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Keryx Pharmaceuticals (NASDAQ:KERX) is a developmental stage company with two drugs in the final stages of clinical development - quite an accomplishment for a company its size. With Zerenex, its drug for renal disease and Perifosine, its oncology drug, it appears to have good odds of passing FDA muster.

Keryx is developing the phosphate binder, Zerenex, for the treatment of hyperphosphatemia in chronic kidney disease (CKD) patients on hemodialysis. Without effective treatment, hyperphosphatemia may lead to renal osteodystrophy, a collection of bone diseases characterized by bone pain, brittle bones, skeletal deformities and fractures. Evidence also shows that hyperphosphatemia may contribute to cardiovascular disease. The compound is currently in Phase III trials, and by the end of this year, top line results will be available from a short term study, providing efficacy data from a broad patient population. A long term safety study has just been initiated in September of this year. With both sets of data in hand, the company expects to file an NDA in the first half of 2012.

The total market for phosphate binders is worth well over $1 billion, with $700 million of that going to Genzyme for its drugs Renvela and follow-on, Renagel. Keryx management is aiming specifically to take market share from Genzyme but also believes Zerenex has competitive advantages over smaller players including PhosLo and Fosrenol. Management believes $200 million in sales is highly achievable.

I believe $200 million in sales is a good starting point. Six Phase II trials have already shown Zerenex is effective, if it can be shown to have advantages over Renvela/Renagel, such as a substantially reduced pill burden- the treatment requires 3 pills taken 3 times daily- we can expect to see substantially higher sales. In that case, Zerenex alone would justify Keryx’s $375 million market cap (fully diluted).

Consider this; just three years ago, Amgen bought out Ilypsa of Santa Clara, CA. for $420 million to get its hands on its phosphate binder, ILY101. Ilypsa’s compound was only in Phase II development at the time. Analysts had estimated Ilypsa’s compound could at most take half of the Genzyme drugs’ market share.

Now add in Perifosine, the company’s AKT inhibitor and flagship compound. Keryx is taking the compound forward in metastatic colorectal cancer (mCRC), and relapased/refractory multiple myeloma (NYSE:MM). Perifosine is licensed from the Canadian company, Aeterna Zentaris, with rights only in North America. Luckily, North America, particularly the US, is the world’s largest and most profitable market. If approved, Perifosine is expected to achieve blockbuster status.

Perifosine has performed remarkably well in both the mCRC and MM Phase II trials. In a double blind, placebo controlled study of 38 patients- most of whom were 5-FU refractory, 35 patients were evaluable. In the 5-FU refractory population, patients receiving Perifosine + Xeloda had an overall survival (OS) of 15 months, compared to 6.5 months for the Xeloda + Placebo control.

The Phase II MM trial consisted of a single arm Perifosine/Velcade combination with 84 Velcade relapsed/refractory patients enrolled, 73 were evaluable. Three complete responses (NYSE:CR) and 13 (partial responses (PR) were observed, with median progression free survival (NYSE:PFS) of 8.8 months compared to historically seen 6.5 months.

Enrollment for both the mCRC and MM Phase III trials are anticipated to be complete in the first half of 2011. If all goes well, approval can be expected as early as the middle of 2012. In the mean time, management is considering possible partnership opportunities for its two compounds. With a burn rate of $20 million its $32 million in cash should bring it pretty close to the goal line. A nice down payment from a partnership would alleviate worries of a dilutive stock offering while generating positive news as investors await trial results.

For the patient investor, an undervalued stock is but an opportunity.

Disclosure: Author is long KERX

Source: Keryx Pharmaceuticals Rallies but Remains Undervalued