Relypsa Seen As Next Target After Astra Buys ZS

Shares of ZS Pharma are surging after the development stage drugmaker agreed to be acquired by pharmaceutical giant AstraZeneca in a $2.7B deal.
By The Fly Staff ,

Shares of ZS Pharma (ZSPH) are surging after the development stage drugmaker agreed to be acquired by pharmaceutical giant AstraZeneca (AZN) - Get Report in a $2.7B deal. Following the deal announcement, an analyst at Citi argues that there is "no reason" why Relypsa (RLYP) , a peer at work on a rival drug in the same treatment area as ZS' lead candidate, won't be the next to be bought.

HYPERKALEMIA RIVALS: Hyperkalemia is a condition that occurs when there is an elevated concentration of the electrolyte potassium in the blood, which can elevate the risk of potentially fatal abnormal heart rhythms. ZS-9, ZS Pharma's potential treatment for hyperkalaemia, is under regulatory review by the FDA with a Prescription Drug User Fee Act goal date of May 26, 2016. On October 21, the FDA approved Relypsa's Veltassa to treat hyperkalemia, but the company's stock declined sharply immediately following the approval since the FDA required the drug to have a boxed warning because it binds many other orally administered drugs, which could decrease their absorption and reduce their effects. After hosting a call with a physician who previously served the FDA, Morgan Stanley analyst Andrew Berens said previously in a note to investors that he believes it "highly unlikely" that ZS Pharma's ZS-9 will receive a black box warning like Veltassa did.

NO REASON RELYPSA WON'T BE NEXT: ZS-9 and Veltassa can each achieve peak U.S. sales of about $1B by 2023, estimates Citi analyst Yigal Nochomovitz, who argues in a note to investors that the $1.9B valuation gap between ZS Pharma and Relypsa is "embarrassing from a market efficiency perspective." Chronic hyperkalemia has an addressable U.S. patient population of over 3M people and ZS-9 and Veltassa are "much more similar than different" and both drugs have drawbacks, Nochomovitz contends. Additionally, Veltassa is already approved by the FDA and is launching in 2 months, giving it a six month head start over the rival drug, points out Nochomovitz.

ACTELION LEFT OUT: On September 10, ZS Pharma and Actelion (ALIOF) each confirmed that the companies had participated in preliminary discussions regarding a potential strategic transaction. Astrazeneca's deal at a "modest 8% premium to Actelion's apparent $2.5B bid" suggests the debate among the suitors may have been more about readiness to commit to the purchase than about valuation, said Nochomovitz, meaning simply that Astrazeneca "may have been faster to the punch."

WHAT'S NOTABLE: This morning, Relypsa announced results of a pre-specified sub-group analysis from the Phase 3 OPAL-HK trial of Veltassa. Data showed Veltassa significantly reduced and maintained control of blood potassium levels in hyperkalemic CKD patients age 65 and older who were also receiving renin angiotensin aldosterone system inhibitor therapy, the company said. A separate post-hoc analysis also from the OPAL-HK trial showed Veltassa's efficacy in treating hyperkalemia was not diminished by concomitant use of diuretics, the company added. "These data suggest Veltassa's efficacy is similar for patients older than 65 years and for younger patients. This is important because older patients have a greater chance of developing elevated blood potassium levels due to common co-morbid conditions," said presenter Matthew Weir, M.D., lead investigator of the OPAL-HK trial.

PRICE ACTION: After AstraZeneca agreed to acquire all of the outstanding shares of ZS Pharma for $90 per share in cash, the stock has jumped over 40% to $89.14 in pre-market trading. Meanwhile, competitor Relypsa rose more than 5% to $19.75 ahead of the opening bell.

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