Could Relypsa Be The Next Big Pharma Buyout Target?

• Relypsa Inc RLYP shares are down 38 percent year-to-date, while shares of ZS Pharma Inc ZSPH are up 14 percent over the same period.
• Citi’s Yigal Nochomovitz maintained a Buy rating on both companies, with price targets of $45 for Relypsa and of $82 for ZS Pharma.
• The proposed indication of ZS Pharma validates the bull thesis on the hyperkalemia market and the potential of Relypsa’s Veltassa, Nochomovitz stated.

Pharmaceutical major AstraZeneca plc (ADR) AZN announced the acquisition of ZS Pharma in an all-cash deal of $90 per share, or $2.7 billion.

Analyst Yigal Nochomovitz mentioned that the proposed deal “validates our bull thesis on the chronic hyperkalemia market where we see ZS-9 and Relypsa's Veltassa each achieving peak US sales of ~$1B by 2023.”

Nochomovitz stated that the valuation gap between ZS Pharma and Relypsa now stands at about $1.9B. This is embarrassing from a market efficiency perspective, since both ZS-9 and Veltassa are very similar - they both provide a fundamentally novel option for controlling chronic hyperkalemia, the analyst added.

Another reason why the valuation gap is odd is that Veltassa has already been approved by the FDA and is launching in 2 months, whereas the FDA approval for ZS-9 is expected in May, Nochomovitz pointed out.

Although both drugs have drawbacks, they do not justify the relative valuations that suggest “only ~20-25% peak branded share to Relypsa (especially with a 6-month head start),” the Citi report added.