Keryx Biopharmaceuticals, Inc. (NASDAQ:KERX)
The 31st Annual J.P. Morgan Healthcare Conference Call
January 10, 2013 12 PM ET
Ron Bentsur – CEO
Matt Lowe – JP Morgan
Matt Lowe – JP Morgan
Welcome, everybody. My name is Matt Lowe with the JP Morgan Biotech team. Our next company to present is Keryx Biopharmaceuticals. We will have a breakout afterwards in the Yorkshire Room. If I could just ask everyone to please turn their cellphones on silent for the presentation.
And without further ado, I will hand over to the CEO, Ron Bentsur. Thank you.
Thank you very much. I want to thank JP Morgan for inviting us to present at this very important conference, and I want to thank you all for attending. With no further ado, I will go into the presentation. I will be making, however, some forward-looking statements. So I do encourage anyone who’s interested in the company to read our publicly available disclosures from the 2011 10-K and from the third quarter 2012 10-Q, and in particular the risk factors that appear in those documents.
So, with Keryx, we’re talking about a product called Zerenex. Many of you, obviously, are familiar – very familiar with the story. I can look around the room, and there are a lot of familiar faces here, but there are also, maybe some of you that are new to the story. So, we’re talking about a product called Zerenex, it’s comprised of ferric citrates, so it’s an iron-based phosphate binder, for the treatment of hyperphosphatemia or elevated phosphate levels in dialysis patients. The Phase III program, in end-stage renal disease, these are patients on dialysis, is being conducted pursuant to a Special Protocol Assessment.
The top line data, from the long-term Phase III study, which is the last remaining piece, under the obligation per the SPA, before we can file the NDA in the U.S. and MAA in Europe, the top line data from the study should be available any day, any week now. I’ve been advised by our clinical team that we’re really at the tail-end of the process. This is all in the hands of the CRO, we do not have access to the data, we have not seen the data and we just have to let the CRO do their thing, run their process and we will get the data when it’s completed. And as I mentioned, once we have the top line data, we will do our utmost to file the U.S. NDA and the European MAA as soon as possible thereafter.
This week was actually a very exciting week for us because our Japanese partner for Zerenex, Japan Tobacco, Torii announced that they filed their new drug application in Japan for Zerenex in chronic kidney disease, which includes both dialysis and predialysis. And this filing is based on several successfully completed studies in both of these areas, dialysis and predialysis. And obviously, we’re extremely excited by this announcement.
This filing also triggers a $7 million payment to us and just to shed a little bit of light on the Japanese phosphate-binder market, currently it’s about $350 million, growing at about 6%, 7% year-on-year. And in terms of the partnership that we have with Japan Tobacco, we still have $65 million in remaining potential milestone payments, and we’re also due double-digit royalties from sales that they generate in Japan. So, we’re very excited and we congratulate our partner on this tremendous accomplishment.
Another piece of good news, which came out last year was very surprising – pleasant surprise and that was – that evolved by way of the fiscal cliff discussions, and we were very surprised to realize that as part of these discussions, basically per the American Taxpayer Relief Act, the bundle for the oral drugs in the dialysis setting, which is the phosphate-binders and the PTH drugs, the bundle was actually pushed out by another two years to January 20, 2016. This gives us, we believe, tremendous runway to walk in there through the front door based on meritocracy, based on the qualities of the product and establish our position in the dialysis setting and, therefore, we’re very excited by this delay in the implementation of the bundle by two years because we believe it significantly enhances the market potential for our drug in the U.S.
Let me talk a little bit about hyperphosphatemia. So hyperphosphatemia, as many of you know, is elevated phosphate levels. It has to be controlled in these dialysis patients, otherwise, these patients start to encounter cardiovascular conditions. The worldwide phosphate binder sales are about 1.5 billion and growing. There are three phosphate binders that are on the market, PhosLo which is marketed by Fresenius, Renagel/Renvela marketed by Genzyme and now Sanofi, and Fosrenol which is marketed by Shire. But all three have significant shortcomings and I’ll discuss those in a moment. Renagel/Renvela, the Genzyme product is the market leader generating around $735 million per year globally.
This is a chart that was actually generated by Fresenius, which shows you the projected growth in the dialysis population worldwide. And that number is essentially expected to double within the next decade. Currently, the worldwide dialysis population is just over 2 million patients. Most of those, obviously, are in North America, Western Europe and Japan. But as the emerging markets make westernized medicine, if you will, more accessible to the populations there that patient population – the worldwide patient population is going to grow by leaps and bounds. In fact, as I mentioned, it’s expected to double to around 4 million patients by the turn of the next decade.
