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Keryx Biopharmaceuticals, Inc. (NASDAQ:KERX)

Q4 2012 Earnings Conference Call

March 12, 2013 08:30 ET

Executives

Ron Bentsur - Chief Executive Officer

James Oliviero - Chief Financial Officer

Analysts

Jonathan Aschoff - Brean Capital

Matt Kaplan - Ladenburg Thalmann

Stephen Willey - Stifel

Mike King - JMP Securities

Boris Peaker - Oppenheimer

Operator

Greetings, and welcome to the Keryx Biopharmaceuticals Investor Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, James Oliviero, Chief Financial Officer for Keryx Biopharmaceuticals. Thank you. Mr. Oliviero, you may begin.

James Oliviero - Chief Financial Officer

Thank you. Good morning and welcome to our conference call regarding Keryx Biopharmaceuticals’ fourth quarter and year end 2012 financial results. I am James Oliviero, Chief Financial Officer at Keryx and I welcome you to our conference call today. Following our Safe Harbor statement, I’ll provide a brief overview of our financial results and then turn the call over to Ron Bentsur, the company’s Chief Executive Officer who will provide the business update on the company.

Before we begin, I would like to remind everyone that various remarks that we make about our future expectations, plans, and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Keryx cautions that these forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from those indicated. Factors that may affect Keryx’s operations include, but are not limited to risks related to the timing for submission of the U.S. new drug application and European marketing authorization application and whether the FDA and EMA respectively will accept such submissions for review, following submission and ultimately approve them, whether the FDA and EMA will concur with our interpretation of our Phase 3 study results or the conduct of the study. Top line results are based on preliminary analysis within available data both safety and efficacy, and there is a risk that such findings and conclusions could change following a more comprehensive review of the data and other risk factors and uncertainties that can be found in our SEC filings. This conference call is being recorded for audio rebroadcast on Keryx’s website on keryx.com, where it will be available for the next 15 days. All participants on this call will be in listen-only mode.

Now, I’d like to briefly discuss the financial results for the fourth quarter and year end 2012. At December 31, 2012, the company had cash, cash equivalents, interest receivable and investment securities of $14.7 million as compared to $39.5 million at December 31, 2011. Subsequent to December 31, 2012, the company completed an underwritten public offering of common stock which provided proceeds to the company of approximately $74.8 million net of underwriting discounts and offering expenses. Also subsequent to December 31, 2012, the company received a $7 million milestone payment from its Japanese partner for Zerenex, Japan Tobacco, and Torii Pharmaceutical related to Japan Tobacco’s January 2013 filing of a new drug application for marketing approval of ferric citrate in Japan for the treatment of hyperphosphatemia in patients with chronic kidney disease.

The net loss for the fourth quarter ended December 31, 2012 was $6.6 million or $0.09 per share compared to a net loss of $8.4 million or $0.12 per share for the comparable quarter in 2011 representing a decrease in net loss of $1.8 million. The change in net loss in the fourth quarter of 2012 as compared to the fourth quarter of 2011 was primarily attributable to a $3.1 million decrease in research and development expenses due to the cessation of the development of perifosine on May 2012 partially offset by a $1.3 million increase in research and development expenses related to the Zerenex clinical program.

The net loss for the fourth quarter ended December 31, 2012 included $0.5 million of non-cash compensation expense related to equity incentive grants. The net loss for the year ended December 31, 2012 was $22.7 million or $0.32 per share compared to a net loss of $28.1 million or $0.42 per share for the year ended December 31, 2011 representing a decrease in net loss of $5.4 million. A change in net loss in the year ended December 31, 2012 as compared to 2011 was primarily attributable to an $8.9 million decrease in research and development expenses due to the cessation of development of perifosine in May 2012 partially offset by a $2.5 million increase in research and development expenses related to the Zerenex clinical program.

The net loss for the year ended December 31, 2011 included license revenue of $5 million related to a milestone payment from our Japanese partner, Japan Tobacco and Torii. The net loss for the year ended December 31, 2012, included a non-cash extraordinary gain of $2.6 million related to the write-off of contingent equity rights liability following the termination of the license agreement for perifosine in May 2012, and $2.2 million of non-cash compensation expense related to equity incentive grants. We believe that our financial position remains strong, given the recent receipt of the milestone payments from JT Torii and capital raise. I believe that our cash will be sufficient to take us well beyond the projected launch of Zerenex expected in mid 2014.

I will now turn the call over to Ron.

Ron Bentsur - Chief Executive Officer

Thanks James and good morning everybody. Approximately a month and a half ago, we were extremely excited to conduct the top line data conference call announcing our unequivocally positive results from our long-term Phase 3 study for Zerenex as a treatment for hyperphosphatemia in patients with end stage renal disease on dialysis. As we now shift our focus to the NDA filing and certain pre-commercial activities, we continue forward with tremendous enthusiasm and we are very excited about the potential opportunity for Zerenex and the company. On this call, I will briefly describe the top line results from a month-and-a-half ago and then I will discuss the potential market opportunity for Zerenex. I will also discuss intellectual property in more detail on this call.

