Relypsa Inc. (NASDAQ: RLYP)
On July 21, 2016 shares of Relypsa soared higher by 58% after it was announced that Swedish drug maker Galencia purchased the company. Galencia had bought Relypsa in an all cash deal for $32 per share or $1.53 billion. There are two reasons why Galencia had paid so much to acquire Relypsa. The first reason being is that it gains access to a drug that has already been approved by the FDA. Secondly, it gives Galencia market access in the United States.
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With the acquisition of Relypsa, Galencia stakes claim to a drug known as Veltassa. Veltassa was approved by the FDA on October 21, 2015 for the treatment of hyperkalemia. This disease, hyperkalemia is a condition where there is too much potassium in the blood. Typically small amounts of potassium have no effect, but large traces of potassium in the blood is very fatal. This was a remarkable approval for Relypsa, because it is the first drug in over 50 years approved in the U.S. to treat hyperkalemia.
There is a very odd thing about this acquisition, and that is that once the transaction is approved the combined company will be split up again. In other words, Galencia will be split into two different trading companies. Such a split is expected to potentially occur by next year. Although the acquisition is expected to close by the third quarter of this year. There is a slight problem with Relypsa being acquired, and that is that Galencia is building its two separate entities by performing acquisitions.
In other words, each separate company will not have a large R&D department. Instead, they will each just continue to perform acquisitions over and over again to grow. As we have seen with Valeant Pharmaceuticals such a strategy is pretty dangerous. Still, Relypsa shareholders shouldn’t care because they are being paid a 58% premium over the last closing share price. They are straight up receiving cash, so they won’t hold any shares in either of the new entities.
Despite all things looking good for Relypsa’s drug there is a minor setback that is little far out, but on the horizon nonetheless. The problem is that analysts have stated that Veltassa could obtain sales of $200 million. The reason for giving such a number is because there is an expectation of a competing drug for hyperkalemia that could hit the market within a few years. This competing drug is known as ZS-9 stemming from AstraZeneca.
Relypsa was saved, because a few months ago Astrazeneca received a CRL for ZS-9, but for manufacturing issues. This is good news for Galencia because it can gain market share with Veltassa for the time being, but in a few years it will have to compete against ZS-9. Hyperkalemia affects about 3 million people in the United states either due to heart failure or late-stage chronic kidney disease.
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For the time being, Galencia will be able to capitalize on the Veltassa drug. It may be able to get to blockbuster status if it works fast to get the drug to patients and doctors alike. Once Astrazeneca receives approval for ZS-9, Galencia will have a lot of work for itself in order to fend off this competitor. Galencia is a pretty large pharmaceutical company with a market cap of $8.79 billion, but AstraZeneca has a market cap of $58.89 billion. That means that AstraZeneca has wider global reach, and a bigger sales team compared to Galencia. That means that time is of the essence for Galencia to make as much money as possible before AstraZeneca launches ZS-9.
[Image Courtesy of Pixabay]