Keryx Pharmaceuticals: In Or Out?

In January, Keryx Pharmaceuticals (NASDAQ:KERX) achieved a momentary headwind as the company announced excellent results from Phase 3 trials of its promising drug candidate, Zerenex, designed to treat hyperphosphatemia in End Stage Renal Disease (ESRD) patients on dialysis. Zerenex is also known as Ferric Citrate, a ferric iron based phosphate binder that not only reduces noxiously high phosphate levels in ESRD patients but also serves to increase ferritin and transferrin saturation as ESRD patients often suffer from deficiencies in iron.

From the Phase 3 trial results announced on the company website, Zerenex was shown to clinically meet both key checkpoints of 1) reducing phosphate levels in the serum of ESRD patients and 2) increase ferritin and transferrin saturation. In my opinion, it is the success of the secondary goal of increasing iron saturation coupled with the primary goal of reducing phosphate levels that will enable this drug candidate to be a blockbuster biopharmaceutical if it continues to pass remaining checkpoints, and this is why: In our current society, we demand and value products that liberate our schedules by helping us perform daily obligations and tasks in an easier, more efficient, more comfortable, and a faster way than before. With Zerenex, investors should be excited that ESRD patients undergoing dialysis will be able to knock two birds with one stone and will no longer have to undergo iron supplementation via injection. By eliminating the latter task, patients not only enhance their standard of living but also prevent unnecessary risk of infection.

In the United States, there are an estimated 600,000 ESRD patients with a majority 400,000 of these patients requiring dialysis, and the vast majority of those patients will also require treatment for clinically diagnosed hyperphosphatemia. Worldwide, there are 2.8 million ESRD patients and about 2 million requiring dialysis to survive. The bottom line is that the market for treating hyperphosphatemia is large and only growing as the baby boomer generation enters the world of geriatrics and demands healthcare for their ailing kidneys. As an estimate from Keryx Pharmaceuticals, the market for phosphate binders such as Zerenex for ESRD patients undergoing dialysis is approaching 1.5 billion worldwide, and the market continues to grow.

On January 29, the company announced a 55 million public offering of common stock and the underwriters are granted the privilege of buying additional shares within 30 days of the offering. According to the company, this financial move is meant to finance the pre-launch preparations for their promising candidate, Zerenex. Albeit, this process has diluted the value of the outstanding shares, there is a silver lining as the move demonstrates a hopeful future for the company. A potentially rewarding move may be to purchase these shares now while they have been diluted by the stock offering and then reap the rewards when Zerenex potentially boosts the stock back to end-of-January heightened levels, and maybe even in the double digits.

On the downside, recently there have been a number of class action lawsuits filed against Keryx Biopharmaceuticals Inc. for providing misleading information to investors during the period of June 1st 2009 to April 1 2012 that led investors to see an inflated market price. During that time period, many investors suffered a 60% loss in share value as results from the perifosine X-PECT Phase 3 Clinical Trial did not reach endstage checkpoints of improving patient survival with refractory advanced colorectal cancer. These investigations are currently ongoing and the company has suffered a temporary setback due to these litigations. Whether Keryx Pharmaceuticals can exit these lawsuits without too much damage will be crucial for the future of the stock.

Currently, shares of KERX are trading at $6.62/share, which is a third down from the $9.98 high reached on January 31st, 2013, but that does not mean that Keryx is out for the count. As I mentioned earlier, Keryx is simply suffering the inevitable mathematical repercussion of an additional public stock offering. Additionally, earnings estimates for Quarter 4 FY2012 is 107.69% higher than earnings from a year ago, so let that be some food for thought. (Information obtained on msn money)

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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