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Keryx Biopharmaceuticals (NASDAQ:KERX) has plenty of optimistic followers. Its announcement of Phase III trial results for its anti-hyperphosphatemia drug candidate caused a surge in price from under $3 to $10, and thereafter it pulled back to a price near $6.50. Meanwhile, takeover rumors preserve excitement over this stock, which otherwise should be devoid of any action for a year except for publication of more complete data from the Phase III trial, filing for FDA approval of Zerenex for the treatment of ESRD-related hyperphosphatemia, and then waiting to hear from the FDA. Keryx is a one-trick pony. This is the only current drug candidate in its pipeline.

The excitement about Keryx' results stem from two things: demonstration of effectiveness and additional benefit in the reduction of the need for IV iron supplementation. Although the company has no significant source of earnings currently, its valuation should take into consideration the potential arising from possible FDA approval of its upcoming new drug application [NDA]. The chances of approval seem quite good on the basis of the reported results. However, it is still worth pointing out that the full results have not yet been reported. This is not to say that company's procedure in regard to the announcement of topline results is atypical, but simply to point out that the full publication of data from the study might show things that you wouldn't know without seeing them.

Even though the company's highlighting the reduction in IV iron supplementation among the patient population in the experimental group may be considered an unfair comparison (because Zerenex is an iron salt, given orally, and the comparison group was given iron as needed only intravenously) the benefits are real and probably also significant since most ESRD patients on dialysis may be getting their iron supplementation intravenously. The company does well to point out the cost benefits and advantages of the same.

This brings us to the big question: How much is the company worth, assuming smooth sailing through FDA approval? At the current price/share, its market cap is over a half billion. Those advocating buying KERX point out that Sanofi's (NYSE:SNY) "Renvela/Renagel, which accounts for 50 percent of the market" had revenue that amounts to about $800 million annually, of which $600 million (annualized) is U.S. revenue. These numbers are impressive. However, will Sanofi and Nabi (NASDAQ:NABI) and makers of generic versions of PhosLo fade from the scene if and when Ferric Citrate (which is the compound with the trade name Zerenex) gets approval for the treatment of hyperphosphatemia? Doubtful. So, it will be tough estimating how much of this revenue will flow into the Keryx coffers. The iron-related benefit and the cost savings (from reduction in the use of IV iron and erythropoietin) could be a driver in this regard. However, like in the other related drug trials, the Keryx study also had a significant number (34%) that dropped out of the study, so it may not be drug of choice for all. In addition, Keryx has licensed Zerenex from another company and royalties will be due.

The present writer's lingering doubt about the potential commercial success of Keryx's Zerenex still rests on the fact that Zerenex is simply ferric citrate. And ferric citrate is a GRAS (generally accepted as safe) item on the FDA list, making it eligible to be sold as an OTC supplement (as iron citrate already is). Even if any use or application patents protect Keryx's use of it in the potential treatment of kidney patients, it is possible that the chemically identical product labeled for another indication (iron deficiency) could end up being used for an indication other than what it is labeled for. Warning about such possibilities exist in the company's documents, as previously noted. Just to do some simple math on the amount of iron now available in supplements, 325 mg Ferrous fumarate tablets are available in the market. The elemental iron content of this is 108 mg Fe. If an iron supplement with only that much elemental iron were to be sold in the form of ferric citrate, it would contain less Fe than in 1000mg of Zerenex but only less by about 40% (the amount of iron in the patented version [United States Patent 6903235] of ferric citrate is 17.6%. 1000g of that has 176 mg Fe).

Perhaps the company's warnings about limits to patent protection are meant only for general legal protection for its officers and do not address any real threats. If so, between now and about a year from now (when the FDA decision is likely, assuming the NDA is filed soon) there could be good buying opportunities for KERX, unless of course the current rumors are based on substance and some larger company buys it before that. I would be one to watch and see where this is headed.

Source: Another Round On Keryx