Keryx Biopharma: A Well-Capitalized Comeback Story with Multiple Catalysts

Keryx Biopharmaceuticals, Inc. (NASDAQ: KERX) is an emerging, small-cap biopharma company that has a pair of lead compounds in late-stage, Phase 3 development for the treatment of cancer (perifosine) and renal disease (Zerenex) under Special Protocol Assessment (SPA) agreements with the FDA.

In addition, Keryx is well capitalized with no debt / convertibles, $41 million in cash / equivalents plus long-term investment securities, and approximately 56 million shares of common stock outstanding (70 million shares fully diluted). Keryx has retained all key commercial rights for its two lead compounds and has the resources to complete Phase 3 development for both of its lead compounds, which provides more leverage in partnership discussions. The estimated cash burn rate for 2010 is $1.3 million per month or approximately $4 million per quarter and $16 million for the entire year.

The Company’s long-term investments consist of $7.3 million (fair value estimate) / $10 million (par value) in auction rate securities (student loan backed securities), which have experienced illiquid markets since early 2008. However, Keryx reported the successful sale of three auction rate security investments in October 2009 that represented $5 million in par value (half of its holdings) for $3.9 million in proceeds, which was slightly above the Company’s fair value estimate. Last September, Keryx significantly strengthened its balance sheet with the closing of a $20 million registered direct offering that included the sale of 8 million shares of its common stock at $2.50 per share and 2.8 million common stock warrants at an exercise price of $2.65 per share.

Keryx has staged an impressive comeback since March 2008, when a Phase 3 clinical trial of Sulonex (sulodexide) for the treatment of diabetic nephropathy failed to meet its primary endpoint, resulting in a drastically lower stock price that languished well below one dollar for over one year until mid-2009 when encouraging Phase 2 results for perifosine reignited the stock. Last May, the Company also announced the appointment of Ron Bentsur as the new CEO to lead the successful development of its two late-stage pipeline candidates.

Last December, Keryx announced the initiation of a Phase 3 pivotal study of perifosine (KRX-0401), the Company's PI3K/Akt pathway inhibitor (a cell signaling pathway that disrupts the normal cell cycle / programmed cell death and leads to chemotherapy drug resistance in some cancer cells), in multiple myeloma patients under a Special Protocol Assessment (SPA) with the FDA with Fast Track designations for this indication. It is structured as a double-blind, placebo-controlled trial comparing the efficacy and safety of perifosine vs. placebo when combined with bortezomib (Velcade) and dexamethasone and will enroll 400 patients with relapsed or relapsed / refractory multiple myeloma.

Perifosine is in-licensed by Keryx from Aeterna Zentaris (NASDAQ: AEZS). Approximately 265 events (defined as disease progression or death) will trigger the un-blinding of the data. KERX expects a patient recruitment period of approximately 16-18 months and expects to report data from this study during 2H11. During 2010, KERX also expects to report updated data from its Phase 2 colon cancer study, finalize late-stage trial protocol for colon cancer study, and begin additional late-stage studies for colon and/or kidney cancer.

During the first week of 2010, Keryx announced that it has reached agreement with the FDA regarding a SPA for the design of a Phase 3 clinical program for Zerenex (ferric citrate), which is the Company’s iron-based phosphate binder for the treatment of elevated serum phosphorous levels (hyperphosphatemia occurs in the majority of dialysis patients, resulting in serious medical complications such as blood vessel calcification and skeletal deformities since phosphate is a major component of bone along with calcium) in patients with end-stage renal disease (ESRD) that are on dialysis.

Zerenex works by forming iron-phosphate complexes in the gut that are not absorbed since patients with ESRD are prone to electrolyte disorders such as elevated phosphorus due to the absence of normal kidney function. In accordance with the Company's SPA agreement with the FDA, the Phase 3 clinical program for Zerenex will consist of two clinical studies, including (1) a short-term efficacy study that is expected to commence by the end of 1Q10 with date expected during 2H10; and (2) a long-term safety and efficacy study that is expected to begin mid-2010 with data expected and a NDA filing expected during 1H12.

The 52-week safety assessment will be followed by a 4-week efficacy assessment in which only patients randomized to treatment with Zerenex during the safety assessment will be randomized to continue treatment with either Zerenex or placebo for a 4-week period. In addition, Keryx has signed a partnership in Japan (JT Torii) that includes over $100 million in potential milestone payments and sales royalties upon commercialization. The ongoing Phase 2 study in Japan is near completion and Keryx expects the Phase 3 trial to begin during 2010, which will trigger a development milestone payment.

The global market for phosphate binders is over $1 billion and is dominated by Genzyme (NASDAQ: GENZ), which markets both Renagel and Renvela that control a market share of approximated 50% of all prescriptions for this class of drugs that translates into about 75% of all sales (with expected global sales for these two drugs of $750 million). The commercial potential for phosphate binders is expanding, with the use of these drugs in pre-dialysis patients with Stage IV chronic kidney disease.

Zerenex may offer safety advantages to existing phosphate binders such as Phoslo and Fosrenol while offering much less frequent dosing compared to Renagel / Renvela, in addition to the absence of GI / bloating side effects. Finally, Zerenex has the potential for a first-line indication if pending Phase 3 data demonstrates a reduced need for intravenous and / or EPO blood cell stimulating drugs such as Amgen’s (NASDAQ: AMGN) Epogen / Aranesp, which are the subject of a pending FDA Advisory Panel meeting later this year to assess cardiovascular safety issues (i.e. the incidence of heart attacks, strokes).

The most recent closing price for Keryx of $2.86 per share represents a market cap of approximately $160 million based on 56 million shares outstanding or $200 million on a fully diluted basis (70 million shares). For the first five trading days of 2010, shares of Keryx have increased nearly 15%, including a gain of about 7.5% on Friday alone. I am currently tracking the stock on my buy list and will look to initiate a long position in the $2.50-2.65 range on any pullbacks for a long-term holding in my portfolio.

In summary, Keryx is a compelling speculative buy for investors interested in the small-cap biopharma space because it is well capitalized ($41 million cash / investments) with a low cash burn rate projected for 2010 ($16 million) and a pair of late-stage, Phase compounds in development with pending catalysts in the form of additional trial data and other development milestones expected throughout 2010 and beyond. In addition, both perifosine and Zerenex have SPA agreements with the FDA along with supporting efficacy and safety results from multiple Phase 2 studies that serve as the basis for the late-stage, pivotal Phase 3 development strategy for both drugs.

Disclosure: No positions