Why Zerenex Could Be More Than Just A Dialysis Product

By Jake King

Early this year, Keryx Biopharmaceuticals (NASDAQ:KERX) reported strong Phase III results for its phosphate binder Zerenex (ferric citrate) in dialysis patients, sending the stock from $3.38 to nearly $10 a share within days of the late-stage results. The move was largely due to the product's unexpected differentiation - in addition to binding phosphate in patients with kidney failure, Zerenex was shown to lower IV iron use by 52% and the use of ESAs (erythropoietin stimulating agents) by 27% (See PropThink's previous story). Our models suggests that the dialysis opportunity alone is worth roughly $15 per share to Keryx, but we believe that significant upside exists if Zerenex demonstrates an ability to manage anemia in patients with chronic kidney disease (CKD) that are not yet on dialysis. We estimate this "pre-dialysis" market opportunity at three times the size of the dialysis market, suggesting that Zerenex could be a blockbuster drug if the CKD indication is realistic. Clinical trial abstracts released by the company's Japanese partner on Wednesday, suggest that it is, which is why KERX could continue higher into upcoming Phase II results from the company.

At $15 per share, KERX would have an enterprise value of $1.2B, and if Zerenex could be used in both the dialysis and pre-dialysis indications, the drug has potential for sales in the billion-dollar range. KERX could be worth multiples of where it trades today. Importantly for investors and strategic partners or acquirers, Zerenex would be the only oral iron approved for the management of anemia in CKD patients. If Keryx is able to show similar clinical results as its partner, this provides a compelling case for physicians to prescribe the drug.

Results from Keryx's Phase II pre-dialysis CKD study are expected in the next month, and we've discussed at length in previous coverage the profound effect positive results could have on the stock. In addition, we've discussed why we believe these results are significantly de-risked: namely, Keryx's Japanese partner, JT Torii, filed for Zerenex's approval in Japan in both the pre-dialysis and dialysis indications, although to date, the company has not presented this registrational data publicly.

That changed Wednesday morning with the release of an abstract highlighting results from JT Torii's own pre-dialysis CKD trial. The abstract, titled "The Effect of JTT-751 (Ferric Citrate Hydrate) on Phosphorus and FGF-23 in Chronic Kidney Disease" is available as of Wednesday morning on the American Society of Nephrology's Kidney Week website. Although this is not the entire dataset, which will be presented at the Kidney Week meeting in early November, the results demonstrate Zerenex's robust ability to improve serum phosphate levels, FGF-23 (a sign of worsening kidney function), iron parameters, and hemoglobin.

Ultimately, it looks like the Phase III Japanese results support Zerenex's use in the pre-dialysis setting. From the abstract, emphasis is our own:

A total of 90 patients with a serum P level of 5.0 mg/dl or higher were randomized 2:1 to JTT-751 [Zerenex] (1.5-6.0 g/day, n=60) or placebo (n=30) for 12 weeks. The primary endpoint was change in serum P level from baseline to the end of treatment (NYSE:EOT). Secondary endpoints included the percentage of patients achieving target serum P levels (2.5-4.5 mg/dl), and change from baseline in fibroblast growth factor-23 (intact-FGF-23) at EOT.

Results: The mean change in serum P level at EOT was -1.29 mg/dl in the JTT-751 group and 0.06 mg/dl in the placebo group (P<0.001). The percentage of patients achieving target serum P levels at EOT was 64.9% in the JTT-751 group and 6.9% in the placebo group (P<0.001).

Treatment with JTT-751 significantly reduced intact-FGF-23 levels (P<0.001). JTT-751 significantly increased iron parameters (P<0.001) and hemoglobin (P=0.04). Adverse drug reactions were similar in patients receiving JTT-751 or placebo with gastrointestinal disorders occurring in 30.0% of JTT-751 patients and 26.7% of those receiving placebo.

Although the abstract does not elaborate on iron parameters or hemoglobin levels, the fact that Zerenex improved these outcomes with statistical significance is telling of its ability to treat anemia and spare oral iron/ESA use. Thus like in dialysis, Zerenex offers a dual benefit to pre-dialysis CKD patients.

We can compare the above results to a previous, randomized and placebo-controlled study of phosphate binders in the pre-dialysis CKD setting, which was published by Block et al. in the Journal of the American Society of Nephrology last year. In the study, the three leading phosphate binders - PhosLo, Fosrenol, Renagel/Renvela - were evaluated against placebo. For the phosphate binders, serum phosphate decreased from a baseline mean of 4.2 mg/dl to 3.9 mg/dl, and 4.1 mg/dl for patients on placebo (P=0.03). Thus, the active arm resulted in an average 0.3mg/dl serum P improvement. In contrast, recall that Zerenex in the above study improved serum phosphorous by an average of 1.29 mg/dl. Given, there are numerous pitfalls to the above comparison (differing baseline characteristics, length of study, etc.) but it's worth noting the relatively poor performance of other phosphate binders in the CKD setting in light of Zerenex's new data.

Overall, we remain bullish on the forthcoming Phase II CKD results from KERX, and recent pressure on the stock has presented a compelling entrance opportunity for those not involved in KERX prior to the January inflection point. KERX is up 9% with the introduction of this new data, and we suspect that sell-side analysts digesting this news could prompt revisions to existing price targets, as most Wall Street analysts currently attribute little value to the CKD opportunity. In addition, validation of the CKD opportunity in Keryx's Phase II study should increase interest from pharma, potential partners or strategic acquirers. Although we'll need to see confirmation in a larger Phase III CKD program, Zerenex's approval in ESRD next year would open the gates to off-label use in anemic, pre-dialysis CKD patients. Keryx has guided for Phase II CKD results around the ASN meeting next month.

Disclosure: I am long KERX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: PropThink is a team of editors, analysts, and writers. This article was written by Jake King. We did not receive compensation for this article, and we have no business relationship with any company whose stock is mentioned in this article. Use of PropThink’s research is at your own risk. You should do your own research and due diligence before making any investment decision with respect to securities covered herein. You should assume that as of the publication date of any report or letter, PropThink, LLC and persons or entities with whom it has relationships (collectively referred to as "PropThink") has a position in all stocks (and/or options of the stock) covered herein that is consistent with the position set forth in our research report. Following publication of any report or letter, PropThink intends to continue transacting in the securities covered herein, and we may be long, short, or neutral at any time hereafter regardless of our initial recommendation. To the best of our knowledge and belief, all information contained herein is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable, and not from company insiders or persons who have a relationship with company insiders. Our full disclaimer is available at www.propthink.com/disclaimer.