Relypsa Inc (RLYP) Implodes on Drug Warning

Relypsa Inc's (RLYP) hyperkalemia drug got a green light from the FDA, but a corresponding warning has the stock diving

Oct 22, 2015 at 10:30 AM
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Relypsa Inc (NASDAQ:RLYP) is taking a tumble (along with this highly scrutinized sector peer), after the Food and Drug Administration (FDA) approved the drugmaker's hyperkalemia treatment -- but with a warning. At last check, the stock was nearly 32% lower at $11, and fresh off a record bottom of $10.26.  Also, with RLYP on the short-sale restricted list, option volume has exploded to 11 times the normal intraday clip.

Today's sharp price action is likely to be met with mixed reactions on the Street. For one, plenty of short sellers are welcoming the bear gap. During the latest reporting period, short interest on RLYP jumped 20.3%, and now accounts for almost 15% of its total float -- or more than a week's worth of trading, at typical volumes.

However, short-term option traders have been extremely call-skewed, per the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.32. In other words, looking at open interest, calls more than triple puts among options set to expire in the next three months. Even more significant, RLYP's SOIR sits at the bottom of its annual range, meaning this call-bias has never been as pronounced as it is now, surveying the previous 12 months.

Also on the bullish bandwagon are analysts. Of the six tracking RLYP, five have handed out a "strong buy" rating, versus one "strong sell." Also, the equity's consensus 12-month price target of $47.33 more than quadruples current trading levels, and registers in heights not charted since March 2014. This could potentially lead to a round of downgrades and/or price-target cuts.

Returning to the news, the FDA said Relypsa Inc's (NASDAQ:RLYP) newly approved pill, Veltassa, can decrease the absorption and effectiveness of other oral drugs. Reacting to this, one Morgan Stanley analyst opined the warning will "significantly handicap the commercial viability and launch of the drug," especially since ZS Pharma Inc (NASDAQ:ZSPH) is already developing a similar treatment.

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