Keryx Remains a Focused, Well-Funded Bio-Pharma Play

Includes: KERX, SNY
by: Mike Havrilla

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. I initially wrote about KERX in January 2010, and the Company has performed well (with stock price doubling from approx. $2.50 to $5.00 per share) thanks to delivering on its strategic objectives of advancing its lead compounds into three pivotal Phase 3 studies - with Phase 3 results expected for Zerenex in about three months (December timeframe).

KERX is well capitalized with no debt/convertibles and approximately $32 million in cash/equivalents as of 6/30/10. In addition, the Company has about 59 million shares of common stock outstanding with a fully diluted share count of 70 million and average daily trading volume that has grown over the past year to over 1 million shares per day. The expected cash burn rate for KERX during 2H10 is approximately $10 million, which will be offset by the same amount in expected milestone payments over the next six months that include option/warrant exercises and a milestone payment from its Zerenex partner in Japan (JT Torii) upon initiation of a pivotal Phase 3 study.

KERX 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. Below is an outline of the two lead compounds and three ongoing pivotal Phase 3 studies for KERX.

Zerenex (ferric citrate) (an iron-based phosphate binder to treat elevated phosphorus blood levels in dialysis patients) - has out-licensed rights to JT Torii in China, Taiwan, Korea, and Japan.

Initiated short-term efficacy study 5/6/10 with top-line results expected in Dec. 2010, long-term safety plus efficacy study (58-week study in approx. 300 patients) expected to begin in Sept. or Oct. 2010 with data anticipated during 1H12, Japan Partner (JT Torii) Phase 3 pivotal study expected to begin by year-end 2010 (a mid-single digit million dollar milestone payment is due to KERX once started). An additional $15 million milestone is possible upon regulatory approval in Japan, with approximately $55 million in remaining milestone payments based on the achievement of sales targets upon commercialization.

Perifosine (KRX-0401) (PI3K/Akt pathway inhibitor anti-cancer agent) - has in-licensed the North American rights to this compound from Aeterna Zentaris (NASDAQ:AEZS) as part of a milestone-based plus royalty agreement - Pivotal Phase 3 Clinical Trials under SPA.

Refractory metastatic colorectal cancer (mCRC) study initiated 4/8/10, patient enrollment (430 patients) expected to conclude in 12-14 months, study completion and top-line results projected during 2H11, announced Fast Track designation by FDA for mCRC on 4/5/10.

Relapsed or relapsed/refractory multiple myeloma (MM) patient study began Dec. 2009, patient recruitment (400 patients) expected to conclude in 16-18 months, study completion and top-line results projected during 1H12, FDA Orphan Drug/Fast Track status.

Zerenex works by forming iron-phosphate complexes in the gut that are not absorbed since patients with end-stage renal disease (ESRD) are prone to electrolyte disorders such as elevated phosphorus due to the absence of normal kidney function. Zerenex represents a niche market opportunity within a well-understood/established class of drugs (phosphate binders) that has a key differentiation of being iron-based compared to existing treatments such as PhosLo, Fosrenol, and Renagel/Renvela. In addition, Zerenex has the potential to offer an improved safety profile/patient acceptance with reduced GI/bloating side effects and approximately 50% less dosing burden (i.e. taking less pills less often) compared to existing phosphate binders.

Secondary endpoints that will be evaluated in the upcoming long-term study for Zerenex include the potential to increase iron levels and decrease the need for blood cell stimulators EPO agents such as Epogen and Aranesp), which could result in a first-line phosphate binder indication and pharmaco-economic advantages by reducing the need for IV iron/EPO products in dialysis patients. 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 one-half of all prescriptions and over two-thirds of global sales (over $700 million for these two drugs).

As I wrote in January, KERX remains a focused, well-funded small-cap bio-pharma play that has three ongoing Phase 3 studies under SPA for its two lead compounds with results pending in about three months (December) for Zerenex in the short-term efficacy study and initiation of the long-term study in the near-term. Perifosine remains a major catalyst in 2011 with Phase 3 data from the colon cancer study expected in about one year (2H11), and KERX has adequate funding to fully develop both of its lead compounds with additional potential for partnership/licensing opportunities for the North American rights to perifosine and ex-Asia rights to Zerenex.

From a trading/investing standpoint, I am currently tracking KERX on my watch list and will be looking to buy on any pullbacks (as stock price has risen sharply recently) ahead of the Phase 3 results for Zerenex in December, which have an excellent chance of meeting all endpoints based on positive results achieved to date in Phase 2 trials and the straightforward mechanism of binding phosphate to lower blood levels in patients with kidney disease.

Disclosure: No positions