EST
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Relypsa (NASDAQ: RLYP) opened higher Friday after AstraZeneca (NYSE: AZN) announced a deal to acquire peer ZS Pharma (NASDAQ: ZSPH). The deal announcement stoked speculation Relypsa could be next – a topic that was discussed in a research note by analysts at Citi.

Citi sees ZS Pharma's ZS-9 and Relypsa's Veltassa each achieving peak US sales of about $1 billion by 2023. With this in mind, analyst pointed out the valuation gap between the two socks, describing it as “embarrassing.”

"The valuation gap between ZSPH ($2.7B) and RLYP (~$800M) now stands at ~$1.9B, which is embarrassing from a market efficiency perspective for several reasons," said Citi.

Analysts went on to make three points, "1) ZS-9 and Veltassa are much more similar than different as both provide a fundamentally novel option for the control of chronic hyperkalemia for a ~3M+ addressable US patient population, 2) Veltassa is already approved by the FDA and is launching in 2 months, whereas ZS-9's expected FDA approval is in May 2016, and 3) both drugs have drawbacks (ZS-9's Na+ exchange and edema overhang, Veltassa's DDI overhang) that are hard to evaluate precisely in terms of physician's relative preference to avoid, but regardless are too nuanced to justify relative valuations that suggest only ~20-25% peak branded share to Relypsa (especially with a 6-month head start)."

Notably, Actelion said in September it had initiated talks with ZS Pharma.

Discussing the topic, Citi analysts said, "The Astra transaction at a modest 8% premium to Actelion's apparent $2.5B bid suggests the debate among potential acquirers may have been less about valuation than preparedness to commit to the purchase in the handful of days after Veltassa's 10/21 approval (i.e., the final due diligence overhang). It would thus appear Astra may have been faster to the punch."

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