The long-awaited September meeting of the FOMC takes place this coming Thursday. Market participants are unusually attuned to this particular meeting due to the ongoing debate over when the Federal Reserve will raise its funds rate – and interest rates as a result.
Fed meetings have typically been non-events for the last few years as the body has held interest rates at extreme lows. Below is a fantastic illustration from Google Trends of how that’s changed in the last year as the Fed’s qualitative easing program came to an end and hints of an interest rate hike began to trickle out.
Data Source: Google Trends
Clearly, investors are paying attention. Note that the chart above does not show absolute search volume, but total searches for the term relative to the total number of same-term searches on Google in the last dozen years.
Since the flash crash last month, the S&P 500 has been slowly winding up, setting up for a break – in one direction or the other – in conjunction with the FOMC meeting. This tightening trading range is apparent below.
We’ve written about the interest rate event at PropThink.com in the past month, and we published a top-down look at the current state of the markets this Wednesday. The post carried with it updates on some of our current coverage universe as well.
ZS Pharma (ZSPH) was the subject of rumors mid-week that Switzerland-based Actelion (ALIOF) had made an initial approach regarding an acquisition. In a unique twist, both companies confirmed preliminary discussions shortly thereafter, sending ZSPH from a pre-rumor $57 to a high of $85 on Thursday.
ZS develops ZS-9, a potential treatment for high potassium, known as hyperkalemia. ZS Pharma filed a New Drug Application with the FDA this year and has a PDUFA decision slated for next May.
According to ZS Pharma’s corporate statement this week, the company “has participated in preliminary discussions with Actelion Ltd. (ALIOF) regarding a potential strategic transaction. ZS Pharma regularly and routinely explores opportunities with various strategic partners and will continue to do so. These discussions may or may not lead to any transaction. ZS Pharma does not intend to comment further on market speculation or disclose any developments unless and until it otherwise deems further disclosure is appropriate or required.”
The acquisition is particularly relevant for biotech investors because ZS-9 has a close competitor potentially months from approval, and ZS-9 is likely to be the second treatment for hyperkalemia to market in the next year. Competitor Relypsa (RLYP), which develops its own hyperkalemia drug patiromer, has a PDUFA decision approaching in October, 7 months ahead of the ZS-9 decision.
ZS Pharma ended the week with a market value of $1.9 billion; Relypsa, $1.04 billion. Relypsa bulls contend that a $2.5B+ acquisition of ZS Pharma offers great validation of what patiromer and Relypsa should be worth, roughly 2-3x upside by that logic. But while RLYP reacted positively to the ZSPH/Actelion news this week, the alternative read-through is that Actelion took a look at Relypsa in the hyperkalemia space and passed, despite that its patiromer should be first to market.
Yet again, biotech investors will be watching for a deal to get done over the weekend, setting Monday morning up for some meaningful newsflow.
