The Case For Keryx Biopharmaceuticals' Analyst Upgrade May Be Justified

An analyst upgrade last week and renewed investor interest in Keryx Biopharmaceuticals (NASDAQ:KERX) had shares heavily on the move over the past week, a move initially sparked, in part, by positive Phase III data for Zerenex in Japan. The Keryx run culminated in a renewed push through the two dollar mark before a midweek stall left shares sitting just below that mark.

The disappointing announcement of a Perifisone Phase III failure in early April sent shares plummeting from near the five dollar mark to below $1.50 as the short term catalyst traders bailed out and created an air of panic around the potential of the Keryx story moving forward, but the upgrade last week by Ladenburg Thalmann to Buy from Neutral reinvigorated some new life into the Keryx share price and allowed investors -- who by now have well digested the Perifisone news -- to take a fresh look at the potential of Zerenex.

Zerenex, as followers of this company well know, is a Phase III product being tested in the treatment of end-stage renal disease. Thus far in development it has proven to be effective, as demonstrated by the positive Phase III news from Japan, and it may also prove to hold a superior safety profile to the current standard of care on the market, which at this time is Sanofi's Renagel.

Since the Perifisone failure essentially made Keryx a 'one trick wonder' for the time being, the concerns expressed by numerous investors and media outlets regarding Zerenex have mostly been based on the solid entrenchment of Renagel in the market, and the fact that generic competition is just right around the corner. These concerns have been widespread enough to cause the mass exodus of investors and traders that led to last month's share price drop, but they ignore some unique qualities of Zerenex treatment that have not been widely discussed -- and which could offer insight into the product's true market potential.

Renegal is the recognized leader in its field, but it still does come with some associated side effects that, comparatively speaking, have not been seen in Zerenex treatment. These side effects include nausea, vomiting, and other intestinal maladies, which could be enough -- when combined with other factors yet to be discussed -- to spur Doctors and patients to give Zerenex a go.

Another check in the "plus" box for Zerenex is that it is phosphate binder that is iron based, which therefore may enable patients to retain iron more efficiently than the competition currently on the market. This could play be key, as many patients on dialysis in end stage renal disease are anemic and are stuck on IV treatment - along with everything else - in order to maintain iron levels.

It's possible that Zerenex could alleviate the need for the IV and end up being considered one-stop shopping: A package deal that could provide enough of a pricing and logistical boost to make it the preferable treatment of choice. The same cannot be said, at least for the time being, for the competition, generic or not.

Given those advantages, it may be concluded that Zerenex is positioned to not only heavily compete with the competition currently on the market, but it might also have enough behind it to potentially become the market leader.

When patients live for years dealing with an illness, as they do with the end stage renal disease while on dialysis, there is always the quest to find "the next best thing" -- they want to know if something else out there works better for them. Zerenex could stand to benefit from that anomaly right at the get go, especially if Zerenex is found to alleviate the need for an IV while also reducing side effects.

Blockbuster potential?

Maybe not, but with the Keryx market cap of just over one hundred million, there is reason to believe -- when all factors are considered -- that shares are still highly undervalued and oversold based on the true Zerenex potential.

It's one thing to admit that a failed Phase III result leaves a bad taste in the mouths of investors regarding a company, but to outright dismiss the chances of unrelated Phase III product for a based on that bad taste might be irresponsible. That is what just about everyone on the market was doing with Keryx and the Zerenex story, until the upgrade last week sparked new life with a price target of $3.

Keryx returned the Perifisone rights to partner Aeterna Zentaris (NASDAQ:AEZS), who will further development and pay Keryx a royalty if the product ever makes it to market, but that news should be well digested by now and the focus should solely be on Zerenex.

It's a whole new ball game.

If the Phase III results announced later this year are as solid as those from Japan, then not only will a higher market cap be justified, but this one could show up on the buyout watch lists again. Any retreat following the recent run could open up another nice buying opportunity.

Disclosure: No positions in stocks mentioned; may open a position in KERX within 72 hours.