I will begin with the review of our long-term Phase 3 study, which is the final piece of our Phase 3 clinical program for Zerenex as a treatment for hyperphosphatemia in patients with end stage renal disease on dialysis. The Phase 3 program now completed was conducted pursuant to a special protocol assessment or SPA and was comprised of two studies, a short-term study, which was successfully completed in late-2010 and the 58 week long-term safety and efficacy study, which was successfully completed in January of this year. In this long-term study, 441 end-stage renal disease patients on dialysis were enrolled. They all entered a two-week washout period and then were randomized in the two to one ratio to receive Zerenex or an active control. All randomized patients then went into a 52-week safety assessment period.

The active control group received Renvela and/or Phoslo, which provided for head-to-head comparisons of Zerenex versus the current standard of care with regard to safety and iron parameters including ferritin, TSAT and cumulative IV iron and ESA use. Each of these iron measurements being predefined secondary endpoints set forth in the statistical analysis plan as part of the SPA. The 52-week safety assessment period, in which the secondary end points were measured was followed by a four-week efficacy assessment period, whereby only the patients who were on Zerenex during the 52-week safety assessment period stayed on study for another four weeks during which they were again randomized, this time in a one-to-one ratio to either remain on Zerenex or receive a placebo for those final four weeks. This efficacy assessment was designed to demonstrate a statistically significant difference in serum phosphorus between Zerenex and placebo and this was the primary endpoint for the study.

In addition to meeting the primary endpoint with a highly statistically significant result, all key secondary endpoints described above were also achieved. In terms of the overall safety, the safety results from the long-term studies suggest that Zerenex was safe and well-tolerated. The GI adverse events which are typical for all phosphate binders were mostly mild to moderate in nature. Also very reassuring is the fact that we actually saw a higher percentage of patients with serious adverse events in the active control arm versus Zerenex. Moreover importantly, we saw no clinically or statistically significant changes in liver enzymes, which are the markers for iron overload. This is encouraging because as expected, the data confirmed our belief that Zerenex was able to increase ferritins and TSATs without causing iron overload.

In regard to the iron storage parameters, Zerenex clearly demonstrated very robust increases in ferritin and TSAT scores to the extent of 51% and 26% for ferritin and TSAT respectively, whereas the active control group essentially remained flat. The changes in ferritin and TSAT occurred fairly quickly and do appear to plateau after 4 to 6 months at these higher levels implying we believe that the body’s natural iron absorption mechanisms are being utilized.

In terms of IV iron and ESA use, Zerenex generated a 52% drop in median cumulative IV iron use, and a 27% drop in median cumulative ESA use versus the active control in the study. Furthermore, even with the significantly less IV iron and ESA use, Zerenex maintained hemoglobin on average at a higher level than the active control. We believe that the reductions in IV iron and ESAs are robust and could truly be a potential game changer in the industry. These reductions are not only impressive, but they are also significant from a pharmacoeconomic perspective. The ESA and IV iron U.S. dialysis markets are approximately 2.4 billion respectively.

A quick back at the envelope calculation of the potential savings to the healthcare system that the observed 52% and 27% reductions in IV iron and ESA use respectively can potentially generate put this potential cost savings at approximately $750 million annually and that’s in the U.S. alone. Also keep in mind that with the IV drugs, which include IV iron and ESAs being in the bundle, the pricing pressure placed on the dialysis providers regarding the use of IV drugs will not let up. In fact, it may even intensify further with base rate resets. It will continue to be of critical importance for the dialysis providers to look for ways to cut costs under the bundle and therefore with Zerenex being able to provide them with ways to potentially do so, it would seem that Zerenex would be utilized extensively by the dialysis providers. Basically, we believe that once the dialysis providers have saturated the cost reductions via reduced ESA use as is happening now, they will need to aggressively seek out additional ways to lower cost. Zerenex could reach them at the right time since it is in fact the only phosphate binder that has the potential to generate cost benefits in another dialysis category that being anemia management.

In summary, Zerenex is the only drug that can immediately increase the dialysis providers’ margins. In terms of the market potential for Zerenex and end-stage renal disease or dialysis, we believe that the market for phosphate binders in that setting is now greater than 1.5 billion globally and growing. The overall growth stems from the increase in worldwide dialysis populations with particularly rapid patient growth coming from the emerging markets as their medical infrastructures become more modernized and accessible. According to recent data, the number of dialysis patients worldwide is expected to double within the next decade from a little over 2 million today to over 4 million patients by the turn of the next decade.

