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Keryx Biopharmaceuticals (NASDAQ:KERX)

35th Annual Goldman Sachs Global Healthcare Conference

June 12, 2014 01:00 pm ET

Executives

Greg Madison - Chief Operating Officer, Executive Vice President

Analysts

Gary Nachman - Goldman Sachs

Gary Nachman - Goldman Sachs

Hi, everyone. This is Gary Nachman. I am the Specialty and Big Pharma Analyst in Goldman Sachs. It's my pleasure to introduce, Greg Madison, Chief Operating Officer of Keryx. Greg joined the company in February of this year. Before that was at AMAG Pharmaceuticals, and before that spent 12 years at Genzyme Sanofi, so certainly a veteran of the space, so welcome.

Please see the agenda for the appropriate disclosures and I am going to turn it over to Greg to give a presentation. Thank you.

Greg Madison

Great. Thank you very much. Before we get started, thank you very much to Goldman Sachs' invitation to present to you today. This presentation will contain forward-looking statements, so I would encourage you to review our SEC filings for a detailed list of the risks associated with our business.

If you look at the evolution of Keryx, it's not unlike many other companies in the biopharmaceutical space. For many years, the company focused on early-stage clinical development programs of which we've had our share of failures. When the data started to first emerge [post] Zerenex, we realized that that program could have significant potential. During the middle period shown here on this slide, the company was focused on driving clinical results and programs for Zerenex and also concluding the filings and applications necessary for U.S. and EMA approval.

At the end of 2013, we made the decision to launch in U.S. on our own. In 2014, we begun building a high-performing commercial organization focused on preparation for U.S. launch pending again U.S. approval. We ultimately believe that this infrastructure that we are building can and should be leveraged with additional assets, so we will be looking for additional development stage programs that make strategic sense for Keryx.

In summary, Keryx is at a very different point than it was even as little as 12 months ago. Some of the high notes on this slide, in Zerenex we have a differentiated product that is pending U.S. approval with the PDUFA date of September 7, 2014. It's under review of the EMA, with the expected action date of mid-2015. We have global commercial rights with the exception of Japan, where it's licensed to JT/Torii in several Asian-Pacific countries.

Our initial target indication in the U.S. will be for treatment of hyperphosphatemia in dialysis dependent chronic kidney disease patients. We have good IP runway through 2024 before patent term extension and we have $155 million in cash as of the end of the first quarter on the balance sheet.

When we look at the CKD opportunity in the U.S., it is quite significant. Now, we do believe that this patient community is underserved, so our goal is to bring new and innovative therapies to this population to help with up patients with chronic kidney disease.

As I said, our initial focus will be on patients' undergoing dialysis shown on the left-hand side here, of which there are 450,000 in the patients in the U.S., the vast majority of which are on a phosphate binder as well as other agents to manage their anemia. From a label expansion potential on the right-hand side, in pre-dialysis CKD, there are about 1.5 million patients who have iron deficiency anemia and will speak about that a little bit later during the presentation.

Let me spend the next few minutes focused on the dialysis opportunity. Hyperphosphatemia or elevated phosphorus levels are a metabolic disorder and for patients with serum phosphate levels concentrations are greater than 4.6 milligrams per deciliter. It's important for patients to manage their phosphorus within good target ranges, because elevated levels haven't shown to be associated with increased risk of vascular calcification, cardiovascular disease and increased risk of morbidity or mortality. There was worldwide prevalence of ESRD has grown so has the phosphate binder market. It's now approaching $2 billion in worldwide overall sales.

There are four currently marketed phosphate binders available in the U.S. each of them has similar efficacy in terms of lowering serum phosphorus, yet none of them do anything replete iron stores, so we believe that Zerenex could be a very differentiated phosphate binder as it enters this market.

Our first point eventually be the U.S. phosphate binder market if we zoom in on the slide. Despite the availability of a generic in the marketplace in calcium acetate, the U.S. market has shown good strong growth, with a five-year average compounded annual growth rate of 13%. This market now is approaching $1.3 billion with the market leader is Renagel and Renvela.

If we move on to anemia market, the majority dialysis patients also have iron deficiency anemia. The bottom line of this market is that oral iron is very really used in dialysis patients, primarily because the currently available oral irons are fully tolerated and they have poor absorption rates, which leads to lack of efficacy.

