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Keryx Biopharmaceuticals, Inc. (NASDAQ:KERX)

Citi 2013 Global Healthcare Conference Call

February 27, 2013 2:15 PM ET

Executives

Ron Bentsur – CEO

Ron Bentsur

Thanks a lot, Winston [ph]. And I want to thank Citi for inviting us to present at the conference. If you don’t mind, I’m going to stand up. Before we start, I want to add that I will be making some forward-looking statements, so I do want to encourage anyone who is interested in the Keryx story to read our publicly available disclaimers, particularly the risk factors which appear in our third quarter 10-Q and also in the 2011, 10-K. Again people should read those.

Moving on to the investment highlight slide, so the drug that we’re developing as many of you know is called Zerenex. It’s comprised of ferric citrate. So it’s an iron-based phosphate binder that we think is emerging with a highly differentiated profile. Phosphate binders are used to treat hyperphosphatemia or elevated phosphate levels in dialysis patients. We recently successfully completed the Phase 3 program, the combination of that was the long-term Phase 3 study, we announced top line data for that about a month ago, and that program was for end-stage renal disease, dialysis, and the program was conducted pursuant to a special protocol assessment.

That long-term Phase 3 study met the primary and all the key secondary endpoints. The key secondary endpoints are the ones related to iron. We do expect to file our U.S. NDA and the European MAA in the second quarter that is really the next thing that the company is starting to focus on in a big way. And we also believe that the areas that we’re pursuing dialysis but also pre-dialysis which I am going to talk about a little bit later represent very significant market opportunities, particularly when you take into account the highly differentiated profile and the kind of pharmacoeconomic benefits that we think we can bring to the table.

Couple of words on hyperphosphatemia, what is this condition that we’re trying to address? So hyperphosphatemia is elevated phosphate levels that occurs in dialysis as well as pre-dialysis patients, and if left untreated or uncontrolled or un-maintained, very quickly these patients can start encountering cardiovascular complications, so as you can imagine, it is a condition that has to be treated, in most cases, chronically with the use of phosphate binders.

The worldwide phosphate binder sales are now north of $1.5 billion. That number is growing at a rate of close to 10% year-on-year. There are three phosphate binders that are on the market today. There is Phoslo. There is Renagel/Renvela which is the Genzyme/Sanofi franchise. And there is Fosrenol, which is marketed by Shire. We believe that all three have significant shortcomings.

Just a word on the market leader which is Renagel/Renvela, their annual sales are at a pace to exceed $900 million. Talking a little bit about the dialysis population, you can see on this graph that the growth is expected to be fairly robust over the next few years. That’s going to be driven by the organic growth rate that you see in the more mature markets which are obviously North America, EU, and Japan, which is – those populations are growing at a rate of about 5% to 7% year-on-year, but the robust growth is coming from the emerging markets, Eastern Europe, Latin America, places like that.

Those are areas where you see double digit growth. So net-net, when you look at the dialysis population worldwide, currently it’s a little over two million and that number is expected to double within the next decade to over four million. It’s very important to talk about anemia when thinking about dialysis patients. So all dialysis patients lose blood during the dialysis procedure, and as a result many of them, the overwhelming majority of them in fact become iron depleted and suffer from anemia.

And as a result of that, almost all of them eventually will have to be on IV-iron and/or EPO injections to combat that anemia and control their hemoglobin levels. As you can imagine, those IV drugs are very cumbersome to the healthcare system. In fact the use of EPO and the cost of the EPO to the healthcare system was one of the main reasons why CMS decided to introduce the bundled system into the dialysis world. And we believe that Zerenex has an iron-based phosphate binder which has now proven its ability to increase iron stores in these patients overtime, and we believe that a drug such as ours can create significant pharmacoeconomic savings on the anemia side, when it comes to treating these dialysis patients.

This is the competitive landscape slide. And what you see here is essentially the line of therapy in which these drugs are used typically in the U.S., so in the U.S. first line therapy typically is Phoslo. The main issue associated with or the main problem associated with Phoslo is the fact that it’s a calcium-based phosphate binder. So many patients start to encounter elevated calcium levels or even hypocalcaemia rather quickly and they need to be switched off to other drugs because they cannot stay on Phoslo for extended periods of time.

