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By Jake King

It's been a banner year in biotech, and one of PropThink's top picks in 2013, Keryx Biopharmaceuticals (KERX), has outperformed significantly as one of the top healthcare equities of the year - KERX closed the year up almost 400% - more than a 4x return for those who followed us in when investors had left KERX for dead last Fall. With an approval for lead candidate Zerenex likely next year, a debate remains around the company's ability to protect the drug from generic entrants, which has kept some pressure on the stock. We opined on Keryx's intellectual property portfolio and potential patent-term extension (PTE) for Zerenex extensively earlier this year, interviewing patent attorney Dr. Scott Chambers in April for perspective from a former U.S. patent examiner. We've said from day one that a New Chemical Entity (NCE) designation for Zerenex is not critical to protecting the asset, and we continue to believe that NCE is a moot point: stressing the importance of this FDA designation misses the bigger picture. Keryx has a broad patent estate and, in our view, a high likelihood of receiving an important patent term extension from the PTO.

Two weeks ago, Keryx announced that the USPTO had issued U.S. Patent No. 8,609,896, yet another patent relating to Zerenex's surface area. The '896 patent expires in 2024 and claims orally administrable forms of Zerenex prepared from ferric citrate, Zerenex's active pharmaceutical ingredient (API) having a BET (Brunauer-Emmett-Teller) active surface area of >16 sq. m/g. Zerenex is ferric citrate with a BET surface area above this '896 surface area threshold, and with this issuance we decided to revisit the drug's existing intellectual property and differentiation.

To understand the new '896 patent and the rest of the patent estate, it's important to know that Zerenex is not a simple ferric citrate that can be substituted with any ferric citrate formulation, such as low dose forms that can be bought in health food stores - a point of confusion for investors. Composition is unique, with elements that give rise to two important features: 1) The product's performance as a phosphate binder that also improves anemia in patients with chronic kidney disease (CKD) and those with kidney failure; and 2) A family of patents that protect Zerenex from generic competition through at least 2024.

To clarify, Zerenex is the only oral ferric-based phosphate binder to show in clinical studies a meaningful improvement in iron stores in patients undergoing dialysis, as well as in patients with non-dialysis dependent NDD-CKD. Clinical data have been impressive (see our previous coverage), demonstrating Zerenex's competitive phosphate binding capability and the drug's ability to reduce the use of anemia treatments like Epogen, and perhaps eliminate the need for IV iron in both dialysis and NDD-CKD patients. As we've outlined before, the commercial benefits of Zerenex in dialysis and NDD-CKD patients include: 1) strong phosphate binding; 2) the ability to significantly reduce the use and costs associated with common anemia treatments; and 3) potential safety and health benefits for dialysis and NDD-CKD patients. The point here is that Zerenex is unique in its activity due to the product's active pharmaceutical ingredient, which is protected by multiple high-barrier patents.

There are several U.S. patents and applications designed to protect Zerenex from copycat competitors, but PropThink believes that the company's Surface Area and Dissolution Rate Patent family is important and that it will be difficult for generic companies to invent around these patents. In total, there are five patents in this family: two that relate to specific dissolution rates (rates for the molecule to dissolve in a standard intrinsic dissolution assay) and three that relate to the surface area of Zerenex's API (the drug's physical composition). U.S. Patents 7,767,851 and 8,093,423 are dissolution rate patents, and 8,299,298; 8,338,642; and 8,609,896 are surface area patents. Most of these patents expire in 2024 and have potential for even longer life through Hatch-Waxman Patent Term extension. Patent No. 8,609,896 was just issued by the U.S. Patent and Trade Office and added to the patent family (covers all oral forms of Zerenex's API). A fresh review and approval of this patent should be reassuring to investors. We describe the value of the complete patent family in more detail below.

Zerenex is manufactured (a precipitation process using certain solvents) such that its structure has very high surface area due to the high porosity of its particles, which enables rapid and complete dissolution in the gut. As a result, Zerenex's composition is physically different from other ferric citrate products. Keryx has intellectual property directed to the surface area range that it tested in order to develop Zerenex, blocking other companies from using this surface area range without violating the surface area patents listed above. A major benefit of these types of patent claims is that they are clear-cut and relatively easy to defend. The high surface area of Zerenex that results in the drug's rapid and complete dissolution is central to the product's differentiated activity in the body, and the company has also patented a range of dissolution rates for the formulation. The net result is that a company wishing to genericize Zerenex will have to formulate ferric citrate without violating the company's surface area patents (covering a range of surface areas) and its intrinsic dissolution rate patents (covering a range of dissolution rates). Pharmaceutical patent counsel with whom PropThink spoke have suggested that developing a formulation that performs the same as Zerenex is unlikely.

What many don't realize is that a simple generic approval pathway for Zerenex based on traditional bioequivalence studies does not exist because of its local action in the intestine, as well as its effect on iron stores in the body. Traditional generic drugs are approved by the FDA using bioequivalence studies designed to show that a generic mimics a given reference drug. For a generic drug to achieve bioequivalence, it typically has to deliver the same amount of active ingredient into a patient's bloodstream in the same amount of time as the reference (typically a branded) drug. Because Zerenex acts in the stomach to bind phosphate, the traditional route of proving bioequivalence in the blood is unavailable. A similar case can be seen with ViroPharma's (VPHM) Vancocin, a treatment for diarrhea caused by C. difficile infection in the gut. It took more than five years for a generic copy to reach the market because the FDA essentially had to create new standards to evaluate the "bioequivalence" of generic Vancocin challengers. In addition to Zerenex's local action in the intestine, the iron contained in Zerenex is materially absorbed into the bloodstream and causes real changes in the patients' iron parameters over a period of months. It seems this effect would also need to be studied before a copycat formulation is approved. Proving bioequivalence could require a lengthy and costly clinical trial to prove similar absorption of iron and its effects in the body. Because new standards will have to be created to approve generic versions of Zerenex, and that the company's patents, particularly the Surface Area and Dissolution Rate patent family, are quite strong, we believe that generic drug companies will not place a generic Zerenex development program high on the priority list for early patent challenges.

Note that NCE would expire in 5 years vs. Zerenex patents expiring in 10+ years. We continue to believe there's a strong chance that the U.S. Patent and Trade Office grants a Patent Term Extension (PTE) to the important '706 Composition of Matter patent based on existing case precedence, (again, see our interview with Dr. Scott Chambers). As Keryx hits the road this year and investors learn about Zerenex's patent situation and regulatory barriers to generic competition, we expect shares of this drug developer to rise to new levels.

Click here to read more about Zerenex in our previous commentary.

Source: Understanding Zerenex's Patent Protection And Latest Issuance

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.