Another thing that’s very important to keep in mind, when you think about these dialysis patients, and that’s where I start to talk about the potential differentiation for our drug is the fact that there’s a tremendous amount of anemia that’s associated with dialysis. These patients lose blood every time they go through the dialysis procedure, which is three times a week. Their kidneys, obviously, do not function, so the red blood cell production inherently is very impaired.
As a result, many of these patients become iron-depleted and anemic, and consequently they all need IV iron and/or EPO injections to address that anemia problem. And what we’re saying is that intuitively an iron-based phosphate binder such as Zerenex could potentially over time increase the iron stores in these patients, which is measured by ferritin and TSAT scores predominantly and again those are the key iron parameters that determine whether patients are eligible to receive IV iron injections and subsequently that should have an effect on the level of EPO that those patients need.
So again, all we’re saying is that intuitively an iron-based phosphate binder that is used everyday could have some iron absorption involved with it which could be a very beneficial thing for these patients because it can spill over into being able to generate cost benefits on the anemia front for these patients.
This is essentially a slide of the competitive landscape the way it stands today. So first line therapy in the U.S. is usually PhosLo. The issue with PhosLo is that it’s comprised of calcium, so patients encounter hypercalcemia very quickly and they must be switched off.
Second line mainstay in the U.S. is Renagel/Renvela, the problem there is the high pill burden that is the number one cause of non-compliance associated with Renagel/Renvela. On average, patients need to take 10 to 12 of these pills per day. When you go one or two standard deviations north of that, you’re talking about 15,18, 20 pills per day. I think you all agree that that becomes extremely chaotic very quickly for these patients. So, there is a serious issue related to Renagel/Renvela, as it relates to the pill burden and the non-compliance associated with that.
Third line in the U.S. is typically Fosrenol. Fosrenol’s main drawback is the fact that it’s lanthanum-based, and there is the risk of lanthanum accumulation and the potential sequelae that may be associated with that. In addition to that, Fosrenol is a chewable, which is by far the less preferred route of administration in the dialysis setting.
So, where do we come in? We think we can come in with a slightly better pill burden advantage, possibly even more than slightly better, and of course we’re not calcium-based, we’re not lanthanum-based. So, we don’t think we’re going to have the safety overhangs associated with PhosLo and Fosrenol. In addition to that, we’re not a chewable, we’re on oral, which is again the preferred route of administration, so based on a safety convenience compliance profile alone, we think we can be fairly well entrenched in the market and establish our position.
But it’s really the far right column, which is the iron absorption column, which could set us apart from the rest of the pack and with our drug and the previous clinical data that we’ve seen with our drug that is certainly possible. So, when we talk about the potential role of Zerenex, and you think about the safety convenience compliance profile of our drug versus the standard of care, and you take into account the tremendous amount of patient attrition and rotation that occurs in the market, we think we can capture a lot of those patients that drop-off of the other drugs and at a minimum displace Fosrenol as the go-to third line therapy in this market.
And just to shed light on Fosrenol sales, Fosrenol generates $325 million a year globally about $80 million or $90 million of that coming from the U.S. with a drug that has major safety overhangs, predominantly the lanthanum accumulation issue. But it’s really the ability to set a new paradigm that we’re truly interested in with Zerenex, and that is through the iron story. And in fact, this is the only phosphate binder that has the ability to transcend into another dialysis category, that is anemia, and possibly generate benefits on that front.
So, when you think about it, you’ve got phosphate binders that these patients need anyway, why not use a phosphate binder that binds the phosphate very effectively, hopefully on a safety, convenience, compliance platform will be just as good if not better than the other phosphate binders and can also generate a potential benefit.
And the final sub-bullet really highlights the economic motivation that these dialysis organizations should have as it relates to Zerenex, because now that the oral drugs are being excluded from the bundle at least for another two years, while the IV drugs continue to be in the bundle and the pricing pressure on those is not going to let up, in fact, it’s probably be just going to mount going forward. Why would they not try to use a drug that they need anyway, a phosphate binder, while at the same time a drug that can potentially generate benefits on the anemia front and these are cost benefits that they so desperately need under the bundled environment? So that’s really the thesis that we’re thinking about for Zerenex.
Just to talk very briefly about the Phase III program, under the SPA. That program’s comprised of two studies. The short-term study’s behind us, successfully completed about two years ago and the long-term study is the one that’s finishing up right now and that is a 58-week safety and efficacy study.
And just to remind people what the design of that study is, so 441 patients were randomized. They all went in to a two-week washout. After that two-week washout, they were randomized two-to-one to either ferric citrate, Zerenex, our drug or an active control. Then they went into a 52-week safety assessment period and that is where we also measured the head-to-head iron parameters versus the active control.