As many of you know, there are not many disease areas or indications in which a small company can successfully market on its own. Dialysis clearly happens to be one of those indications, if not the poster child for such indications. It is a well defined market with a captive and very large patient population, exactly the sort of situation in which a small dedicated sales force with a highly differentiated product in the bag can succeed. Moreover, with the 10 or so largest dialysis providers covering approximately 80% of the dialysis patients in the U.S., this is a consolidated market, and one in which the rollout of differentiated products can potentially be quite rapid. So, while we are very much engaged in dialogue with prospective partners, and there does seem to be significant interest, we are not at all apprehensive about launching the drug on our own if the timing and/or economics of the business development discussions do not coincide with our goals or expectations.

Let me now shift to Zerenex potential in non-dialysis dependent chronic kidney disease or pre-dialysis. And why we believe that Zerenex is the only phosphate binder that has the potential to actually obtain a label in pre-dialysis in the U.S. Iron deficiency anemia develops early in the course of chronic kidney disease and worsens with disease progression. It is estimated that over 1.5 million adults with pre-dialysis chronic kidney disease in the U.S. alone have iron deficiency anemia. To combat this anemia, iron replacement therapy is essential to increase iron stores such as ferritin and TSAT levels and raise hemoglobin levels.

On the face of it, one would think that the treatment of iron deficiency anemia in pre-dialysis should be similar to that of end-stage renal disease patients on dialysis. However, in reality, the use of ESAs and IV iron in the pre-dialysis setting is very limited for two main reasons. One, there are safety concerns associated with the ESAs and the CKD setting with an FDA warning label. And very importantly number two, due to logistical constraints in the pre-dialysis treatment setting, which are primarily doctor’s offices, IV iron and ESAs are not readily accessible to most patients. Essentially, the overwhelming majority of the pre-dialysis centers refrain from providing IV services due to the liability and logistical hassle involved. Moreover oral iron supplements that are currently available have inadequate efficacy and tolerability issues. Consequently many believe that iron deficiency anemia in pre-dialysis represent a substantial underserved medical need and that with Zerenex’s potential to also address iron deficiency it could become an important agent in the pre-dialysis setting.

Keep in mind that there are no oral iron supplements approved by the FDA in pre-dialysis or dialysis for that matter. And given that the use of ESAs and IV iron is also limited in the pre-dialysis setting and oral iron supplement with proven efficacy could be ideal for this indication. Additionally, elevated levels of serum phosphorus become more prevalent stages 3 to 5 pre-dialysis patients. Several studies have shown that higher serum phosphorus concentrations maybe associated with increased mortality and morbidity in CKD. However, no phosphate binder is currently approved by the FDA for pre-dialysis CKD. For these reasons, we believe that pre-dialysis represents another potential rational applications for Zerenex as it could become the only phosphate binder to offer a two-pronged approach to managing this indication, phosphate control plus the ability to address iron deficiency anemia, i.e. the first bio-available oral iron to replace the ineffective OTC oral iron products.

Moreover, this potential indication represents a very substantial market opportunity for Zerenex with very limited competition and no pricing pressures that could be imposed by the possible future implementation of the bundling for the oral drugs in the dialysis setting, since the bundle would not apply to pre-dialysis. This is why we are so excited about this potential opportunity. In November of last year, we initiated a Phase 2 study in anemic non-dialysis dependent Stages 3 to 5 chronic kidney disease patients or pre-dialysis patients. This study is being led by some of the top thought leaders in the country and has been designed to evaluate Zerenex, not only as a phosphate binder, but also as an oral iron supplement in this patient population. Specifically, it is a multi-center randomized double-blind placebo-controlled safety and efficacy clinical trial designed to compare the ability of Zerenex to manage serum phosphorus and iron deficiency versus placebo in anemic patients with Stages 3 to 5 pre-dialysis chronic kidney disease.

Patients are being randomized one-to-one to receive either Zerenex or placebo for a 12-week treatment period. The primary endpoints of the study are to demonstrate changes in ferritin, TSAT and serum phosphorous levels and secondary endpoints include changes in hemoglobin, urinary phosphorous and FGF-23. The study plans to randomize approximately a 150 patients from approximately 15 sites in the U.S., we expect data read out from the study in the third quarter of 2013 and believe that the data from this study could provide us with a path forward towards a regulatory trial in pre-dialysis chronic kidney disease in the U.S.

I would now like to discuss the IP protection for Zerenex, as this has been the subject of much dialog recently. Let me begin by saying that we strongly believe that Zerenex is well protected in the U.S. market until at least 2024. We believe that with our key API or drug substance, surface area and intrinsic dissolution issued patents which expire in 2024 it will not be possible for generic to make a commercially viable ferric citrate without infringing on these patents. Simply put, in order to have a commercially viable ferric citrate, one has to have the drug substance or API, which is concentrated enough. Otherwise, one would need large amounts of API and that would make any formulation extremely cumbersome. For example, this would translate into a very large number of pills, very large pills or a combination of both to get any meaningful or comparable therapeutic activity, and in either case that would not be commercially viable.

