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Relypsa, Inc.

PREFACE
Relypsa (RLYP) is a small-cap clinical stage biopharmaceutical company with a market cap of ~$700 million. The company has a single drug named Veltassa that treats hyperkalemia, which is a condition of fatal levels of potassium in patients with chronic kidney disease or heart problems.

Sales of Veltassa officially started in January of this year and in total it is expected to have an addressable market of 2.4 million to 3 million people and to reach peak sales of $1 billion within several years.

BREAKING
Relypsa just released its first ever sales update. I was on the conference call and Periscoped it here: Relypsa Conference Call. Here's what we know:

The number of patients who received a free starter-supply of Veltassa, outpatient prescriptions filled and hospital units sold since the launch on December 21, 2015 through February 12, 2016 are detailed below.


The weekly average number for all three groups increased 86%, 168% and 50%, respectively for free starter-supply, outpatient prescriptions and hospital units.

The stock has enormous short interest. Here's the the accumulation:


The drug is doing quite well, awareness is high, demand is high and the drug is welcomed as a much needed alternative. The immense short interest makes for a rather uncomfortable disconnect between the business and the stock.

Every time we get more data on the company, it reads positive. The 409 scripts in Janaury is larger than all seven other drugs the company considers within a comparable specialty. In fact, the largest was 300, the rest were near 100. In other words, Relypsa views the first month as essentially better than anyone has ever done before in this field. But, the stock market disagrees.

STOCK
The stock is tumbling after hours, trading as low as $14.32 after closing at $16.78. The stock's 52 week high, which came before its drug was approved by the FDA, was $42.26.

At the same time the short interest has accumulated, the closing stock price of $16.78 compares to the median price target from all 10 Thomson/First Call analysts is $45, which is a staggering 160% higher than the current price.

Further, Wedbush has a price target of $86, H.C. Wainwright has a price target of $63 and Oppenheimer has a price target of $55. Morgan Stanley stands famously as the only firm with a sell rating on the stock.

MORE RESULTS
Agreements have been signed with Express Scripts and CVS Caremark, the two largest pharmacy benefit managers in the United States.

Centers for Medicare & Medicaid Service (CMS) have added Veltassa to its calendar year 2016 Formulary Reference File on Thursday for all three dosage strengths of Veltassa listed on the label. The decision by CMS is both positive and early, with initial expectations calling for a March decision.

This affects about 1.8 million of the 3 million-plus Veltassa-eligable patient population being covered by Medicare (Street Insider).

WHAT'S GOING ON
The Relypsa story is one that seems so bullish and at the same time so steeped in fact that it will feel almost impossible. At the same time, the stock market is never 'wrong,' and the price is tumbling.

THE FUTRE VALUE
Analysts predict that Relypsa's drug will reach peak sales in the United States alone of $1 billion. That's not to speak of Japan, and Europe. As of the close of trading today, Relypsa is trading at a confounding 0.4 price to future sales. The IBB biotech index has an average price to sales of 6 to 1. The stodgy S&P 500 has a price to sales of 2 to 1.

Now, large cap pharma AstraZeneca paid $2.7 billion to takeover ZS Pharma for its hyperkalemia drug candidate. Yes, while we can play the "price-to-sales" game all we want, a major pharma company has said outloud with its pocket book that just the chance of a drug approved in a year to treat hyperkalemia is worth more than $2.7 billion.

Further, a Citigroup analyst said (emphasis added):


BLACK BOX
It turns out that on news of the drug approval, Relypsa stock actually dropped nearly 40% in one day because the approval was met with a black box label -- the FDAs strictest warning.

On the conference call, Relypsa announced it would submit its drug-to-drug (DDI) interaction results,which were quite strong, to the FDA by mid-year and they expect the FDA to respond by year end.

Relypsa aims to have the six hour window cut down to three, to have the data from the DDI study included in the packaging, and to have the black box warning removed, and turned into a more general safety indication.

CONCLUSION
At a $550 million market cap as of the after hour's trade, the argument made by the vast majority of Wall Street analysts appear to be falling on deaf ears. The stock price is now controlled by the massive short interest.

But, at CML, we still hold this company as one of the few gems in small cap biotech with an approved drug, accelerating sales and a large addressable market. It had the best first month ever for a drug in its category, the company refuted accusations that it would go to the equity market to raise money, and the weekly sales gains are tremendous.

WHY THIS MATTERS
Relypsa is still a CML Pro 'Top Pick.' Patience is the better of valor -- this company has an organic growth trajectory that appears to be quite steady.

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The author is net long Relypsa.

Thanks for reading, friends.

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