What: Shares of Relypsa (NASDAQ:RLYP), a small-cap clinical stage biopharmaceutical company, were down as much as 36% in early trading today after the company announced that it has won its first FDA approval, but a black-box warning label attached to the approval appears to have investors fearing the worst.
So what: The company has announced that its first drug, named Veltassa, has been approved for sale in the U.S. to treat hyperkalemia, or high levels of potassium in the blood. The company expects to make that drug available to patients starting in the first week of January 2016.
While FDA approvals usually send a stock soaring higher, investors appear to be spooked by the black-box warning that was included. The warning noted that Veltassa binds to other drugs that are taken orally, which could decrease their absorption and potentially reduce their effectiveness, so the approval stated that no other oral medications should be administered to patients at least 6 hours before or after Veltassa is taken.
Now what: News of the black-box warning also appears to have ripple effects beyond Relypsa's stock, as shares of ZS Pharma (UNKNOWN:ZSPH.DL) are soaring higher today as a results of the news. ZS's lead product candidate, ZS-9 which is currently in late stage trials as a treatment for hyperkalemia, might now hold a clinical advantage over Veltassa if it manages to grab an approval next year that does not come with with the same warning.
While the the warning is certainly a case for concern, it's unknown at this point what kind of effect it will have on sales of the drug, so it's hard to say whether or not this sell-off is warranted. For what it's worth, prior to its approval, analysts were projecting that peak sales of Veltassa would run around $1 billion per year, so only time will tell if those kind of sales results are still possible.
Brian Feroldi has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.