Case in point is that the over-the-counter ferric citrate capsules typically have concentrations of 25 milligrams of ferric iron in them. This, for example, is compared to a 1 gram ferric citrate tablet, which has 210 milligrams of ferric iron, so orders of magnitude greater than the OTC products. How are we able to achieve that? For one, clever drug product formulation, which I will talk about in a moment, but very importantly, our ferric citrate API or drug substance, is unlike any other. It has considerably higher intrinsic dissolution and surface area, which are critical for the drug product activity as compared to the OTC versions as well as much higher purity levels.

We believe that only with those characteristics can one potentially develop a tablet that will have a commercially viable amount of ferric iron in it? Again, if someone were to develop API that precipitates the way ours does as is enriched as ours we believe that they will be infringent on our patents. There are several other patent families, which are pending, including our drug product formulation patent and some other patents surrounding, for example, the data that we generated from our Phase 3 study which was far from obvious, and those pending patents, if issued, will provide extra layers of protection beyond 2024.

I want to discuss the pending formulation patent in a bit more detail. First, this patent has already had an office action, and we believe will get issued. This patent would expire in 2029. This formulation patent not only describes the novel way of formulating this highly concentrated ferric citrate tablet, for example, the 210 milligrams of ferric iron in each 1 gram tablet, which is smaller in size than Renagel/Renvela, the market leader or the 280 milligrams of ferric iron in our 1.3 gram tablet, which is identical in size to Renvela, but the patent also describes the active and inactive ingredients and the ratios, quantities, and proportions. Why this aspect important? It’s important, because standard bio-equivalency, PK assays do not apply as a genetic route to the market for phosphate binders. It is likely one will need to conduct dissolution assays to prove equivalence as a generic.

In this context, the recent case study with vancomycin is very interesting. Vancomycin also acts predominantly in the gut and also cannot be measured in plasma and therefore, the FDA required from generic filers to come up with an identical compound to vancomycin with identical active and inactive ingredients including ratios, quantities, and proportions, and then run the dissolution on that identical product. That request to make an identical product upon which to conduct dissolution assays is now FDA guidance.

In our case, if somehow a generic player was able to get around our API patents, which we believe is highly unlikely, the only viable path forward would be a dissolution assay using a product identical to Zerenex. And in doing so by definition, they would infringe on our 2029 formulation patent, once this patent is issued. Our pending formulation patent is the extra layer of protection that the sponsor of vancomycin did not appear to have.

Now, a few words on New Chemical Entity and patent term extension, as many of you know, New Chemical Entity or NCE for short is based on active moiety and is determined by the FDA. And Patent Term Extension or PTE for short is based on active ingredient and is determined by the PTO or the Patent Office. Both determinations will be made post approval.

First again, just to highlight the fact that we believe that our currently issued IP protection is very strong and will take us through at least 2024 with patents comprising composition claims that will be extremely difficult, perhaps impossible to get around. That said, we also believe that we should qualify for New Chemical Entity protection and Patent Term Extension. I will discuss those briefly in no particular order. I cannot go into all the details on this call and we do not plan on disclosing everything for competitive and strategic reasons, but there are several things that are very important in thinking about NCE and PTE.

It is important to understand the basic premise that Zerenex is a nozzle form of ferric citrate. The definition of ferric citrate in the literature does not describe a clearly defined chemical species. And interesting data point for people to think about is Ferrlecit, an IV iron ferric gluconate compound that was able to obtain NCE, when there were two ferric dextran IV iron formulations that were approved prior to Ferrlecit’s approval. Why would the FDA grant Ferrlecit an NCE, if the active moiety is ferric just like the prior ferric IV iron drugs? The answer we believe is that the sponsor was able to prove to the FDA from an inorganic chemistry perspective that Ferrlecit’s physiochemical properties, mainly its high molecular weight complex structure were critical for its improved activity as an IV iron formulation compared to that the other IV iron compounds. We don’t believe it will be difficult to prove that Zerenex represents a different complex compared to any OTC ferric citrate or any other ferric based compounds.

You have to ask yourself the question, which is simply put, if only ferric was the active moiety in our ferric citrate complex, how come no other oral ferric compound or even more specifically ferric citrate compound has ever demonstrated the phosphate binding in the iron storage increases that we have. With that perspective in mind, let me also discuss ferric ammonium citrate that has been mentioned as the potential impediment for Zerenex obtaining patent term extension. Ferric ammonium citrate is altogether a different salt and complex molecule with a different USP classification. Clearly, these are also different complexes and that would be very easy to prove in vitro if necessary, but the difference is so clear even organically, ferric ammonium citrate has (two ket) irons and one n iron compared to Zerenex which has one ket iron and one n iron.

