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No. of Recommendations: 13
For my free choice this period, I took a look at Relypsa (RLYP), a small biopharmaceutical company that just received FDA approval for its first drug (Veltassa) in October.

Veltassa is the first new drug in over 50 years to treat hyperkalemia, which is excess potassium in the body. Potassium is an essential mineral that is required for the health of all cells, tissues, and organs in the human body, and is an especially critical electrolyte for proper functioning of muscles and the heart. Too much potassium can lead to irregular heartbeat and outright heart failure. In fact, one study showed that patients with elevated levels of potassium were 10 times more likely to die over the following 24 hours than those with normal levels.

We primarily get potassium from our diets, and since what we eat fluctuates day-to-day, so does our intake of potassium. Our body very carefully regulates our internal potassium level to keep it at just the right amount (called “potassium homeostasis”), relying on excretion of excess potassium via the kidneys primarily, but also the colon to some extent. If the kidneys become impaired, the body’s reliance on the colon increases.

My impression is that there are two main ways one ends up with hyperkalemia: through chronic kidney disease, or as a side-effect of other drugs being prescribed, especially RAAS (renin-angiotensin-aldosterone system) inhibitors. RAAS inhibitors are shown to be effective in treating chronic kidney disease, preserving kidney function and delaying the progression of renal failure to end stage renal disease. They also are used as a very effective first-line treatment for hypertension, and are often used in patients who have suffered heart failure. Unfortunately, RAAS inhibitors can lead to significant elevation of potassium levels, which reduces a physician’s ability to prescribe them (either in the desired dose or at all).

Up until now, the only approved treatment for hyperkalemia was a drug called sodium polystyrene sulfonate (SPS or the Kayexalate brand name) first marketed in 1958, but it has nasty and potentially fatal gastro-intestinal side effects and is hard to tolerate for more than a few days. It also exchanges sodium for the potassium, which makes it unsuitable for many patients who can’t tolerate an additional sodium load due to their health conditions.

Veltassa -- Relypsa's new drug -- solves these problems. Its side effects are relatively mild. It can be tolerated for much longer terms (demonstrated up to 52 weeks, which was the length of the trial, and likely longer). And it exchanges calcium, rather than sodium, for the potassium. Relypsa’s clinical trials showed that patients on RAAS inhibitors who were also taking Veltassa maintained normal potassium levels, whereas those on placebos did not.

The drug is polymer-based, distributed in packets, and is dissolved in water and then ingested. The polymer beads sit in the colon and bind to potassium, and then are naturally excreted from the body (the beads are too large to be absorbed).

Relypsa estimates that there are about 15.4 million patients with chronic kidney disease who are not able to receive their physician’s desired dose of RAAS inhibitors (or any at all) as a direct result of hyperkalemia risk, as well as another 2.3 million heart-failure patients in the same boat. There may also be another 3 million chronic kidney disease patients who simply suffer from hyperkalemia due to impaired kidney function.

Even though the company has received FDA approval and begun selling Veltassa, a number of key risks remain.

* It remains to be seen how well it be will adopted, though very early indications seem positive and the company has signed a deal with Sanofi to help with marketing and sales.

* Relypsa will need to work to get insurance companies to cover the drug, though here again the company has signed deals with the two largest pharmacy benefits managers, and it will be covered by Medicare as well. But it typically takes up to 6 months for most insurers to make a decision after a new drug is approved, so we’ll have to wait and see.

* The polymer-based approach is difficult to manufacture at scale (you just need a lot more of it per dose), and so the company will have to contract with an increasing number of 3rd-party manufacturers in order to produce enough volume. These all require FDA approval. The company is currently awaiting approval of its 2nd contract manufacturer.

* Veltassa has only been approved in the U.S., so far. Relypsa has done a deal with Vifor Fresenius Medical Care Renal Pharma (VFMCRP or just Vifor Fresenius) — the major cardio-renal player in Europe — to take the drug global outside of the U.S. and Japan, with Relypsa earning royalties and milestone payments. A new drug application will be submitted to Europe in the second half of this year.

* There is likely to soon be new competition from AstraZeneca, who expect FDA approval of their own hyperkalemia drug in May, and Ardelyx has also announced it will be developing two hyperkalemia treatments of its own.

* There is always the risk that adverse side-effects show up in the general population that didn’t manifest in the clinical trials.

* Relypsa itself is loss-making, and expects to be so for a while. Management originally said they have about 12 months worth of cash to burn, but have now decided 2016 expenses will be higher, and they will certainly need to raise capital. The company is clearly in transition, shifting from research to commercialization, along with all the risks that entails. One interesting statistic: of the company’s 406 full-time employees at the end of 2015, 291 of them joined in 2015.

Finally, I think it’s worth mentioning that Relypsa doesn’t think of itself as a one-trick pony, but rather as a company specializing in the development of these polymer-based therapies. They acquired an exclusive license to a polymer pharmaceutical development technology platform that they believe gives them a competitive advantage, and they plan to continue trying to develop new drugs. Here’s how the CEO described the company at a recent conference:

We are a company that specializes in the discovery and development and commercialization of polymeric drugs. The core technology is one that allows us to do what is essentially a high throughput screening and optimization of these polymeric compounds.

But, as far as I can tell, they have yet to come up with anything at all yet, and even Veltessa was acquired as a pre-clinical asset from the company that developed the technology platform. So in many ways, the business has yet to successfully execute on the vision it has for itself. The risk is that, even if Valtessa does prove to be meaningfully successful in the marketplace, the company wastes all the profit by dumping it into an unproven research organization.

I also want to mention one other thing that I found interesting while researching this company. My only real experience investing in clinical-stage biopharma companies was Exelixis, which was a popular TMF pick at one point. My thinking was that buying shares during the clinical stages obviously represented much more risk (the drug may never get approved), but should translate into much more reward if things went well. That was not my experience, however. Every time the share price began heading up after some milestone or result, the company would dilute shareholders with secondaries, especially after the drug was approved and the company needed to transition to a commercial organization. The result was that it was possible to buy shares after approval for less than prior to approval, despite far less risk. What I found interesting is that the same thing was true for Relypsa. Had you bought in early 2014, you would have paid over $50/share, whereas now — after FDA approval and even encouraging initial sales — shares can be had for under $15. I think there might be a lesson there ;-)

Ratings

Veltassa sounds like a nice little drug, and I hope Relypsa does well, but it’s not for me. There is simply too much risk and uncertainty, especially from looming competition. Ultimately, I suspect that Relypsa — if it’s not bought out — will have to prove it can develop its own drugs using its technology platform, and I just haven’t seen any evidence of that yet.

My hypothetical real-money portfolio rating: 2 stars (out of 5 possible).

My CAPS call: thumbs down (underperforms the market over the next year or so).


Neil
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