Consequently, in addition to taking phosphate binders every day, almost the vast majority of dialysis patients also take IV iron and ESA injections to manage their anemia. Now this anemia could be managed with less IV iron and less ESAs. You could see significant pharmacoeconomics savings for the healthcare system, so I think it's helpful to put into historical market dynamics in perspective to really understand the dramatic shift that's undertaken of how patients in anemia is treated for dialysis in the U.S.

If you look at this chart starting at the far left-hand side, back in 2010 data from long-term Phase IV of studies started to emerge from the ESAs that highlighted the cardiovascular risk, resulting in a box warnings for these agents. In 2011, the bundled payment system was implemented in the dialysis space putting a lot of cost pressure in this particular area.

In 2012 and in 2013, there has been increased scrutiny on the risks associated with IV iron, both in the U.S. as well as in the E.U. In the E.U., the EMA actually initiated article 31, where it's actually looking at adverse event reporting for all currently marketed IV irons.

Earlier this year in 2014 KDIGO initiated an IV Iron Consensus Conference, which discussed among other things some of the safety concerns associated with the use of IV iron, so the bundled coupled with the increased focus on safety of ESAs has really led to a shift in anemia management, which is displayed on the slide. The result was lower doses of ESAs shown on the right-hand side of the slide being used in theses dialysis patients and an increased dose of IV iron used in dialysis patients displayed on the left.

With the recent heightened awareness around the potential risks associated with IV iron seen in both, the U.S. and Europe, we do believe that the physicians had an effective oral iron alternative that would also start to see that curve of IV iron start to decrease in dialysis patients. We actually believe that Zerenex could be that alternative.

Zerenex is an iron-based therapy, specifically designed to bind dietary phosphorus and replete iron stores in patients with CKD. As I mentioned at the beginning of the presentation, we completed a successful Phase III program, where we met all the primary and key secondary endpoints. We filed an NDA in 2013, and we have an action day for PDUFA coming up on September 7th.

If you look at the Phase III data, the results are impressive. From a primary end point perspective, Zerenex significantly reduce phosphorus levels versus placebo. Equally of importance that the phosphorus levels in Zerenex-treated patients were well-managed, with a target below 5.5 which is the target that's set from K/DOQI guidelines, which most dialysis organizations follow, but it doesn't stop there. Zerenex offered more.

Zerenex also effectively managed anemia parameters such as TSAT, ferritin and hemoglobin and did so with significantly less ESA and IV iron the new patients treated with active control. With this data, we believe that Zerenex fills unmet need in the dialysis community and could deliver more to patients and their providers in all currently marketed phosphate binders.

Of significance, earlier this year, CMS delayed the inclusion of oral-only drugs into the dialysis bundle until 2024, which now provides a clear reimbursement pathway for Zerenex for the next several years, so the significant value that could be derived from Zerenex use, we believe, will resonate with all the stakeholders in this space, patients, physicians and providers alike.

Recent market research actually starts to support that thesis, where surveyed physicians definitely see the effects on anemia parameters as a significant advantage for Zerenex. On this slide, 50% of U.S. nephrologists and 60% of EU nephrologists surveyed cited improvement in anemia parameters is one of the top three most persuasive endpoints prescribing new drug in hyperphosphatemia.

Additionally of all marketed in development phosphate binders, Zerenex ranked highest in overall efficacy among surveyed nephrologists due to its potential effects on anemia parameters, reduction in median ESA intake and reduction in IV iron intake.

I think this slide sums up that what makes Zerenex overall different. This is not just another phosphate binder. We do believe this to be a very disruptive entrant into the phosphate binder marketplace. The truly differentiated product in hand, we begin in 2014 building the commercial team to prepare for launch, so I joined in February of this year. I come with 12 years of experience from Genzyme in the renal division there. Recently General Manager of the Renal Division, I spent a year in the IV iron space as well, so the fairly comprehensive understanding of the phosphate binder market as well as the anemia market.

With a leading marketing operations, Tom heading up sales and Dan heading Payer Access, we put together a top-notch commercial team with most importantly very relevant renal-specific and specialty launch experience-specific folks in place and the teams that they developed underneath them are equally as impressive, so now we have the right talent in place and are focused on developing the right plan to ensure a successful launch.