Next in line typically in the U.S. is the market leader, Renagel/Renvela. The main problem associated with Renagel/Renvela is the higher pill burden which creates compliance issues. So typically patients will stay on Renagel and once they become non-compliant or they complain about some GI issues, they’ll get switched off. And third line therapy in the U.S. typically is Fosrenol. There are two problems associated with Fosrenol, one is the fact that it’s lanthanum-based and there is lanthanum accumulation that occurs with Fosrenol, and there is that perception that that represents a significant safety risk that’s associated with Fosrenol.

In addition to that, Fosrenol is a chewable whereas all the other drugs are orals. Chewables have never done well in this market. Again this is a market where patients are used to swallowing their pills because all their other drugs, not just the phosphate binders for the most part are also oral, swallow your pill type of drugs, so anytime you ask patients like that, they kind of stray from the regiment that they are used to that creates non-compliance. In addition of that obviously there is some aftertaste issues and it’s just a hard pill to chew.

Moving onto our drug, obviously we believe that we’ve got some significant advantages in so far safety, convenience and compliance is concerned over the standard of care. With respect to the pill burden, we think we can drop the pill burden versus the market leader Renagel/Renvela. In addition to that, we’re not calcium-based, so we haven't seen any hypocalcaemia or elevated calcium levels. We’re not lanthanum-based, so obviously that’s a not a risk that pertains to our drug and we’re an oral, but it’s really the far right column which is the iron absorption column which can set us apart from the rest of the pack.

We have demonstrated that Zerenex does cause iron absorption. Zerenex is able to increase iron storage parameters in these patients and reduce the need for IV-iron and EPO. No other drug in the armament can do that. And that is a true differentiator and I’ll show you some pharmacoeconomic, potential pharmacoeconomic implications of that in a moment. So when you think about the potential role of Zerenex in dialysis, we truly believe that Zerenex can create a new paradigm for the way phosphate binders are used in the dialysis market.

Again this is the only phosphate binder that not only treats hyperphosphatemia, but can also transcend into another dialysis category that being anemia management. No other drug can do that meaning address one condition, spill over into another condition and create a benefit in such a visible fashion. Another thing to keep in mind is that the oral drugs have been excluded from the bundle at least until January of 2016 while the IV drugs, IV-iron and EPO are very much in the bundle. So we believe that that window of the – basically the postponement of the orals into the bundle by two years gives us very good runway to basically launch our drug and get some real life experience with our drug and basically establish significant market share.

Moving on to the Phase 3 program. Again this Phase 3 program was conducted pursuant to a special protocol assessment. It was comprised of two studies. A short-term study which was successfully completed a little over two years ago, and a long-term study which ran out top line release was about a month ago. This was a 58-week safety and efficacy study. And again just to refresh people’s memories on the design of that study, so 441 patients came in. They all went into a two-week washout, after the two-week washout they were randomized 2:1 to receive Zerenex or an Active Control.

So in the Active Control, we allowed Renvela and/or Phoslo, so this was a real life standard of care Active Control. And then once you randomized, they all went into a 52-week safety assessment period. And it was in this 52-week safety assessment period where we had the head-to-head comparisons between Zerenex and the Active Control in so far as the iron parameters are concerned, ferritin, TSAT, cumulative IV-iron use and cumulative EPO use. And these were all predefined secondary endpoints as part of the stat plan. Again that was blessed under the special protocol assessment.

That 52-week safety assessment period was followed by a four-week efficacy assessment period, whereby the patients who were on Zerenex during the 52-week safety assessment period, so essentially two-thirds of the patient pool stayed on for another four weeks whereby they were randomized 1:1 to either stay on Zerenex or receive a placebo for that four-week period and that in fact was the primary endpoint of the study.

So just to show you the top line results, this is the primary endpoint. You can see that the baseline scores which are actually reflect the week 52 phosphate scores for these patients. Again the end of the safety assessment period, you can see that they were both around 5.3, 5.2 but after the 28 days in the efficacy assessment period, placebo goes up by almost two points, Zerenex drops a little bit to actually below 5 and you can see a very dramatic delta between the two groups with a highly statistically significant p-value.

