RaymondJames: $RLYP Takeout Rumors Abound; Should Relypsa Be Acquired? And for What Price?
Recommendation: We are maintaining our Market Perform rating in the face of renewed
optimism surrounding the acquisition of Relypsa. In an article published this afternoon,
Reuters reported that Relypsa is exploring a sale of the company, although discussions are
“early”. The company is said to be working with Centerview Partners Holdings LLC to evaluate
potential offers from a variety of companies including those that failed to successfully bid for
ZS Pharma and its hyperkalemia drug candidate, ZS-9. If the “early” nature of the discussions is
true, we believe any actual action taken by the company/board would likely occur over the
next several months. This is not the first time we have heard such rumors surrounding a
takeout of the company (in December of last year, Merck, GSK, and Sanofi were all reported to
have an interest).
 Rumors, rumors, and more rumors. Centerview is no stranger to conducting deals in the
biotechnology and life science space, having worked on the now-terminated Pfizer-
Allergan transaction and Pharmacyclics acquisition by AbbVie to name a few. If a RLYP
deal were to occur, we could see the company commanding a respectable premium to
where the stock was trading prior to the rumor leak, although we believe that any
premium paid for the company is likely to be well below the acquisition cost of ZS Pharma
by AstraZeneca (see our initiation for further details), primarily due to the fact that
Relypsa has only the US and Japanese rights to Veltassa (the company licensed the ROW
rights to Vifor Fresenius).
 Why now? While the rumors may be true and the company could get acquired tomorrow
for a premium to even current levels, we wonder, why now? The company is burning
through $60 million in cash per quarter and needs to raise capital. The ZS-9 label will be
known upon approval (May 26) and provide clarity as to a commercial strategy for any
competitor wanting to enter the space. Finally, the acquiring company is obtaining
primarily US (early in the launch, establishing reimbursement, etc.) and Japanese (still
awaiting filing) marketing rights.
 Market value. Shifting a focus to the actual launch metrics of Relypsa’s Veltassa, we
continue to believe that our base case 11-year peak scenario is the most likely course the
drug will take given reimbursement discussions, the current script growth, and the
competition on the horizon from ZS-9. Under this scenario, we believe peak sales of
Veltassa could reach $920 million by 2027 based on current script trends and an analysis
of the CKD and heart failure hyperkalemia markets, yielding a fair value of $16 per share.
Our bull case scenario models a Veltassa peak within 6 years, which, given current
multiples, could drive up Relypsa’s stock price to the mid-$50s.
 Acquisition value. A fair market value and a fair acquisition price are two different
things. If we use AstraZeneca’s acquisition of ZS Pharma for $2.7 billion as a comp (worldwide
rights for ZS-9), we estimate that the US/Japanese rights (as well as the double digit
royalty from the rest of the world from Vifor Fresenius) could result in a maximum
acquisition value of $1.6 billion or approximately $35 per share, representing a 43%
premium from current levels.

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