Is There Any Upside Potential Left Here?

Jordo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Keryx (NASDAQ: KERX) announced successful top-line results from the long-term Phase 3 study of Zerenex (ferric citrate), its phosphate binder drug candidate based on ferric iron, for the treatment of elevated serum phosphorus levels, or hyperphosphatemia, in patients with end-stage renal disease (ESRD) who are on dialysis.  

Results

Zerenex met the primary endpoint of the study showing a change in serum phosphorus that was statistically significant when compared to a placebo over the four-week Efficacy Assessment Period. 

Additionally, Zerenex met the key secondary endpoints of increasing ferritin and transferrin saturation (TSAT) and reducing the use of intravenous (IV) iron and erythropoiesis-stimulating agents (ESAs) versus the active control over the 52-week Safety Assessment Period. This study was the concluding portion of the company's Phase 3 registration program, which was conducted under a Special Protocol Assessment (SPA) with the Food and Drug Administration (FDA).  It has already reported the positive final data set from the short-term study component of this Phase 3 registration program. 

As agreed with the European Medicines Agency (EMA), the treatment difference between Zerenex and Renvela (sevelamer carbonate) at Week 12 of the Safety Assessment Period in terms of change from baseline (Day 0) in serum phosphorus was also analyzed and the non-inferiority endpoint versus Renvela® was successfully achieved.  The company now expects to submit a New Drug Application (NDA) with the FDA and a Marketing Authorization Application (MAA) with the European Medicines Agency (EMA) in the second quarter of 2013.

Keryx also said that

"Zerenex is also undergoing Phase 2 development in the U.S. for the management of phosphorus and iron deficiency in anemic patients with Stage 3 to 5 non-dialysis dependent chronic kidney disease.  The company holds a worldwide license (except for certain Asian Pacific countries) for Zerenex (ferric citrate) from Panion & BF Biotech, and, in turn, the Japanese rights are sublicensed to Japan Tobacco (JT) and Torii Pharmaceutical. In January 2013, JT announced the filing of its NDA with the Japanese Ministry of Health, Labour and Welfare for marketing approval in Japan for the treatment of hyperphosphatemia in patients with chronic kidney disease (CKD)."

Market Potential For Hyperphosphatemia Treatments

In the United States, the data from the U.S. Renal Data System shows that there are roughly 600,000 patients with end-stage renal disease, or ESRD, and the number is expected to rise in the future. The majority of ESRD patients (over 400,000) require dialysis. 

Globally, there are approximately 2.8 million patients with ESRD, with the majority of ESRD patients (over 2 million) requiring dialysis. Hyperphosphatemia is the result of phosphate retention in patients with ESRD on dialysis and is associated with secondary hyperparathyroidism, renal osteodystrophy, soft tissue mineralization, and progressive renal failure.

ESRD patients typically require treatment with phosphate-binding agents to lower and maintain serum phosphorus at desirable levels. The need for alternative phosphate-binding agents has long been realized with the increasing prevalence of ESRD as well as deficiencies with current therapies. The market for phosphate binders to treat hyperphosphatemia in ESRD patients is reaching $1.5 billion worldwide, and Zerenex has the potential to be an effective and safe treatment.

Impacts Of Phase 3 Results

Shares of Keryx have gained substantially after the drug developer announced phase 3 results. The company said the drug also improved iron levels in patients, reducing the use of intravenous iron and other agents designed to treat anemia and this should differentiate Zerenex from similar treatments on the market. Keryx currently has no products on the market, and Zerenex is its most advanced candidate. 

The impact of the decrease in the need for intravenous treatment because of Zerenex turned out to be much better than anticipated.  Stifel Nicolaus analyst Stephen Willey said that his estimate for peak annual sales of the drug has more than doubled to a range of $550 million to $600 million. The share price has more than tripled since the start of the year. The target price was raised to $11 at Burrill Institutional Research from $6 based on the basis of a discounted revenues and earnings per share valuation methodology.

Competition

The leader in the phosphate binder market is polymer-based Renagel/Renvela, which is made by Genzyme, a division of Sanofi (NYSE: SNY), and generates roughly $800 million in annual revenue.  Sanofi is a French health care giant with a market capitalization of around $130 billion that reported growth in net sales in each of the first three quarters of 2012 year on year, although EPS declined 5% on a constant currency basis.  The company is struggling with its own patent cliff problems because of the loss of exclusivity of Plavix and Avapro in the United States. Sanofi expects full-year 2012 EPS to be 12%-15% lower than in 2011.

It is followed by lanthanum-based Fosrenol, which generates over $300 million annually in revenues and is manufactured by Shire (NASDAQ: SHPG).  The potential for the build-up of lanthanum is a limitation on its ability to be used long-term. Irish drugmaker Shire PLC has said that it expects its net income to meet the estimates on Wall Street for 2013.

The company thinks that earnings grew at least 10% in 2012, and believes it will meet analysts' estimates of $6.69 per American depositary shares. This is followed by calcium-based PhosLo, on which patent protection has expired, though many patients start by using a generic version of PhosLo because it is affordable.  However, the risk of hypercalcemia over time means that patients switch in due course to other binders. It is estimated that around 25% of patients on phosphate binders switch brands each year, and this provides plenty of opportunities for a new binder to acquire market share.  To be successful, Zerenex has to demonstrate sufficient differentiation for its product over the competition while proving that it is more cost effective.

Conclusion

Keryx is currently trading around $8.49 a share and, despite the recent dramatic increase, I believe that there is still upside potential here. The company is also moving to beef up its financial position and has announced that it has commenced a $55 million underwritten public offering of shares of its common stock. The company intends to use the net proceeds from the sale of common stock to finance pre-launch and launch inventory build-up, pre-commercial, and commercial activities related to Zerenex, and for other general corporate purposes. I expect the next major price catalyst to be the receipt of marketing approval in Japan. With the usual caveats about the high-risk of investing in clinical stage biotech companies, I would urge you to consider buying Keryx if you are looking for a reasonable biotech investment.


jordobivona has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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