Moving onto ferritin. And this is where we start talking about the iron storage parameters and the iron differentiators. You can see the Active Control versus Zerenex, the baselines were around 600, and whereas not much happens in the Active Control group. In the Zerenex group, ferritin goes up by about 50% to around 890 or so. And that difference between the two groups is highly statistically significant. What’s also very interesting about the Zerenex group is not just the robust increase in ferritin but the fact that ferritin levels appeared at PLATO after about six months and that’s very encouraging and very important because it suggests that the body’s natural way of controlling or maintaining desirable levels of ferritin are taking over the process and are maintaining these patients at those levels.

And the same picture really appears for TSAT, which is the other important iron storage parameter that people look at. Again the baseline scores were around 31 for both groups. And not much happens in the Active Control group. They stayed around 30 in week 52, whereas the Zerenex group goes up to 39. What we see again is a very rapid increase in TSAT and then that PLATO effect, once again suggesting that the body’s natural way of controlling for these iron parameters is probably taking over.

We believe that’s a much more efficient way of introducing iron into these patients certainly when you compare to IV-iron in terms of the delta so the differences between the two groups highly statistically significant. You see the p-value there with lots of zeros in front of it. What was also very intriguing in our study is the fact that in the Zerenex group we saw dramatic drops in IV-iron and ESAs compared to the Active Control. So orders of magnitude of about 52% reduction in IV-iron versus the Active Control and about a 27% drop in ESAs versus the Active Control, both were statistically significant. And obviously these are extremely intriguing pieces of information, once that I think many of you would agree can lead to significant pharmacoeconomic savings which I am going to talk about in a moment.

And just to boot [ph], we also saw better hemoglobin control in the Zerenex group. In the Active Control group, the baseline score was 11.7, that group dropped to 11.1. In the Zerenex group, the baseline was 11.6 stayed almost the same, dropped by two-tenths of a point to 11.4. And the deltas within the two groups when you compare one groups versus another, that difference was actually highly statistically significant, indicating for example, that if the target hemoglobin for the study was hypothetically let's say 11 that probably could have brought on additional reductions in EPO use because we would have that wiggle room that the Active Control simply would not have.

So again something to think about because at the end of the day, hemoglobin is what – that’s ultimately the goal, so EPO and IV-iron are a means to – and that end is actually hemoglobin scores. Another thing to keep in mind when you look at hemoglobin here and you look at the deltas between the two groups when you think about that on a cohort type basis, thinking about hundreds of thousands of patients where you can actually keep those patients at a higher hemoglobin level, that is actually fairly profound and has some pretty significant implications in terms of the ability to then be able to, if you desire to drop these patients by a 0.5 point and the amount of EPO sparing that can be had on that virtue.

In terms of safety and the safety results from the long-term study, Zerenex appear to be very safe and well tolerated. The GI adverse events which are typical for all phosphate binders were mild to moderate in nature for the most part. And the two GI adverse event profiles actually looked very similar. And very importantly, we saw no clinically or statistically significant changes in liver enzymes which obviously are the markers for iron overload. So as you can imagine that’s very encouraging because we’re able to increase TSATs and ferritins without causing iron overload and that’s very important.

Back to the pharmacoeconomic angle that I started to described before. So again just applying these reductions into the real world, assuming these reductions were to hold in the real world, so what is the 27% drop in EPO use means. So when you think about the U.S. dialysis EPO markets or ESA markets, if I include EPO and Aranesp, I am talking about a $2 billion market. Again this is U.S. dialysis only.

So 27% drop in that obviously is north of $0.5 billion. When you think about the IVR end-market again, U.S. dialysis only that’s over a $400 million, so a 52% drop and that is about $200 million. If you aggregate those two numbers, you get the pharmacoeconomic savings potentially approaching $750 million annually. Those are the savings that this drug can generate potentially to the healthcare system if people choose to use Zerenex.

