The market is not acknowledging the probable success of Keryx Biopharmaceuticals' (KERX) drug, Auryxia (ferric citrate). Share price will substantially increase as the market comes to recognize the significance of the drug's efficacy and simplification of patient treatment, as well as the probable expansion of the Auryxia's suitability, as determined by the FDA
Keryx just issued a secondary offering, raising $110 million at roughly the present market price. The company has essentially no debt and this money should be sufficient to both ramp up the production and marketing of Auryxia, as well as complete the company ongoing phase 3 trial for its broader use. This sizable secondary indicates broad financial support for the company, and it would not be terribly surprising to see that some of the company's largest investors used the secondary as an opportunity to increase their allocation.
The largest shareholder, Baupost, was a buyer throughout 2014. According to Baupost's last 13F-HR, it owned 18.3 million shares as of the end of 2014, and it is likely that Baupost now owns either as much or more Keryx. If this is the case, Baupost will soon be required to provide a filing that indicates the change. Baupost acquired all of those 18.3 million Keryx shares within the first three quarters of 2014, and may be keen to add to it through or following the recent secondary. If this is the case, due to the size of the existing position, Baupost may have to update its Keryx information in advance of the next 13F filing.
Keryx's sole drug, Auryxia, is an absorbable iron-based drug for controlling phosphate levels in patients with chronic kidney disease ("CKD"). There are currently about 340,000 CKD patients on dialysis in the United States. Additionally, because this medication is iron-based, and many of these dialyzed CKD patients also require intravenous iron, Auryxia could help reduce to eliminate the need for such intravenous iron.
Auryxia will seek to take patients from Sanofi's (SNY) Renvela, which is the most commonly prescribed phosphate binder for chronic CKD patients on dialysis, with estimated U.S. sales of over $600 million last year. Auryxia has advantages over Renvela, which should make it the preferred option. Keryx's late-stage trial data showed Auryxia increased stored iron levels better than either Renvela or Phoslo, a generic option included in the study. This is important, because CKD patients often require intravenous iron, and providing it is an expensive and unpleasant process.
The drug may also have a substantially larger future market to service, depending on the results of an ongoing Phase 3 trial that tests Auryxia for a broader group of patients, such as those with anemia that are not on dialysis. The trial should complete some time in late 2015, with FDA conclusions potentially drawn in 2016, where possible approval could expand the drug's addressable prescription market to over two million U.S. patients, from the current 340,000 market of CKD patients on dialysis. Both of these groups are also rapidly increasing, with further increases probable due to more diagnostic screenings through broader healthcare coverage.
While the results of this trial are not yet known, and the conclusions the FDA might draw from those results are sure to be speculative, the prior trial results do indicate a very strong likelihood that the drug will be well tolerated. Drugs have to show they are both effective as a treatment for the prescribed problem and also safe to take. Auryxia should get approved because it is highly effective and reasonably safe. Another indicator of Auryxia's potential for further US approvals would be the Japanese approval of ferric citrate as a phosphate binder for all five stages of CKD.
The prior trials, dealing with the most severe CKD patients, indicated the drug is well tolerated, and so it is probable that it will be well tolerated by most individuals whose general condition is less problematic. This should especially be the case if the daily dosage is lesser than for the prior group, which is probable, due to a correspondingly reduced need for phosphate binding and/or iron supplementation.
Auryxia comes with an FDA warning about iron overload because it is absorbable iron, and this default warning has created a misunderstanding about the drug and the reasons patients will want to take it. In essence, Auryxia both lowers phosphate and increases iron, and could eventually be approved for both.
The availability of a phosphate binder that also reduces the use and expense of IV iron and erythropoietin stimulating agents ("ESAs") should drive adoption and market penetration despite a higher cost than generic phosphate binding competition. The benefits will outweigh the difference to both the patient and prescribing doctor. This should drive market penetration, which could carry through into the broader non-dialysis market, if approved for it. Much of this possible growth should not materialize until 2016, but evidence of that future growth will start to trickle in with quarterly results, fueling analyst extrapolations.
Many analysts do not yet recognize that dialyzed CKD patients are usually also receiving intravenous iron, among other medications, and are therefore already monitoring their iron levels as part of the process of having an iron solution pumped into them. These patients will be interested in a phosphate binder that may reduce or eliminate that need for IV iron, like Auryxia does. CKD patients will come to recognize the benefits of Auryxia compared to competing medications, as will their doctors. Those on intravenous iron are already monitoring iron, so there will be no new monitoring burden, and a possible decrease to that existing monitoring burden.
Dialysis is currently provided by centers such as DaVita (DVA), where CKD patients come in for a session of dialysis and also receive other injectable drugs, such as IV iron, ESAs and Vitamin D, as needed. Insurers usually compensate providers on a bundled per session basis, where insurers pay a set fee, averaging about $240 per dialysis session, regardless of what treatments are included or omitted with the dialysis. The actual locations are pressured by all sides to become more efficient and effective.
These dialysis centers are often franchises that are owned by or closely associated with the treating nephrologists. If prescribing Auryxia will reduce the cost of running a dialysis session without a corresponding reduction to the price charged for that session, there is a tremendous incentive for prescribing nephrologists that run or manage dialysis centers to get their patients onto Auryxia, and off of IV iron.
This cost savings does not even consider that the patient is likely to be far happier with the removal of IV iron. If Auryxia is successful for the patient, it should also be healthy for the margins of dialysis centers. The drug's adoption is likely to correlate to an increase in efficiency and efficacy, which will promote prescription writing, which should benefit Keryx and dialysis centers like DVA, while IV iron usage declines. IV iron will also face competition from Rockewell Medical's (RMTI) Triferic, an IV iron alternative that was recently approved for the replacement of iron via dialysate in adult patients with hemodialysis-dependent chronic kidney disease.
In the coming months, Keryx should benefit from prescription writing growth and clinical trial data. In the shorter term, shares are depressed due to the recent secondary, and that condition may persist for the next few weeks, and especially until the underwriters' option to acquire more shares expires. Nonetheless, the cash from the secondary will allow Keryx to properly ramp up and market the launch of Auryxia, while also funding further clinical data for the drug's broader approval. As these events occur, and revenue starts to roll in, it is likely that biotechnology analysts will start covering Keryx or increasing their existing targets.