After that 52-week safety assessment period, only those patients who were on Zerenex during the 52-week safety assessment period, so basically two-thirds of the patient pool stay for another four weeks, whereby they get randomized one-to-one to either stay on Zerenex or receive a placebo for that four-week period. And, there we need to show a separation of the curves that is actually the primary endpoint of the study that efficacy tail that I just described. And, all these iron storage parameters and iron parameters, ferritin, TSAT, cumulative IV iron use, cumulative EPO use are all predefined secondary endpoints in the long-term Phase III study, so the top line results will include these parameters.
With that, I’m going to switch gears and talk a little bit about chronic kidney disease. We actually believe that Zerenex has the potential to become the first phosphate binder to get approved in predialysis. There are no phosphate binders approved in the U.S. in predialysis and the reason for that is very simple. We think that Zerenex has the ability to provide that dual approach. One is to bind the phosphate; the other is to address iron deficiency anemia.
We all know that the FDA views phosphate as being important. However, it’s not important enough. It’s considered a marker, not an approvable endpoint in chronic – in CKD predialysis as opposed to dialysis where obviously it is an approvable endpoint. So, clearly the FDA wants to see additional benefits. And as I mentioned, there are no phosphate binders approved in the U.S. And as I said, we believe that Zerenex may become the only phosphate binder that can provide that additional benefit and that is the iron benefit.
And, just to highlight the size of the patient population that we’re talking about, these are all predialysis patients, stages III to V chronic kidney disease, who are iron deficient anemic. We’re talking about a patient population, north of 1.5 million. So it’s essentially threefold or fourfold the dialysis population which is about 400,000 in the U.S. So, as you can imagine, it’s a very large addressable patient population. There are no phosphate binders approved and, in fact, there are no oral iron supplements approved.
So, one question that you may ask is, okay, so if there’s so many patients walking around with iron deficiency anemia in the predialysis setting, why aren’t IVs used more often, whether it’s IV iron or ESAs? The reason for that is, the fact that there’s a major logistical distortion between the need and what’s available. Very few predialysis centers in the country actually have IV equipment.
In fact, less than 20% of the predialysis, basically, offices in the U.S. have IV equipment. So, as you can see, 80% don’t, which means that a lot of patients fall between the cracks. A lot of patients walk around with iron deficiency anemia, and it’s not until they become very severe, that is when they get the referrals to go to a hospital or a hematologist to get their IV or EPO injections, or whatever the case may be.
So, we want to try to capitalize on that distortion, and keep in mind that there are no oral iron supplements approved, and the ones that are prescribed, the ones from the GNC, are just not very effective. So we think that there’s a very unique window of opportunity here. So what we did was we started a U.S. Phase II study about a month-and-a-half ago to evaluate Zerenex not just as a phosphate binder, but also as an agent to address iron deficiency, so we’re actually looking at ferritin, TSAT, and phosphate as the key endpoints for the study and we’re looking to randomize 150 patients, one-to-one randomization, Zerenex versus placebo. This is a multicenter double-blind placebo-controlled study. And we expect to complete the study in the third quarter of 2013.
A little bit of housekeeping, so at the end of the third quarter, we had about $20 million of cash on the balance sheet. Keep in mind that the recent Japanese NDA filing triggered a $7 million milestone payment to us if you pro forma that in. At the end of the third quarter, we’re looking at about $27 million of cash. Primary shares outstanding about $72 million, average daily volume about 1.2 million shares per day.
And I go back to the investment highlights slide which is essentially a version of the first slide that we saw. We believe we’re talking about a very exciting opportunity here with a drug that has the potential to establish a new paradigm for the way phosphate binders are used.
The Phase III program is being conducted pursuant to a Special Protocol Assessment. We’ve had positive Phase III reported both by us and our Japanese partner. The Japanese NDA is filed, so you can imagine they’re pretty happy with what they saw and this phosphate binder we believe can be highly differentiated based on not just safety, convenience, compliance, but more importantly, based on the potential for iron absorption.
And we are very pleased to wake up in the morning and see that the bundle was pushed out by another two years. This gives us, as I mentioned before, tremendous runway, to be able to walk in there and really amplify the qualities of the drug without any potential conflicting interest or considerations that may occur behind the scenes in the back offices of dialysis organizations.
The long-term Phase III end-stage renal disease study is, as I mentioned, we expect to have the top line data literally any day, any week. It’s on the hands of the CRO now. We have to let them finish their job and we’re eagerly waiting for that data. And we talked a little bit about the opportunity in CKD and this is truly a tremendous opportunity that we have here and that we’re going to try to capitalize on. Again, no oral supplements – oral iron supplements approved in that setting. No phosphate binders approved in that setting.
So with that, I end the presentation. I thank you very much for coming. And I’d be happy to answer any follow-up questions in the breakout room. Thank you.
[No Q&A session for this event]
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