And keep in mind that these patients have to be on a phosphate binder anyway, so a rationale thinker would say okay, why not give them Zerenex. Here is a drug that obviously controls phosphate very effectively and by the way, it can also create a significant pharmacoeconomic benefit on the anemia front, something that no other phosphate binder can do. One additional thing that I want to talk about is the emerging safety concerns associated with what people perceive as the overuse of IV-iron as a result of the introduction of the bundle. So obviously the bundle came in at the beginning of 2010 and that to some extent forced the dialysis organizations to drop the use of EPO and the way they try to overcompensate for that was to increase the use of IV-iron. And right now, there is a sense that people have been using IV-iron excessively, what people call the overuse or overcompensation of IV-iron in order to drop the use of EPO and make their numbers work for the bundle.

But as you know just like most things in life there is no free lunch and there is a growing undercurrent of safety concern that is out there. And there are a few articles that have already been written and there are few more that are pending which are probably going to come out within the next three to six months or so. And what these articles are describing are basically increased exacerbation or increased rates of oxidative stress, inflammation, anaphylactic shocks, things of that nature primarily with what those writers or those authors believe as a result of the overuse of IV-iron.

So I think it would be nice to have an effective oral iron supplement such as Zerenex that can actually help diffuse that safety concern, I think that would be actually very well received by many of these dialysis organizations who obviously are very aware of the fact that these safety concerns are beginning to percolate.

I now want to talk a little bit about the drug’s potential in pre-dialysis or CKD, chronic kidney disease. And we actually believe that Zerenex is the only phosphate binder that has the potential to actually obtain a label in pre-dialysis. We know that the FDA views serum phosphorous is not enough or insufficient to warrant a label in pre-dialysis, whereas in dialysis serum phosphorous is enough for a label. So any drug would have to bring more than just serum phosphorous, and we believe that Zerenex actually has the ability to bring that dual approach, not just phosphate control but also the ability to address iron deficiency anemia in these patients and therefore we believe that Zerenex is truly the only drug that has the potential of getting a label in pre-dialysis as a phosphate binder, because it can provide that added benefit which is the iron absorption. When you think about iron deficiency anemia and CKD, you’re talking about a very large addressable patient population.

That’s believed that over 1.5 million people are CKD stages three to five with iron deficiency anemia so it’s almost three or four fold of the dialysis population, so obviously a very sizable market opportunity. So one question that you may be asking yourself is okay, if there is so many of these patients walking around, how come there is not more use of IV drugs such as IV-iron and EPO to address the anemia concern that’s so prevalent in this patient population.

So for one EPO has a warning label, so it’s not used very often in that setting, but when you think just generally about the accessibility and the availability of IV drugs to these patients, it’s extremely limited. In fact in only 20% of the pre-dialysis centers in the country will you find IV equipment or the ability to actually treat these patients with IV drugs. You don’t have to go far. When you go to Long Island for example, from what we heard there are 18 pre-dialysis centers, 14 of them do not have IV equipments. So that gives you a sense as to the scarcity of IV equipment, and really the lack of accessibility that these patients have on a readily available basis for IV treatments.

So that creates a very significant distortion between the number of patients that are walking around with iron deficiency anemia, and the available – the ability to treat these patients. So we think that an oral iron supplement that actually works could be an ideal solution, and in fact there are no oral iron supplements that are approved in this setting. So we hope to become the first one in addition to phosphate control. So we embarked on a Phase 2 safety study a few months ago, which is being led by some of the top thought leaders in the country and this is a study designed to evaluate Zerenex, not just as a phosphate binder but also is an oral iron supplement to address iron deficiency anemia and CKD patients stages three to five, or pre-dialysis of course.

This is a multi-center randomized placebo control double-blind study, 1:1 randomization between Zerenex and placebo targeted around, it’s a 150 patients. They are all going to go into 12-week treatment period. We expect data readout from this study in the third quarter of 2013. Couple of words on our Japanese partnership with Japan Tobacco, Torii. So we out-licensed since Japanese rights to them in 2007.

They actually filed their NDA in Japan earlier this year in January and that filing is actually based on several successfully completed studies in dialysis and pre-dialysis, so obviously they are going for the entire category, the filing actually triggered a $7 million milestone payment to us. Currently when you think about the Japanese dialysis market, because no branded drugs actually have a label in pre-dialysis, they hope to become the first one, but when you think about the Japanese dialysis market, it’s about $350 million and growing at a rate of about 5% to 7% year-on-year, so not a small market.