What does that plan include? We talked about how the product is differentiated which we believe we have. We have been and continue to undergo extensive market research and advisory boards to really understand, our customer understand what's going to drive their behaviors and what is going to motivate them to look at a product like Zerenex. All that findings is going to form our marketing strategies. We develop our positioning, our product messaging platform, our pricing strategy. We are also developing comprehensive patient access programs to ensure to maximize the accessibility of Zerenex for patients at launch.

From a market access perspective, we are building a detailed understanding of the payer landscape, including developing our contracting strategy to optimize formulary placement and positioning. We are also going through painstaking detail to understand the sequence and timing of when we will be reviewed by each payer for formulary inclusion, so we can quickly garner access. From there, you need experienced sales team that believes in your product and has all the tools necessary to promote the drug.

Where are we today? Well, we are in full launch preparation, immersed in all the activities that I just described. Upon approval, ideally on September 7th here, we will hire our field sales team, we will get them trained and we will start to talk to payers about contracting strategies to get onto formulary.

Our plan right now is in the late the third quarter to ship product to wholesalers and have our field based teams starting to call on doctors to talk about the benefits of Zerenex in the early part of the fourth quarter. In additional to large opportunity that exists with Zerenex today in the U.S. dialysis market, we have identified two avenues of potential growth opportunities for Zerenex start Zerenex itself. The first is organic growth and that could be done through label expansion opportunities as well as international expansion opportunities and I will spend a few minutes touching on each one of these.

First, non-dialysis dependent CKD, so again as a reminder, there are 1.5 million approximately patients in the U.S. that stage 3 to 5 CKD with iron deficiency anemia. As their CKD progresses, their deficiency anemia gets worse. While IV iron and EPO can be effective agents in managing anemia, they are very rarely used in this patient population. The reason, they are very rarely used in this population is because they are invasive therapies, they come with logistical as well as safety concerns and the bottom line is the majority of pre-dialysis clinics in the U.S. do not have the necessary safety equipment to administer these drugs.

Similar to what we talked about in the dialysis space, the current oral iron formulations are ineffective and rarely used as well, namely again, because of poor absorption rates and poor tolerability rates, so we believe Zerenex can really fit this unmet medical need quite nicely and are Phase II data really helps support that.

If you look at the Phase II study, we conducted Phase II study of Zerenex and in stage 2 to 5 pre-dialysis CKD patients. This is a multicenter randomized double-blind placebo-controlled study. Importantly no IV iron or ESAs were permitted during the study. In fact, we had a washout from both of those agents preceding the study.

If you look at the results listed down at the bottom, you would see they were statistically significant on the primary and key secondary endpoints which also include many of the parameters used to manage anemia such as TSAT, ferritin and hemoglobin. Based on this data as well as the unmet need we see in the CKD marketplace, we will initiate a Phase III pivotal program to support the registration of Zerenex in this patient population and kick that off in the second half of this year.

From an international expansion which is a second avenue of organic growth for us. Earlier this year, our Japanese partner JT/Torii received marketing approval for a Zerenex which will be marketed market as Riona in Japan. They actually got approval both, in the dialysis and the pre-dialysis market space which marks on the second binder in Japan actually have both of those indications.

From a good news perspective, we actually got favorable pricing which is in line with market leader and the team in Japan actually launched a couple weeks ago and is out now talking to doctors, so we received as Keryx a $10 million milestone payment. There are $55 million remaining in our potential milestone payments and we also received double-digit royalties on sales based in Japan.

From Europe perspective, we filed our applications been validated earlier this year, so it's under current review. We expect the decision on that probably in the 2015 standpoint. With Europe as well as other geographies we are currently determining the best path forward for commercialization.

We also look at in addition to all the significant growth we have potentially with Zerenex, that growth through acquisition is an growth strategy for us, so we will seek to add development stage programs to our portfolio. These programs ideally are late-stage development, significantly de-risked, have a long IP runway, they are complementary to what we are doing today, so meaning ideally a nephrology type of call point and they could be in the renal space and [space], things are adjacent to what we are currently doing today.

As we look at in-licensing opportunities for additional assets, we will be sure that we leverage all the infrastructure that we are currently building both, on the G&A side, the commercial side and leverage our experience and relationships with key nephrologists.

