The Validity And Risk Of Keryx Biopharmaceuticals

Keryx Biopharmaceuticals' (NASDAQ:KERX) has had a great upward ride of late, even with a recent short sell attack, advancing to nearly $10.00 from the lows of $1.28 over a 52-week period.

In mid-January, the stock was trading at just under $3.00 and is now hovering in the $7.00 range, downward from the $10.00 range. So is there another catalyst around the bend that would drive a price uptick? The answer is both yes and maybe.

First the yes. A large scale marketing agreement or partnership could be in the wings for the company's Zerenex product, the late-stage phosphate-binder for dialysis patients. The scope of marketing agreements often reflects a large upfront payment ($50M is not uncommon) as well as agreements for future development, late stage clinical work etc. The latter may not apply here as Zerenex is a Phase III clinical trial project that in fact reportedly returned much better results than anticipated. However, commercialization costs are soaring and often marketing agreements of substantial value are game changers when in the commercialization process for many firms. If a marketing agreement is in the works, or on the table, a near-term catalyst is imminent.

Then there is the maybe factor. In question is the company's IP for Zerenex, a possibility that the U.S. patent protection is insufficient. Insufficient in what manner? Insufficient to attract a major player to make a large marketing investment and reap proceeds during a lengthy period of 10 years or so, before generic players enter the game and dilute that revenue stream. CEO Ron Bentsur, in a recent earnings call which was diverted somewhat to an IP call, pointed out that if the 2024 patents hold up (dissolution and surface area formulation patents), the two patents could keep companies who produce generics at bay long enough for Zerenex U.S. exclusivity to be attractive to strategic partners. The company did note that they are having discussions with pharmaceutical companies at this point. So an apparent interest is valid and likely the companies being courted are doing their own IP due diligence. Keryx's argument is that it believes that Zerenex is strongly protected in the marketplace against generics through 2024 and they base that on issued API (active pharmaceutical ingredient), surface area, and intrinsic dissolution patents.

Keryx reported approximately $14.5 million of cash on hand from its 4Q 2012 report and in January 2013 announced the offering of $55 Million Proposed Public Offering of Common Stock subsequently pricing shares at $8.49 each. There is another estimated $6-8 million needed by year-end 2013 for the completion of current development for Zerenex, creating a possibility that the company may have to go to the offering well again in the next 12 months.

Validity and risk seems to be key here in several areas. If the IP protection is valid, then the likelihood of a substantial marketing agreement is too, as well as the likelihood that a valid catalyst opportunity is. This risk seems low.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.