Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Why Relypsa's Stock Jumped 72% in July

By George Budwell - Aug 10, 2016 at 3:06PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The biopharma became the latest target in the ongoing healthcare M&A bonanza.

Image source: Getty Images.

What: Shares of U.S.-based Relypsa ( RLYP ), a biopharma developing polymeric medicines for disorders of the gastrointestinal tract, gained more than 72% last month, according to data from S&P Global Market Intelligence. The drugmaker's monthly surge was triggered by a $1.53 billion all-cash buyout agreement with the Swiss-based Galenica Group. Upon closing in the third quarter of this year, Relypsa will become the the U.S. headquarters for Galencia's Vifor pharma business unit, whereby enabling a planned split of the company by 2017. 

RLYP Chart

RLYP data by YCharts.

So what: The terms of this deal received a mixed reception among Relypsa's shareholder base. The apparent reason for the discontent is that the Street's high-end price target (before this deal was announced) implied that Relypsa's market cap could grow organically to around $2.43 billion, or around 59% higher than Galencia's tender offer, over just the next year.

The long and short of it is that some analysts thought that Relypsa's FDA-approved treatment for hyperkalemia, Veltassa, would have an easier time capturing an outsized portion of this projected $6 billion market following the rejection of AstraZenca's ( AZN -1.02% ) competing experimental drug ZS-9 last May. 

Now what: As Astra's rival hyperkalemia medicine was rejected for manufacturing problems, and reportedly not for a lack of efficacy and/or safety concerns, there's a good chance that ZS-9 will reach the market within the next year at the latest.

Although it's impossible to tell whether this delay would provide Relypsa enough time to build a competitive moat strong enough to withstand the entrance of a drug backed by a major pharma like Astra, we do know that Veltassa's current growth rate -- without any major competition to speak of at the moment -- puts it on track to generate around about $200 million in revenue for the drugmaker by the end of 2018. 

Viewed this way, this deal looks more than fair, especially with Astra's experimental drug still in the picture. The bottom line is that it's unlikely that this deal will get scuttled over concerns that management failed in its fiduciary duty to shareholders, meaning that investors probably shouldn't hold out hope that a higher bid is coming down the pike.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Relypsa, Inc. Stock Quote
Relypsa, Inc.
RLYP
AstraZeneca PLC Stock Quote
AstraZeneca PLC
AZN
$54.23 (-1.02%) $0.56

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
624%
 
S&P 500 Returns
140%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/06/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.