Morgan Stanley Downgrades Relypsa, Expects Focus To Return To The Challenged Veltassa Launch & Cash Burn

A review of the inspection document for ZS-9, launched by AstraZeneca plc (ADR) (NYSE: AZN), indicates that the FDA's concerns could be addressed within 4-6 months, resulting in rapid approval and competition for Veltassa’s launch by Relypsa Inc (NASDAQ: RLYP), Morgan Stanley’s Andrew S Berens said in a report.

The analyst downgraded the rating for Relypsa from Equal-weight to Underweight, while maintaining the price target at $9. He commented that the focus was likely to shift to the company’s challenged Veltassa launch and cash burn.

Since the upgrade to an Equal-weight rating by Morgan Stanley, Relypsa’s shares had appreciated ~35 percent, versus a 3 percent gain for the S&P 500). This makes the risk-reward profile unattractive, Berens stated.

Prospects Of Competing Drug

Once ZS-9 is approved and reaches the market, the drug could capture more than 80 percent of the hyperkalemia opportunity on account of its “better product profile, more viable commercial strategies, and a much lower expense basis” than Veltassa. The drug may also offer more favorable incentives to payors.

“We also think nearer-term competition decreases the likelihood of strategic optionality, as any potential interested party would likely decide to wait for the pending ZS-9 label to better understand the long-term commercial dynamics,” Berens wrote.