Overhang For Relypsa Remains, Morgan Stanley Says

A probable delay in the FDA approval of ZS-9, AstraZeneca plc’s (ADR) AZN hyperkalaemia asset, could lend near-term upside to shares of Relypsa Inc RLYP. Morgan Stanley’s Andrew S Berens maintained an Equal-weight rating for the company, with a price target of $9.

AstraZeneca announced that ZS-9 had received a complete response letter [CRL], following the preapproval manufacturing inspection. There could be a delay of 9 to 12 months in the FDA approval of ZS-9, “giving Relypsa a slightly longer runway without competition,” analyst Andrew S Berens commented.

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The latest development also removes AstraZeneca’s near-term assistance in building the marketplace, there is likely to be a positive, albeit modest impact on Relypsa’s Veltassa revenues. Berens added, “We note that the European approval timeline for approval in early 2017 could remain intact, with a CHMP opinion expected this fall.”

Impact On Financing

The ZS-9 delay could increase the likelihood of dilutive financing in the near-term, since the modest increase in revenue does not offset Relypsa’s cash needs, in view of its high burn rate.

“We also think that this delay decreases the likelihood of near-term strategic optionality, as it provides no visibility into the ZS-9 label. We believe any potential acquirer waiting until this point would similarly wait until the new action date to better assess the commercial dynamics expected in 2017 and beyond,” the analyst stated.