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Relypsa, Inc.

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PREFACE
Relypsa (RLYP) is a small-cap clinical stage biopharmaceutical company that a wild week based on three news items: two were unsubstantiated rumors and one was fact that was totally ignored.

NEWS 1
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. This happened on April 7th:



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. Relypsa's treatment for hyperkalemia is the first new medicine in fifty years but ZS Pharma has similar compound ready for an FDA ruling this summer.


Reuters reported that the firm was exploring a sale following a number of overtures from potential buyers, according to people familiar with the matter.


What was yet more bullish was the firm that was named: CenterView Partners. Business Insider penned an article in November, "This little bank is cleaning up in 2015's hottest sector for M&A." The article reads a quote from Jeffrey Nassof, vice president with Freeman & Co:


Then on Friday, the stock went into free fall.

NEWS 2
Benzinga reported "Relypsa Said To Have Dropped M&A Advisor Centerview Partners."


Relypsa's investor relations finally came back with a statement, which it had not made when the first news broke:


Here's what the stock did on Friday after that news:



And, finally, here's some actual news, that nobody paid attention to.

NEWS 3
Relypsa has been releasing monthly prescription sales data on the 15th of every month and as luck would have it, last Friday and the rumor mill fell on the 15th. Here's what we learned about sales of its drug Veltassa (from the firm's 8-K filing):



Those are total numbers and the company also released the averages by week:



We can see the slightly lower growth numbers by week than by month because March had two more days than February.

REALITY
The reality of the last two weeks for Relypsa is simple -- it's those two tables we displayed above. The rest is rumor. While the firm has had buyout rumors for a while after its competition drug ZS Pharma was bought for $2.7 billion, that's all they are -- rumors. As of this writing, Relypsa has a market cap of $803 million.

When it all comes down to it, the bullish thesis, regardless of a takeover still has legs.

THE BULLISH THESIS CONTINUES
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-eligible patient population being covered by Medicare (Street Insider).

THE FUTURE 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 out loud 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):



CONCLUSION
Even at an $800 million market cap, 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.

WHY THIS MATTERS
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The author is net long Relypsa.

Thanks for reading, friends.

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