Please ensure Javascript is enabled for purposes of website accessibility

Why Relypsa Inc.'s Shares Are Crashing 16% Today

By Todd Campbell - May 4, 2016 at 12:01PM

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 company has solidified its balance sheet with a big and expensive debt deal.


What: After closing an offering of $150 million in senior-secured loans yesterday, shares of Relypsa (RLYP) are trading lower by 15.9% at 11:00 a.m. EST Wednesday morning.

So what: The company has borrowed $150 million in order to repay $17 million in existing debt, and to fund ongoing operations. The secured loans mature in April 2022, and carry a 11.5% annual interest rate.

Investors may be wondering why Relypsa is willing to pay such an exorbitant interest rate on these loans, when theoretically, it could have raised money from share offerings. Share offerings dilute investors, but they're often favored by young companies because they can be less costly and onerous to quarterly cash flows.

In fact, Relypsa has been actively tapping equity markets for funding, too. At-the-market stock offerings earlier this year increased the company's cash and short-term investments to $285 million on Dec 31, on a pro forma basis. 

Regardless, the money will help support commercialization efforts for Veltassa, a drug that won FDA approval last fall to treat patients with too-high levels of potassium in their blood. Typically, this condition occurs in patients with acute or chronic kidney disease or heart failure, particularly in those who are taking drugs inhibiting the renin-angiotensin-aldosterone system, which regulates blood pressure. Relypsa estimates that there are 3 million patients with chronic kidney disease or heart failure in the U.S. that suffer from this condition.

Now what: It can be costly to launch drugs for major indications like this. Relypsa hasn't partnered with a larger company on Veltassa, so it's footing the bill all by itself.

Previously, rumors circulated that Relypsa could be the target of a suitor; however, the loans may indicate that Relypsa wasn't able to agree on a price, or that those rumors were false.

Relypsa is scheduled to update investors on its first-quarter financial performance after the bell today. Investors will want to see how quickly Valtassa is winning market share and growing sales. Hopefully, they'll gain additional insight into the reasoning behind the size of the company's borrowings and associated interest expense. Until that happens, investors are best off sitting on the sidelines and focusing on other investment opportunities, rather than stepping up and buying this drop.

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.

*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 analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/26/2022.

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

Premium Investing Services

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