I highlighted many of the updates that I wanted to speak to today, what I would like to do is just conclude the presentation with a quick review of our corporate milestones.

Two of the milestones have already been hit, second quarter this year the Riona launch in Japan. We also released in the first half of this year pharmacoeconomic publications highlighting Zerenex potential IV iron, ESA and safety-related savings. Those were presented at the National Kidney Foundation in April.

The third quarter you can see is going to be quite busy, with the September 7th coming up on PDUFA date, the initiation of our Phase III clinical trial for non-dialysis CKD, the potential U.S. commercial launch of Zerenex pending approval. Then in the third and fourth quarter, we will have additional data publications and presentations the key conferences that will be coming out.

That concludes my presentation. I am happy to take any questions that you may have.

Question-and-Answer Session

Gary Nachman - Goldman Sachs

Okay. Greg, thank you so much. That was a great presentation. My first question is on the PDUFA extension for Zerenex, which is due to some CMC questions that the FDA had. Then you provided them some additional data and that was considered major amendment.

Greg Madison

Correct.

Gary Nachman - Goldman Sachs

Talk about the manufacturing. Who is responsible for that and how are you comfortable that three months time you will have checked all the necessary boxes.

Greg Madison

Yes. We have not disclosed on our manufacturing side as of yet who is doing our manufacturing, but from the CMC perspective, on May 8th, we received the information request from the FDA related to specifics on CMC questions overall. These were not plant related. They were just managed specifications related to the drug product overall specifications. We responded to the FDA and on May 22nd We received the notification of a three-month extension, so the CMC-related issues, the opportunity, the reason why it probably triggered a major amendment in the three-month delay is that related to specifications, related to drug product process it's in multiple different sections of the NDA, so it's an [oculus] as it sounds it's located in a lot of different areas which creates a volume of work and a volume of paper that has to go back in front of the FDA, so FDA received that volume in totality it was deemed to major amendment hence the three month extension.

At this point in time, we've submitted what we need to submit. There is no pending actions at least as we sit here today on our side that needs to get in front of the FDA, so now it's in front of the FDA and we will just wait for any additional questions that may come.

Gary Nachman - Goldman Sachs

You are not disclosing more about the manufacturing, but the facility wherever it is being manufactured. Has that been approved by FDA?

Greg Madison

Yes. The manufacturing sites and things like that have all been inspected and approved. We do not see this as a manufacturing or plant related issue, I should specify, more of a CMC-related issue, so again, we have kind of submitted everything we need to submit at this point in time and we feel confident that the data we have in-house should hopefully meet what the FDA is looking for.

Gary Nachman - Goldman Sachs

Okay. Then from a commercial standpoint, what's the right number of sales reps that you think you need to promote this product. I would think it's a pretty concentrated sales effort. Then also you touched on the formulary process, but maybe just a little bit more in this market. What those dynamics are and do you expect that that is going to be a difficult road or do you have the profile that drug is compelling enough where you think they will be able to approve it pretty quickly.

Greg Madison

Yes, great question. From a sales rep perspective, we are fine-tuning the final estimates there, but we are probably in the 50 range overall. As you mentioned it's a really concentrated group of nephrologists that will go out of the gates with. You know the folks are seeing a lot of patients' phosphate binders. We believe roughly about 50 sales reps should be able to effectively cover those physicians at launch.

From a reimbursement perspective, with the team that we have in place headed up by Dan, number one, we have great relationships and great experience in that space overall, so the ability to kind of gain formulary access, we don't see that as a major hurdle overall. It is important to understand the timing aspect of things, so you look at commercial payers in Part D, which in this space will make up probably about 80% to 85% of all the prescriptions there.

Each one of those plans has different timing of when they do formulary reviews, so we are painstakingly mapping out when they plan to do formulary review with Zerenex and trying to build that over time to get to the right reimbursement level we need to. I think, importantly from expectation standpoint, we will launch out of the gate with a certain level of reimbursement with a goal towards driving towards maximizing that reimbursement and that will build over time, so we are looking at their commercial space and the Part D space.

Again, with the team that we have in place, I think we are very confident that - as we map out different contracting strategies, what's our optimal formulary placement then how we augment that with potential patient access programs that will have good access.

