Expert Financial Analysis and Reporting

I have previously written that the Veltassa launch sales figures are not likely to excite investors for some time. However, there is a major catalyst aside from this that could move the stock and that is the May 26th PDUFA date for ZS-9. Here is the issue. The mechanism of action of ZS-9 exchanges sodium for potassium and this can cause an increase in sodium in the body. Many or most of the patients eligible for potassium lowering drugs have high blood pressure, congestive heart failure or chronic kidney disease and it is possible that ZS-9 could worsen their condition. It is widely accepted that these types of patients should restrict their sodium (salt) intake.

I could go into s detailed explanation of my thinking, but let me distill it. There is not enough clinical data or experience to determine if ZS-9 increases risk in these patients. It may or may not be the case. We just don’t know, but the theoretical risk is well understood. With Veltassa there is no such risk. The issue that FDA is dealing with is that there is already an effective drug available and that is Veltassa. What is the incentive for the FDA to approve a second drug that while effective may cause patients harm?

I would be surprised if the FDA does not place major emphasis on this sodium retention issue. I think that there are a number of things that they could do. The best outcome for ZS-9 would be language perhaps in the precautions section of the label that says that ZS-9 might cause a patients high blood pressure, congestive heart failure or chronic kidney disease to worsen, but this has not been established. This would be a win for ZS-9 and I think that it could put substantial pressure on the stock of Relypsa. It would not change my Buy rating as I think that this market is so large that both ZS-9 and Veltassa could be blockbusters.

In my opinion, it is more likely that the FDA will put a black box warning about the salt retention or restrict ZS-9 to acute use or both. In this scenario, Veltassa could own most of the market and this would trigger a major upward move in the stock. The agency might also ask for a longer term safety study before approving the drug, which would also boost the stock of RLYP. It is this potential that causes me to recommend the stock.

There is some potential that the FDA may extend the PDUFA date or issue a Complete Response Letter. The FDA is overworked and these tactics give it more time to review the drug if they need it.