Secondly, its activity as the phosphate binder has never been clinically proven and arguably it would have a very different activity profile. For example, it is likely to cause complications such as metabolic acidosis due to the ammonium component. Third, for the ferric ammonium citrate USP monographs, one of the impurity tests for making ferric ammonium citrate is the absence of ferric citrate, meaning you cannot have ferric citrate in the ferric ammonium citrate salt. It is considered an impurity when making ferric ammonium citrate. Also, the fairly recent PhotoCure precedent whereby a methyl ester of an approved salt received patent term extension is reassuring. In particular, given the fact that we don’t believe that ferric ammonium citrate and ferric citrate are the same salt or salt of one another, and even if they were derivatives of one another, the PhotoCure precedent is very favorable. Bottom line, we strongly believe that ferric ammonium citrate will not be an impediment to patent term extension.

Next, we have also heard about the possibility that older ferric citrate filings could impede on our ability to obtain patent term extension. First, we don’t know whether any of these older filings physically exist or whether they were actually 505(b) filings meaning NDAs or rather just Nutraceutical filings. Even if they do exist and one or more of them were actually 505(b) filings, such filings occurred prior to the 1962 Kefauver Harris Act, which required efficacy studies of drugs from that point forward in order to be approved. All older filings received an 8-year grace period to conduct efficacy studies or appeal their case in order to remain on the market. The cutoff date for the Kefauver Harris Act grace period was July of 1970. And in fact, all four older ferric citrate filings show up as being pulled from the market on that date meaning none of them made the cut as an approved drug and no ferric citrate approval appears after that date. Incidentally, two ferric ammonium filings do appear after the July 1970 cutoff date meaning two ferric ammonium approvals deemed to have been approved subsequent to the Kefauver Harris Act. This may explain why ferric ammonium citrate was denied patent term extension although the sponsor never appealed that decision.

Hopefully, this gives you directional information as to how we are approaching NCE and patent term extension. In Europe, it’s extremely straightforward. Every product with approved market authorization by the EMA automatically receives 10 years of data and marketing exclusivity with the possibility of an 11th year if the product is approved for another indication, which we believe in our case will be CKD or pre-dialysis in Europe. During this exclusivity period, the EMA cannot approve any other application with the same reference material. Therefore, Zerenex will receive at least 10 years and possibly 11 years of marketing exclusivity in Europe providing protection until at least 2024. I urge all of you to conduct due diligence on the Zerenex opportunity in Europe. I trust that you will come to the same conclusion that we have that Keryx is grossly undervalued based on the European opportunity alone.

Now, a few words about our Japanese partnership for Zerenex. As many of you know, our Japanese partner for Zerenex, JT/Torii has made significant progress in Japan and we applaud them for their work. In January of this year, JT filed their NDA for ferric citrate, which includes both end-stage renal disease dialysis and pre-dialysis chronic kidney disease studies with projected drug launch in Japan expected in the first half of 2014. The current phosphate binder market in Japan is approximately $350 million. It is also important to keep in mind that there are currently no branded phosphate binders approved for CKD or pre-dialysis in Japan and that ferric citrate could become the first one. This could, of course, substantially increase the market potential for ferric citrate in Japan.

To remind everyone of our economics per the partnership with JT/Torii, we are entitled to receive an additional $65 million in potential cash milestones as well as royalties on sales in Japan. With the drugs, attributes, and the strength and determination of the JT organization, we believe that Zerenex could over time become the dominant phosphate binder in the growing Japanese phosphate binder market and the economics due to us from the partnership could become quite substantial.

Now, regarding key upcoming milestones, on that front, we anticipate the following: number one, the filing of our U.S. NDA for dialysis by the end of the second quarter of this year and the European MAA filing shortly thereafter. Also in the second quarter, the presentation of the final dataset from the Zerenex Phase 3 long-term study at the World Congress of Nephrology Conference, which is going to take place in early June in Hong Kong. And number three, in the third quarter of this year, we expect to announce top line data from our Phase 2 non-dialysis dependent chronic kidney disease study.

Hopefully, I was able to give you a strong sense as to why we are so excited about the Zerenex opportunity and the value proposition, which we believe Zerenex represents in both the dialysis and pre-dialysis settings. Importantly, we believe that our current cash following the milestone payment received from JT/Torii following their filing of the NDA in Japan in January and the recent $75 million net of fees capital raise, we believe that that cash will be sufficient to take us well beyond the projected launch of Zerenex in the middle of 2014. We are excited about the prospects of Zerenex, which we believe is a highly differentiated phosphate binder for which there could be tremendous demand for a number of reasons, not the least of which is the strong financial incentive on behalf of the dialysis providers to use the drugs such as Zerenex since it has been observed not only to manage our patients phosphorous, but also provide them with an anemia benefit.

Lastly with the successfully completed Phase 3 program under the SPA and end-stage renal disease patients on dialysis, we are grateful to Dr. Julia Lewis and the collaborative study group for their effort and dedication to the program, as well as all the other investigators who took part in our Zerenex Phase 3 program.

I would now like to turn the call over to the moderator for Q&A session. Thank you.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Jonathan Aschoff with Brean Capital. Please proceed with your question.

Jonathan Aschoff - Brean Capital

Thank you. Hi guys, good morning.

Ron Bentsur

Good morning.

