On Wednesday, we learnt that the FDA had approved Veltassa, an oral suspension (dissolved in water) treatment targeting hyperkalemia. Despite the approval, shares of Relypsa, Inc. (NASDAQ:RLYP) are down on heavy selling volume, the exact opposite of the response we would have expected on approval. Concurrently, the stock of another company in the space – ZS Pharma, Inc. (NASDAQ:ZSPH) is up nearly 4% on no real news. There is a connection to this seemingly counterintuitive action however; a connection that brings with it an opportunity for a near term biotech play. Let’s take a look.

First then, Veltassa. The drug targets Hyperkalemia, which is the presence of higher than normal levels of potassium in the blood. The effects of the condition can be minimal, as small and insignificant as general malaise or muscle weakness, but they can also be very serious as the high potassium levels can, in some patients, impact heart rhythm. Veltassa is what’s called a potassium binder – essentially it binds to potassium in the digestive system and stops it being absorbed through the GI wall and into the bloodstream. Relypsa submitted an NDA for the drug in October last year, backed up by eight clinical trials, and as mentioned received its approval notice this week. So why is it down? Well, alongside the approval, the FDA stated it required a box warning that recommends taking the drug 6 hours either side of any other oral administration, rooted in the fact that Veltassa binds a host of other drugs and – as a result – would render them ineffective if taken in correlation. There are a number of symptoms associated with Hyperkalemia that require the taking of oral dosages, and this warning will surely limit the ability/desire to prescribe Veltassa by physicians. The FDA also stated it should not be used in life threatening cases (i.e. those cases where the heart rhythm is affected) because of its long onset efficacy.

Now where does ZS Pharma play into it? Well, the company has developed its own treatment for Hyperkalemia, again a potassium binder, that traps potassium ions in the GI tract and removes them by way of excretion. The company submitted an NDA based on a phase III earlier this year, and is working on a PDUFA date for the treatment – ZS-9 – of May 26 next year. So why will this one be any different? If Veltassa got a box warning, and they are both potassium binders, surely ZS-9 will do so as well? Well, not necessarily. ZS-9 is a selective potassium inhibitor. This means it traps potassium ions, but allows other ions to pass through it freely. This means that – theoretically at least – there will be no need to spread it out from other orally administered drugs, so long as they are not potassium based, as it should have no effect on their bioavailability. In turn, therefore, there should be no need for an FDA box warning. Price points for the two therapies are likely to be similar, and so when it comes to a physician prescribing one or the other, they will likely choose ZS-9 over Veltassa based on the selectivity feature alone. This could severely limit the potential market for Veltassa in its hyperkalemia indication.

All this, of course, assumes FDA approval of ZS-9. There is no guarantee, despite strong phase III data, that ZS-9 will ever reach commercialization. In that sense, and for now at least, Relypsa has the upper hand in the hyperkalemia space. Come May, however, this could quickly change, if we see an approval without a box warning. And therein lies our opportunity. This development has essentially opened up the entire market to ZS if it can get approval, whereas prior to the approval announcement it was pitching to compete directly for market share with a treatment that would have had circa 8 months’ head start on commercialization. A risk tolerant investor could take a position in ZS now (as we have seen some do, illustrated by the intraday gains) in anticipation of approval and relatively exclusive access to the hyperkalemia potassium binder market.