By Jake King
Keryx Biopharmaceuticals (KERX) presented additional details from its pivotal Phase III study for Zerenex Monday at the World Congress of Nephrology (WVN) meeting during a lunch presentation. Some early profit taking this morning took the stock off of its pre-market highs, creating a buying opportunity on the positive results. The additional Phase III data for the phosphate binder continue to support what we consider to be a game-changing treatment with both phosphate-binding and significant anemia benefits for dialysis patients. New information revealed more evidence that the product could have major ESA- and iron-sparing benefits when used in patients with end-stage renal disease (ESRD) on dialysis. While some may have quickly sold into strength on Monday morning's news, several meaningful catalysts in the coming months provide investors reason to own KERX.
Last week, we wrote that this was the first in a number of incremental catalysts for Keryx coming into the second half of 2013, the most important of which will materialize with the release of Zerenex's effect on patients with Chronic Kidney Disease (CKD) who have not yet progressed to dialysis. This is arguably the largest potential market for Zerenex, and is not yet factored into analyst expectations as clinical evidence still needs to be released. CKD data from two separate studies will materialize in the second half, the first of which will come from the company's Japanese partner, JT Torii, when its own CKD results are published in a peer-reviewed medical journal (we expect this summer). Keryx will present its own Phase II CKD data late in the third quarter. KERX trades towards the bottom of its recent channel, an attractive entry point ahead of pivotal events that we consider significantly de-risked (read more in PropThink's previous article).
Highlights from the WCN presentation on Zerenex's Phase III results below:
- Primary endpoints affirmed. The primary investigator of the long-term Phase III Zerenex study, Dr. Julia Lewis (Vanderbilt University School of Medicine) presented data that continue to back that Zerenex met its co-primary endpoints in the trial - 1) control of serum phosphate vs. an active control group (either market leader, Renvela or Phoslo) over a 52-week safety assessment period (SAP), and 2) control of serum phosphate vs. placebo in the 4-week efficacy assessment period (EAP). These data simply showcase Zerenex's phosphate binding capabilities, and that the drugs work similarly to other therapies on the market, including market leader Renvela (see Tables 1 and 2).
- Iron parameters significantly increased with Zerenex, plateau of effect suggests safe long-term use. In Monday morning's press release, Tables 3 and 4 demonstrate that Zerenex gives rise to significant increases in both Ferritin and TSAT levels (iron storage parameter) vs. the active control group during the 52-week SAP: "Dr. Lewis noted that TSAT and ferritin scores in the Zerenex arm achieved a statistical plateau, in regard to TSAT levels at Week 12 and to ferritin levels at Week 36, compared to Week 52 (end of the SAP)." Importantly, the statistical plateaus for these iron parameters indicate that the therapy is unlikely to lead to iron overload with long-term use. In our view, this is most important should Zerenex receive an indication in the CKD patient population. The press release states that:
- New data on IV iron use shows many patients won't need it with Zerenex. Table 5 in the press release shows that IV iron use with Zerenex drops by 52%, but most impressively, new data released by the company shows that in the last 6 months of the Phase III study, 58% of patients using Zerenex were not using any IV iron. This is important in terms of cost savings, as well as patient safety, as many IV iron products have significant side effects and safety issues. Should Zerenex obtain approval in the CKD indication, these data are particularly bad for AMAG Pharmaceuticals (AMAG), which sells Feraheme, an IV iron marketed in the non-dialysis setting.
- Significant decrease in ESA use in Zerenex-treated patients. Zerenex could enable dialysis providers to use 24% less Epogen, a major potential cost savings for dialysis treatment. This is data that we have seen before, but nonetheless, is important for market uptake of Zerenex.
- Zerenex enables optimum hemoglobin control with less IV iron and Epogen use. Despite significantly lower IV iron and ESA use in Zerenex-treated patients, hemoglobin levels were well-maintained. These data (table 8 in the press release) support that Zerenex can keep patients in the desired range of hemoglobin with significantly less IV iron and ESA use. As a result, Zerenex may enable U.S. dialysis providers to save over $800 million per year in the treatment of ESRD patients (see prior article). Interestingly, Keryx's market cap is just $650M; the cost savings alone justify the value.
- Better safety and tolerability for Zerenex means more market share. Patients are often switched from one phosphate binder to another due to both pill burden (too many pills per day) and side effects of the drugs. Zerenex promises to have a lower pill burden relative to market leader Renvela, particularly given Keryx's follow-on 1.3g tablet formulation. But most importantly, Phase III study results for Zerenex demonstrated a more favorable profile for severe adverse events (SAEs). The results Monday showed an overall rate of SAEs for Zerenex at 39.4% vs. the active control group at 49%. Notably, the rate of severe gastrointestinal events, a key complaint related to phosphate binder therapy, was almost half for Zerenex vs. the active control arm (6.9% vs. 12.1%), and as a result, Zerenex is likely to be highly competitive in the category when it reaches the market. While many analysts estimate Zerenex capturing about one-third of the current phosphate binder market, the drug may take over 50% share given its better tolerability profile and anemia benefits relative to competitors. This, in our view, means that revenue estimates for Zerenex are too conservative.
Keryx remains a take-out candidate. With the more Phase III data presented on Zerenex at the WCN meeting, an opportunity to go after the larger CKD segment of the market (pre-dialysis), and data from partner JT Torii to be published soon, shares of KERX have room to run. Analysts suggest, on average, price targets of over $13 per share, and most if not all, are not factoring in the CKD opportunity. At its current price, KERX is attractively valued, and a take-out of this company from a large pharmaceutical interested in penetrating both the ESRD and CKD market segments might make sense. Amgen (AMGN) may have the most to lose given that Epogen currently commands the ESA market, but Takeda, Shire (SHPG), and Sanofi (SNY) are potential players.
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