Gary Nachman - Goldman Sachs

Then from a pricing standpoint it sounds like you are still working through that, but what's the reasonable range to think of just based on some of the competitors that are out there? You have been in this market for long time. We are hearing a lot of pushback in general about just more sensitive therapies and I just wonder how sensitive you think this market is to that product in particular?

Greg Madison

Yes. It's a great question, so we are paying very careful attention to that overall, so Renvela is clearly the market leader in the U.S. In fact, they just took a price increase last week, so we are watching kind of their actions very carefully, so we are using that as a parameter for what potentially we may do, so we are going through final market research with payers right now to understand that you describe maybe a little bit of a tipping point of where is the right balance overall, what's our right balance from a whack perspective and then what's the right balance form a contracting strategy perspective depending on where we want to be on the formulary side, so we will be finalizing that probably over the next couple of months and have that very well ready for launch, the day of launch.

We are ready to get in front of those payers with the right contracts and the right strategies overall, but from a pricing perspective, I would say Renvela is probably good parameter, whether it's equal, little bit less, little bit more, we will fine-tune that and come out with our strategy.

Gary Nachman - Goldman Sachs

I have a couple of more. In terms of anemia, maybe just quantify that incremental market opportunity- get that indication?

Greg Madison

Yes. I mean, if we are lucky enough to get that indication again, we will initiate the trial there. As I mentioned right now there is probably about 1.5 million patients overall at least in the U.S. that suffer from iron deficiency anemia stage 3 to 5. We look at that opportunity there, we dive into that market. Very few patients today are getting through with IV iron or ESAs in general, yet their hemoglobins are terribly low. They are 9s, 9.5, so really it's an unmet need and they are not getting treated effectively.

Oral iron is an option that people try, but if you talk to nephrologist, many nephrologist don't even use oral iron, because of these reasons I mentioned before, which is it's not really tolerated all that well, it's not absorbed very well in patients with CKD, therefore has limited or marginal effect on efficacy, so it's really an unsatisfied market, but you also have patients walking around with very, very low chronically low hemoglobin levels which has devastating effects for them overall, so that's a big unmet need from that market space perspective that we think Zerenex, with the clinical profile we saw in the Phase II trials sets a very nicely for an unmet need and opportunity for us to enter that marketplace in a profound way.

Gary Nachman - Goldman Sachs

Okay. Then one last question, just tell us what the cash balance is. I know you are not the CFO, but maybe just talk about important metrics at a high-level. Then you mentioned that you guys are thinking about in-licensing opportunities. I mean, how aggressive are you with respect to that?

It seems like if you get this product approved, that would be the primary focus of the company. I mean, could you handle bring another asset in at this point both, from a strategic standpoint and also from a financial standpoint?

Greg Madison

Yes. Great question. We ended the first quarter with $155 million on the balance sheet. No debt exists in the company, so availability for capital is out there. From a strategic perspective, as we started to do and launch this product on our own, nobody within our organization is taking their eye up with all which is pure focus on getting this launched, doing everything we can to have a successful launch.

On top of that, while we are building out G&A infrastructure, commercial infrastructure, all the necessary back-end components needed to build a commercial stage organization, just makes great sense to start looking out and saying okay, what are other assets that we can bring in that leverage the infrastructure that we are building, plus the relationships that we are going to establish with these key nephrologists, so within the renal space there is a lot of unmet medical needs under the umbrella of cardiovascular, metabolic or disease we are actively starting to screen the landscape now to look for those types of assets.

Ideally, like we said, we want them to be later stage in development overall, they are de-risk type of compound, good IP runway and really leverage that kind of expertise that we are going to develop in the nephrology space and leverage the infrastructure that we are going to built, so strategically focused on the launches paramount.

Nobody is going to take the eye off that, but we also want to not wait too long to start looking at how we bring in other assets to be able to leverage the small specialized team that we are starting to build, so we are actively looking right now.

Gary Nachman - Goldman Sachs

Would you need to raise more money in order to bring…

Greg Madison

TBD, there are a lot of details behind that depending on what the product is, what the structure looks like, what do we with Europe overall. There is a lot of factors that could play into that so, TBD.

Gary Nachman - Goldman Sachs

Anyone has any questions? No. Okay. That's great. Well, thank you Greg. Thanks so much for coming and everyone enjoy the rest of the conference.

Greg Madison

Thank you.

Gary Nachman - Goldman Sachs

Bye, bye.

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