Jonathan Aschoff - Brean Capital

I was thinking regarding more specific timelines, how soon will you know after filing with the FDA/PTO answer is on patent term extension?

Ron Bentsur

It’s hard to say, but I believe the FDA reply to NCE typically within six months after the approval and patent term extension is typically a year or so after the approval, but again these things are not very well defined.

Jonathan Aschoff - Brean Capital

And for ESRD and CKD when and in what form are we likely to see published Japanese Phase 3 data?

Ron Bentsur

I do believe that they – their plan is to publish their – both their end-stage renal disease and their pre-dialysis data within the next several months. In fact we do believe that they are working on manuscripts currently.

Jonathan Aschoff - Brean Capital

And how about the relative relevance, because you went into two – kind of a two-part discussion the patents expiring in the middle 20s and then the earlier expiring patent into the expiry of 2017, what sort of importance that you put on a relative basis of those two versus the earlier one?

Ron Bentsur

Again going back to those 2024 patents, we think that those are absolutely key. We think that with those patents it will be impossible for generics to get around without infringing on those patents. It’s almost a mathematical type of a situation whereby you have got to enrich your ferric citrate API, put aside the impurities and all that, which obviously you have to pass. But you have got to enrich your API through a different way of precipitating it, by doing so, the surface area and the intrinsic dissolution start to go up. It’s going to be very, very difficult, we believe impossible for our folks to get around that.

Jonathan Aschoff - Brean Capital

Thanks a lot, guys.

Ron Bentsur

Thank you.

Operator

Thank you. Our next question comes from the line of Matt Kaplan with Ladenburg Thalmann. Please proceed with your question.

Matt Kaplan - Ladenburg Thalmann

Hey Ron.

Ron Bentsur

Good morning.

Matt Kaplan - Ladenburg Thalmann

Good morning. Thanks for your added detail on the IP and discussion that was very helpful. Can you talk a little bit about your business development effort and what you are thinking right now, I guess you made a case in your prepared remarks that you could go to loan in the U.S., but what are you thinking about in Europe in terms of your strategy there?

Ron Bentsur

So, in Europe obviously, it would be more difficult for a small company to market on its own. For all the obvious reasons, it’s even though there is EMA, the EMA is the umbrella organization. To a large extent, you still have to go country by country, but so obviously in terms of the perspective of small company, it’s less of a natural fit so to speak. Whereas in the U.S., when you think about how consolidated the U.S. market is and just how well defined it is, it is very doable for small company.

Matt Kaplan - Ladenburg Thalmann

And in terms of your spend for 2013 R&D, I guess, what I am getting at is, can you give us a little bit of guidance there and then also manufacturing scale up to the cost of that, what you are just?

Ron Bentsur

So, the base burn for the company will continue to be approximately $5 million per quarter. And I think, just generally speaking, anything that you are going to see above $5 million, you can probably assume is going towards primarily the building of inventory and also some other pre-commercial types of activities, but again mostly inventory, we’d like to build up as much inventory as possible between now and launch.

Matt Kaplan - Ladenburg Thalmann

And in terms of some of the upcoming milestones, the Phase 3 data presentation, your first opportunity is going to be at the conference in Hong Kong or is – and do you plan other presentations during the year?

Ron Bentsur

The World Congress of Nephrology in Hong Kong, although obviously it takes place in Hong Kong, and on the U.S. is actually a very big conference, where you have tremendous European attendance. So, we think that it’s a greatest venue for us to present the data and also takes place once every two years, not once a year. Following that, obviously, we hope to have significant presence at ASN, which usually takes place in late October beginning of November.

Matt Kaplan - Ladenburg Thalmann

Alright, thanks for taking my questions.

Ron Bentsur

Thank you.

Operator

Thank you. Our next question comes from the line of Stephen Willey with Stifel. Please proceed with your question.

Stephen Willey - Stifel

Yeah, hi guys. Good morning. Just in terms of thinking about the CKD study that we are going to be seeing data from later this year, would you anticipate that you are going to see the same kind of absolute increases in terms of ferritin and TSAT that were observed during the first 12 weeks of treatment in the ESRD setting?

Ron Bentsur

It’s hard to say. Obviously, the baselines are lower. Also per the entry criteria, we are taking patients who have, for example, ferritins of less than 300. So, to expect to see a 300 point rise in patients like that, I am not sure we are going to see that. But again, you wouldn’t expect to see that either. So, to answer your question, I don’t think we are going to see just in terms of absolute numbers, I don’t think we are going to see the same type of magnitude, but on a percentage basis, we could very easily see that.

Stephen Willey - Stifel

Okay. And then just going back to study entry criteria that you just mentioned, I think part of your inclusion criteria allows for patients to come into the study if they are between 4 and 6 on the phosphate front at baseline? And I believe the target range for CKD is 4.5. So, I am just kind of wondering why there is a little bit of that overlap there with respect to the higher end of the target range that’s preferred in CKD?

