H.C. Wainwright Cuts Relypsa Target, Still Sees $32/Share Upside On 'Execution' Coming

H.C. Wainwright has slashed its price target on Relpsa Inc

shares to $32 from $36. However, the brokerage maintained the rating of Buy. It cited three main reasons for the latest move. The first was the dilution of the 2.5 million shares sold through ATM, and the second was the slightly higher operating expenses projection. The third factor was the term loan interest costs. The brokerage said that its rNPV valuation model was driven by U.S. sales of Veltassa through 2030 (peak $1.1B; zero terminal value) discounted at 10.0%. Risks included sales meaningfully below its projections, a more pronounced competitive impact than anticipated, and equity offering dilution. Wainwright said that given the highly-anticipated approval of ZS-9 by its May 26 PDUFA date, it would monitor the label for three reasons. The foremost was any DDI dosing separation while the second was any verbiage suggestive of quicker onset of action than Veltassa. The third was in respect of any warnings or precautions around the potential for edema or increases in heart rate. The brokerage indicated that it would also keep an eye on ZS-9's pricing, and perhaps more importantly try to find any meaningfully higher degree of negotiated discounts to reach agreements with PBMs and payers. The financial advisor thinks that the early launch of ZS-9 would be judged against the standard being set now by Veltassa. Wainwright said that Relypsa has executed very well, so far, in unveiling Veltassa. It pointed out the gains from the first full quarter launch resulting in key early wins. That included CMS placed Veltassa on its 2016 Formulary Reference File (FRF), and Relypsa signed reimbursement deals with Express Scripts and CVS Caremark, which were the two biggest pharmacy benefit managers (PBMs) in the U.S. The brokerage pointed out that about a third of targeted Medicare Part D plans have reviewed Veltassa, with the vast majority deciding to offer coverage even though these plans were allowed to defer a decision until late June. Relypsa was focusing on all national payers representing ~85% of covered lives, as half have already made a coverage decision, of which about 75% were now covering Veltassa at Tier 3 or better. Wainweight said that "Relypsa remains on track to submit an sNDA (based on recent DDI data) by mid-2016 requesting that the FDA change the label to: 1) reduce the dosing separation to 3 hours; 2) remove the black box warning and move the text to the appropriate section; and 3) add the DDI study data." On Friday, shares of the company traded 4.45% down.