IMAGE SOURCE: RELYPSA, INC.
What: Shares of Relypsa (RLYP) tumbled 15.14% today after the company reported fourth-quarter financials and revealed that it will need to raise cash.
So what: Relypsa is knee-deep in the launch of its first and only commercial drug, Veltassa. Last fall, Veltassa won Food and Drug Administration approval for use in patients suffering from hyperkalemia, or extraordinarily high levels of potassium in the blood.
So far, Relypsa reports that 1,229 scripts have been written for Veltassa, and while that's an OK start, the revenue being generated from Veltassa sales isn't going to be nearly enough to offset surging expenses associated with establishing a foothold in the market.
Last quarter, the company's revenue totaled only $12 million, yet its operating expenses jumped to $70.5 million from $27 million a year ago.
Now what: Relypsa isn't giving guidance for sales this year, but it does expect to spend between $275 million and $300 million this year and that amount is roughly the same as the $285 million in cash the company has on the books in February.
Absent a big uptick in revenue from Veltassa, the pace of expenses will require management to raise money. Unfortunately, a steep sell-off in the shares makes the most desirable source of capital -- an equity offering -- less palatable. Regardless, the company did sell shares to the public through an existing after-market offering and it can still raise $29.4 million via that offering.
Even so, that extra $29.4 million may not get the job done and that could mean another dilutive offering, a debt issue, or the sale of some of the company's rights to Veltassa in the U.S. is on the horizon.
Overall, the market for hyperkalemia drugs could be big enough to justify taking on a little risk. After all, industry watchers think that Veltassa could eventually have nine-figure sales potential. However, until investors get a bit more insight into the company's long-term cash plans and Veltassa sales ramp, it may be best to watch and wait.