In terms of the partnership, that is – or that the economics that are still due to us. There is still about $65 million in remaining cash milestones that are due our way as certain milestones are met such as approval obviously and some sales of thresholds. And we’re also entitled to a double digit royalty on sales in Japan. And given the quality and the strength of the data from their studies and I think the strength of the organization also, we believe that JT, Torri or Zerenex will become the market leader in Japan several years out.

I want to talk a little bit about intellectual property. Obviously we’ve been fielding a lot of questions about intellectual property. So we feel very strongly that we have a protection through at least 2024. And let me just try to lay that out for people. So we have several issue patents, a lot of people would be hearing about the 706 patent, which is the treatment of hyperphosphatemia, with ferric citrate and also have some composition claims in it. With Patent-Term Extension, we believe that that patent obviously can be extended to 2022 and we also have very strong issued patent surrounding the API, looking specifically at intrinsic, the solution rate of the API and the surface area of the API.

And when you look deeply into these patents and I urge each and every one of you to read those patents and to conduct your own due diligence, but we just don’t believe that it will be possible for Zerenex to get around these patents, simply because if you want to make a commercially viable ferric citrate, not like the one that you can buy down at the GNC, you have to basically, for lack of a better term, enrich the API. And we believe that the only way you can do that is by increasing the intrinsic dissolution rate, increasing the surface area and you’re going to be infringing on those patents.

So we feel very strongly that these patents are very powerful and we believe we’ll make it basically and possible for Zerenex to get around. There are several other patent families which are pending including the formulation patent and some other patents surrounding for example the data that we generated from the top line release which obviously was far from obvious, all those patents were pending and hopefully they’ll get approved in due course. And those will provide extra layers of protection.

Couple of words on NCE and Patent-Term Extension. I am not going to get into a detailed discussion about those approaches that we have on this call, but sufficed to say over the last month or so we’ve done extensive due diligence on those two fronts and we believe that we’ve got very viable approaches to try obtain NCE and Patent-Term Extension, and we think there is a very good shot that will in fact be able to do that.

Let me just give you directionally what we’re looking at. This ferric citrate that we have in Zerenex is unlike any other ferric citrate that the FDA has ever seen. It is not like the ferric citrate that you can find down at the GNC. And that’s basically going to be the approach that we’re going to take in addition to some other things. In Europe, it’s actually pretty much a no-brainer. It’s a 10-year exclusivity, if we show up with an NDA which is what we’re going to do. So 10-year exclusivity is the lock in Europe.

A little bit of housekeeping. So pro forma for the capital raise that we did a few weeks ago. The year-end cash balance is about $95 million. The capital raised was $80 million. That’s a growth, so net of fees it’s about $75 million. We also received in the first quarter a $7 million milestone payment from the Japanese when they filed their NDA in Japan. Primary shares outstanding 82 million and that’s pro forma for the capital raised before that, it was about 72 million. One thing I’ll say about the expected burn going forward, obviously we’re in a different phase of the company right now.

We’re starting to focus more on inventory buildup, commercialization, putting the right pieces in place for commercialization. Our base burn is probably going to remain about $5 million per quarter, but obviously the actual burn is going to be higher than that, but you can assume that any number that you see above $5 million that residual is probably going towards inventory buildup and putting in place some key commercialization pieces.

Going back to the investment highlights side that we saw before, so we think we’re talking about a highly differentiated phosphate binder. We think there is going to be tremendous demand for this phosphate binder for a very simple reason. There is very strong financial incentive on behalf of the dialysis providers to use our drug. Keep in mind these patients need to be on a phosphate binder anyway. Why not give them a phosphate binder than low and behold? It gets you a benefit on the anemia side and our goal is to make that a no-brainer for them.

We’ve successfully completed the Phase 3 program under the SPA in dialysis. We also started the Phase 2 in pre-dialysis. And we expect the regulatory filings in the second quarter of this year and we talked about the market opportunities. We do believe that with the drug as differentiated as Zerenex, a drug that can really bring to bear what we believe are tremendous pharmacoeconomic benefits, we’re talking about very significant market opportunities for in dialysis and also in pre-dialysis.

So that ends the formal part of presentation, and Q&A. Thank you.

Question-and-Answer Session

[No Q&A session for this event]

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