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AstraZeneca PLC (NYSE:AZN)

In a big blow to British AstraZeneca PLC (NYSE:AZN), the FDA issued the dreaded Complete Response Letter, effectively rejecting potential blockbuster ZS-9 for hyperkalemia. There were no problems with safety or efficacy, but with the manufacturing process. Annoyingly, as the CRL is not public, we can only guess as to what it says. What we do know is that there was no problem with the safety or efficacy data itself as the company was not requested to do any additional trials. This itself is a big plus, because as we said previously:

…there is a potentially serious problem with the study. That is, it was not designed to detect serious adverse events. These include vital signs, electrocardiograms (EKGs) that can show evidence of disturbed potassium levels, or very low magnesium levels. There are analyses of these data, but they are descriptive only rather than conclusive. The FDA’s decision on ZS-9 will not come down to the efficacy results, which are definitely positive. It will come down to safety issues, because when you’re dealing with serum potassium, you’re talking life and death. If something goes wrong and potassium levels get too low, a patient can quickly die.

At least we know that the FDA has no problem with the safety and efficacy data, so whenever the manufacturing issues are cleared up, whatever they are, the path to approval will be cleared. This is the same thing that happened to Opko Health (NASDAQ:OPK) and its shares were not much affected either. The combination of a rejection with the relief of no new trials needed has been the tug of war for AstraZeneca shares that have essentially remained unchanged since the news.

At this point then, we do know that eventually ZS-9 will be approved. It will just take another year or so. Lightning quick, that FDA. In the meantime the stock is low, the dividend is as high as you’re ever going to get for a biotech stock, and approval will eventually happen, probably at some point next year. It’s easy to focus on the negative here, but the positive is equally important.

Relypsa Inc. (NASDAQ:RLYP) jumped 8.8% on the news knowing that its own hyperkalemia drug will not have to compete with ZS-9 for another year. That jump will likely not be sustained for long, because eventually investors will figure out that ZS-9 will make it to market, and when it does Relypsa will be in the same disadvantaged position as before.