Ron Bentsur

No, the target range is actually lower than that. It’s actually 3 to 3.5. Anything above 4 is not considered necessarily hyperphosphatemia, but it is considered elevated phosphate level. So, we are taking patients who have elevated phosphate levels again not all of them are going to have hyperphosphatemia, which is 5.5 or above, but the target range is to keep them between 3 and 3.5.

James Oliviero

And Steve, I think you are mentioning that, I think it’s (indiscernible) has a 4.6 level for CKD as being the level that above that is hyperphosphatemia. What we are doing here is we are treating elevated phosphorous. There has been studies that show for every 0.5 increase above 3.5, there is an increase in mortality. So, physicians really do want to treat phosphorous earlier and not necessarily when they become hyperphosphatemia.

Stephen Willey - Stifel

Okay. Thank you. And then with respect to how quickly you guys think you might be able to get into Phase 2 meeting in the calendar?

Ron Bentsur

Hello. Okay, we will move on to the next question.

Operator

Thank you. Our next question comes from the line of Mike King with JMP Securities. Please proceed with your questions.

Ron Bentsur

Operator?

Mike King - JMP Securities

Can you hear me?

Ron Bentsur

Okay, we are having trouble. We don’t hear anything from our line. Operator? Okay we can’t hear anything. We’re going to follow right back-in. So, please hold a moment.

Operator

Thank you for your patience. Please hold one moment, we are experiencing technical difficulties. Please hold one moment.

Ron Bentsur

Hello?

Operator

Gentlemen are you able to hear us.

James Oliviero

We can hear you. Can you hear us?

Operator

Yes.

James Oliviero

Okay, put us back in.

Operator

Your line is live into the call.

James Oliviero

Okay. Steve, are you still there?

Ron Bentsur

So, operator, if you can move on to the next question?

Operator

Our next question comes from the line of Mike King with JMP Securities.

Mike King - JMP Securities

Hi guys, can you hear me?

James Oliviero

Yeah, we can hear you. And, we apologize for this technical issue that we had.

Mike King - JMP Securities

No worries. Just a couple of marketing related questions, just wondering if you can discuss whether you have had any conversations with dialysis providers in the wake of the Omontys with product withdrawal and whether there is going to be a higher bar of safety placed on any new product that enters the dialysis market?

Ron Bentsur

We have – so we have not had any specific conversations following the Omontys situation. I think there may be a higher bar set on, for example, EPO biogenerics that are going to come out. I don’t think there is going to be collective punishment necessarily whereby the bar will be raised for all new drugs. At the end of the day, we are very different from ESAs. But I do believe that there is going to be heightened scrutiny on all the biogenerics.

Mike King - JMP Securities

Right. Just sort of – there is safety in numbers, Ron, can you just remind us what – how large, when you submit the data from your trials as well as Torii. Can you give us a rough number of – number of patients that have been on study and maybe I don’t know if you can estimate the number of patient years that those will represent when you finally submit your NDA?

Ron Bentsur

Well, so we expect at our integrated safety database that we’re going to submit as part of the NDA will include approximately 1500 or so patients that have been exposed to Zerenex. In terms of patient (meters), I don’t know off the cup but I can tell you that we’re going to have probably north of 500 patients or so that have been exposed to the drug for more than a year. So, that’s a pretty robust, safety dataset that we’re going to be presenting the FDA with.

Mike King - JMP Securities

Okay. But I assume that Torri some of the Torri data will also be submitted?

Ron Bentsur

Yes that includes…

Mike King - JMP Securities

That includes Torri?

Ron Bentsur

Yes.

Mike King - JMP Securities

Okay. And then maybe just a follow-up little bit further on an earlier question regarding pre-dialysis Ron you had said that the – that market opportunity is too large for a small company. I am just wondering how Amgen ran into this problem with J&J as you know, where basically because Epogen is fungible. They had this true up and it was kind of this Byzantine relationship between them and J&J with the different markets for their respective Epogen products. So, how do you avoid running into such a situation if you choose to commercialize in dialysis, but outlicense pre-dialysis?

Ron Bentsur

I mean, when you think about pre-dialysis, by the way when I mentioned that I was referring to Europe not necessarily to pre-dialysis.

Mike King - JMP Securities

I am sorry. Okay.

Ron Bentsur

But when you think about pre-dialysis, it’s a very large market obviously with hundreds of thousands of patients, but it’s not primary care. Again, when you think about CKD 3 to 5, particularly CKD 4 and 5, those patients already being treated by specialists, mostly nephrologists, and that’s a fairly finite universe. It’s obviously very different from primary care. It is something that a small company could do. It’s not too big for a small company to entertain. Again, if you are thinking about the entire pyramid of CKD, obviously that becomes very large, but when you think about the later stages of CKD, there is a significant amount of overlap in terms of the doctors and a large percentage of these patients are already being seeing and treated for their CKD by the specialists.

