Relypsa's (RLYP) Rating Moves Back to 'Underweight' at Morgan Stanley; Form 483 Hints at Near-Term Competition, Says Analyst

June 7, 2016 6:33 AM

(Updated - June 7, 2016 10:11 AM EDT)

Morgan Stanley analsyt Andrew S Berens, a long-time bear on Relypsa, Inc. (NASDAQ: RLYP), downgraded the stock from Equalweight to Underweight with a price target of $9 (unchanged), reversing his shift to Equal-Weight in late May.

Berens said after reviewing the inspection document for AstraZeneca's (NYSE: AZN) ZS-9 with an external consultant, he thinks FDA's concerns are addressable in 4 to 6 months, potentially resulting in rapid approval. ZS-9 is potential competitor for Relypsa's Veltassa.

"Previously, we moved to Equal-weight because we believed RLYP was not trading on fundamentals given the proximity and relevance to a competitor's action date (ZS Pharma/AstraZeneca's ZS-9), as well as perception about strategic optionality, which increased following ZS-9's delay related to manufacturing issues. Since that point, i,e., our May 20 upgrade to EW, RLYP shares have risen ~35% (vs 3% gain for the S&P 500), making the risk-reward profile unattractive in our view," said Berens.

The analyst added, "On Friday after market close, using the Freedom of Information Act (FOIA) we obtained the FDA's Form 483 from the pre-approval inspection (PAI) on March 29, 2016 for AstraZeneca's ZS-9 manufacturing plant. This inspection resulted in a complete response letter (CRL) on May 26th, delaying commercialization of ZS-9. After reviewing the FDA document and having discussions with management, we think ZS Pharma/AstraZeneca may be able to resolve the outstanding deficiencies in the application more rapidly than expected. Once ZS-9 reaches the market, we forecast the drug to capture over 80% of the hyperkalemia opportunity because of a better product profile, more viable commercial strategies, and a much lower expense basis versus Veltassa that may allow more favorable incentives to payors. We also think nearer-term competition decreases the likelihood of strategic optionality, as any potential interested party would likely decide to wait for the pending ZS-9 label to better understand the long-term commercial dynamics."

For an analyst ratings summary and ratings history on Relypsa, Inc. click here. For more ratings news on Relypsa, Inc. click here.

Shares of Relypsa, Inc. closed at $20.25 yesterday.


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