Mizuho Downgrades Relypsa, Says Near-Term Takeout 'Unlikely'

Relypsa Inc RLYP shares plunged more than 18 percent after Mizuho Securities downgraded the stock to Underperform from Neutral, saying the near-term buyout of the company is "unlikely" following its recent $150 million debt offering.

"We view this event (offering) as a sign that near-term take-out is unlikely, which led RLYP to take on non-dilutive, but expensive financing," analyst Irina Koffler began.

As a result, Koffler lowered her takeout probability to 10 percent from 50 percent, as commercial partner Sanofi SA (ADR) SNY is currently bidding on Medivation Inc MDVN. It remains unclear whether other companies are interested in Relypsa.

The analyst also cut the takeout value from $34/share to $31 (stripping out the debt).

The Veltassa Element

However, Koffler didn't rule out the possibility of a takeout as Veltassa sales approach the $50 million–$100 million mark, stating, "We think this ramp could take over a year, at a minimum."

In October 2015, the FDA has approved Veltassa to treat hyperkalemia, a serious condition in which the amount of potassium in the blood is too high.

The analyst noted that Relypsa can stay away from the markets until early 2017, and doesn't "think that Veltassa will be significantly large by that time to avoid another financing round if the company still remains stand-alone."

Meanwhile, Koffler underlined the importance of Veltassa, as the analyst learned from the company that "Veltassa demonstrated ability to lower phosphate levels and blood pressure" in dialysis patients and patients with resistant hypertension. This may allow the company to pursue new label claims moving forward.

"Veltassa could be more attractive than we previously thought, but this may not help the stock in the short term," Koffler added.

At time of writing, Relypsa was down 18.96 percent on the day at $14.04. Koffler cut the price target to $12 from $22.

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