Keryx Biopharmaceuticals (KERX) has grown over 350% since the beginning of this year, primarily due to clinical trial data on their chronic kidney disease drug (CKD) Zerenex. Positive trial results in early November, brought the stock even higher. However, on Dec. 5, the stock plummeted more than 10% after Adam Feuerstein, a senior columnist on TheStreet.com, tweeted his prediction that Keryx was unlikely to receive new chemical entity (NCE) designation because a competitor's drug, Velphoro, was unable to earn the title.
This assertion, as pointed out by several tweeters, appears to be incorrect. Although Zerenex is pending approval in June 2014, there are several reasons for investors to be bullish on Zerenex even before the approval process is completed.
Zerenex Pending Approval in Japan
Keryx's Japanese partner has filed its NDA for sales approval in Japan to treat patients of chronic kidney disease. The results for this filing are due anytime this month, and are likely to move the stock to new 52-week highs if approved.
Given extremely positive Phase III clinical trial results in the United States that determined the safety and effectiveness of the drug, it is very likely that the Japanese will approve the drug way before the FDA does next June. Japanese NDA approval may send Keryx Biopharmaceuticals above $20 in the next month.
Unique Treatment System
Feuerstein stated that Zerenex is similar to Velphoro and other drugs in the market because they use the "same active moiety."
This statement is not correct. Velphoro's active moiety is sucroferric oxyhydroxide, while Zerenex is using ferric citrate. Keryx's active moiety is new to the biotech field and could receive NCE, contrary to Feuerstein's claim. Even if the NCE designation is not earned, Zerenex still has a lot of potential given its previous positive Phase III clinical trial results.
To defend his tweet from Thursday that likely sent KERX down 10%, Feuerstein responded to a tweeter's comment on TheStreet.com with five points on why he does not believe Keryx will rise. Feuerstein's response again claims that Keryx will not gain NCE designation on Zerenex and that Keryx will lose market share to its competitor, Fresenius. However, he dismisses the fact that Keryx has shown outstanding Phase III trial results, in which Zerenex was able to reduce intravenous (IV) iron usage by 85%. It's hard to suggest that Zerenex will fail to obtain a large proportion of the CKD market, given its suggested superiority over similar drugs such as Velphoro.
Why You Should Be Long
Zerenex has thus far been shown to be both a safe and effective drug, but more importantly its estimated annual sales are upward of $1 billion. This figure accounts for the ever-growing stock price. We have seen a lot of growth since the inception of the Zerenex project, but the bulk of the growth in this company has not shown itself. Several catalysts in upcoming months could well allow for a move to $20 or more.
Conclusion and Current Price Target
Cory Kasimov of JPMorgan upgraded the stock to a $22 price target in early November, claiming that Zerenex will keep the company growing with over a 40% upside. Although there are clear risks involved with any company in the biotech industry, previous clinical results and technical analysis of the stock predict a positive future for the company. I would suggest taking a long position on Keryx with appropriate trading stops.
If Feuerstein is correct and NCE designation is not granted to Zerenex, the drug will still be set for FDA approval. In the long run, NCE designation will not change the effectiveness of the drug. Future clinical trial results between now and June will be accurate indicators of Zerenex's viability in the CKD drug industry.
Disclaimer: Investors should remember to do their due diligence before investing.