Mike King - JMP Securities

Okay, great. Thanks for answering the question. I’ll get back in queue.

Ron Bentsur

Thank you.

Operator

Thank you, gentlemen. Our next question comes from Stephen Willey with Stifel. Please proceed with your question.

Stephen Willey - Stifel

Yeah, hi guys. Just a couple of follow-ups. I guess, how quickly after you guys get the CKD data in the hand, do you think you will be able to get into Phase 2 meeting on the calendar with the FDA and how important do you think the agency will be viewing the FGF-23 data that you guys generate out of this study?

Ron Bentsur

So, FGF is an experimental marker. So, I am not sure how it’s going to evolve over the next few years, whether it will ever be elevated to the level of marker that the FDA is going to truly care about for approval purposes, but it is something that certain nephrologists are strong believers in. So, we have it in there. And so we are going to share that obviously with the FDA in terms of how quickly we can set up a meeting. Typically once you have your top line data, it takes anywhere from 45 to 90 days to get a meeting with the FDA. So, we are going to try to do it as quickly as possible.

Stephen Willey - Stifel

And then in terms of Phase 3 data presentation that you guys would be making in Hong Kong, I guess in 2Q will you be showing excursion data in terms of patients and?

Ron Bentsur

Yes. So, Dr. Lewis will be making that presentation. And obviously in addition to the final data per the primary endpoint and the secondary endpoints, she obviously will shed more light on the things like excursions, things like the timing of the ESA and IV iron reductions, first quarter versus fourth quarter things of that nature.

Stephen Willey - Stifel

Okay, thanks.

Ron Bentsur

Thank you.

Operator

Thank you. We have time for one more question. Our next question comes from the line of Boris Peaker with Oppenheimer. Please proceed with your question.

Boris Peaker - Oppenheimer

Good morning, guys.

Ron Bentsur

Good morning.

Boris Peaker - Oppenheimer

And can you hear me?

Ron Bentsur

Yes.

Boris Peaker - Oppenheimer

Great. So, my first question is in terms of commercialization of Zerenex in U.S. besides inventory buildup, what are the steps are you taking? Specifically, are you planning on making any kind of key hires in the commercial organization or any other kind of commercial organization investments at this time?

Ron Bentsur

In due course, we will be making some key hires, but inventory is obviously the biggest cost factor. When it comes to thinking about pre-launch activities or pre-commercial activities, in addition of that, one has to be prepared from a compliance perspective from all the things that you need when you are about to launch a product, a drug website all those things. So, we need to be prepared for that. Again, this has always been about a parallel path. On one avenue, there are business development discussions and we are going to be very opportunistic on that front. On the other side, there is the moving towards the commercial stage. And, those things are happening in parallel.

Boris Peaker - Oppenheimer

Why is inventory a build out on expensive activity, I was under the impression that it’s relatively inexpensive to manufacture Zerenex?

Ron Bentsur

It is relatively inexpensive. It’s expensive relative to us. We are a company that typically, even when we are running very large studies, we over the last couple of years we weren’t burning anymore than $5 million to $6 million, maybe $7 million a quarter on average, which I think that in itself is unusual. So, relative to us it will be a big undertaking, but again it takes time to hit the economies of scale. You don’t hit the economies of scale day one. So, you need to ramp up to get to that point and obviously once you get to that point, the cost of goods become relatively small, certainly we believe that the cost of goods component is going to give us a significant advantage over the competition.

Boris Peaker - Oppenheimer

And, great well thanks for that and my last question regarding pharmacoeconomics, and you mentioned the global number in terms of potential cost savings for the healthcare system. I am wondering if there is any kind of a study or more detailed analysis or modeling that we anticipate in the near future whether it a paper or of a meeting of some sort?

Ron Bentsur

I mean, the only numbers that we have right now, we are working on fine tuning the European numbers. We don’t have those yet, but obviously when you look at the U.S. sales for Epo and Aranesp, and then when you look at the IV iron formulations, you have those numbers. So, it’s very easy to do the percentage drops versus those numbers and to come up with a potential cost savings to the healthcare system. On the European front, we still don’t have all that information. We will very soon and we will be able to give obviously anyone who is interested our best estimate is to what the savings could be on that front. And then further down the road, we are going to be conducting some of those measures for some of the key emerging markets like Latin America, Eastern Europe places like that.

Boris Peaker - Oppenheimer

Well, thank you very much for taking my questions and for the thorough overview earlier today.

Ron Bentsur

Thank you very much.

Operator

Thank you. Gentlemen, we have come to the end of our allotted time for question-and-answers. I would like to turn the floor back over to management for closing comments.

Ron Bentsur - Chief Executive Officer

So, thank you very much for your time this morning and for your support. We look forward to interacting with you in the future as we strive to continue to unlock the potential for the success of Zerenex and Keryx. Have a good day. And thank you very much.

Operator

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Source: Keryx Biopharmaceuticals' CEO Discusses Q4 2012 Results - Earnings Call Transcript
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