In July of 2013, we reviewed Keryx Biopharmaceuticals, Inc. (NASDAQ:KERX) as the company started to release phase III clinical trial results for its flagship drug, Zerenex. Since our previous article, Keryx filed a New Drug Application (NDA) on August 7th, 2013 and the FDA is currently reviewing the application with an assigned Prescription Drug User Fee Act (PDUFA) set for June 7th, 2014. With the FDA's decision around the corner, we wanted to provide a timely update of our previous article based on additional clinical data recently released by the company. In concurrence with our previous article, the scientific and clinical data appear to be positive, and we believe the FDA will approve Zerenex.
Headquartered in New York City, Keryx Biopharmaceuticals focuses on the acquisition, development, and commercialization of new drug candidates for renal diseases. In 2010, Keryx licensed Zerenex from Panion & BF Biotech. Zerenex has been developed for the treatment of hyperphosphatemia, which is a disruption of electrolytic homeostasis characterized by elevated phosphate levels in the blood. Hyperphosphatemia occurs universally in patients suffering from end-stage renal disease (ESRD). ESRD patients have a reduced ability to excrete electrolytes and, as a result, phosphorous rapidly accumulates in the blood stream. This can cause ectopic ossification of soft tissues (e.g. coronary vasculature), secondary hyperparathyroidism, and renal osteodystrophy. In the United States there are approximately 600,000 ESRD patients that are treated with phosphate binders for an estimated market size of $2 billion. Hyperphosphatemia is treated with phosphate-binding drugs that sequester excess phosphate by forming insoluble complexes in the gastrointestinal tract, thus preventing intestinal phosphorous absorption. Zerenex's active pharmaceutical ingredient is ferric citrate, a phosphate binder that forms insoluble ferric citrate coordination complexes in the gastrointestinal tract.
The Zerenex Phase III clinical program comprised two studies: a short-term study to assess Zerenex's dose-dependent effect and a long-term study to assess both safety and efficacy in ESRD patients. The short-term study was a multicenter, randomized, open-label trial with a 2-week washout period, immediately followed by a 4-week treatment period. A total of 154 subjects were enrolled and the study showed that serum phosphorus decreased by 23 and 27% when patients were given 6 and 8 g/day of ferric citrate, respectively. The dose-response relationship for changes in serum phosphorous from baseline was statistically significant and confirmed by regression analysis (p < 0.001). A modest increase in ferritin was also observed, suggesting Zerenex might also combat iron deficiency anemia, a very common ESDR comorbidity.
The long-term study was a three-period, international, multicenter, randomized controlled clinical trial that enrolled a total of 441 ESDR patients. The study was designed with an initial 2-week washout period, followed by a 52-week safety assessment period, and a final 4-weeks efficacy assessment. All primary safety and efficacy endpoints were met: phosphate levels at the end of the efficacy assessment period were 4.9 ± 1.4 mg/dL for Zerenex vs 7.2 ± 1.8 mg/dL for the placebo control. Overall gastrointestinal-related adverse events were 39% for Zerenex vs 44% for active control. The most common adverse events were: diarrhea, nausea (14% Zerenex vs 14% active control), vomiting (9% Zerenex vs 13% active control), and constipation (8% Zerenex vs 5% active control)
Secondary endpoints such as ferritin, transferrin saturation (TSAT), and hemoglobin levels were found to be significantly higher in the Zerenex group compared to active control, suggesting that Zerenex is effective in increasing iron stores. We believe this dual activity is a critical game changer, as patients receiving Zerenex require substantially less intravenous iron supplements and erythropoietin stimulating agents, which are often prescribed to ESRD patients. To the best of our knowledge, other phosphate binders have never been shown to be capable of simultaneously reducing phosphate levels and increasing iron stores. Zerenex's dual activity may effectively treat two symptoms with one drug, thereby significantly lowering patients' pill burden.
In short, we believe that Zerenex is just as safe and effective as other phosphate binders in lowering phosphate levels. In addition, its ability to simultaneously increase clinical metrics against iron deficiency anemia provides patients and physicians with a great alternative treatment that can significantly reduce patient's pill burden. Basing these conclusions on the most recent publicly available scientific literature and clinical data, we believe Zerenex is well-poised to receive FDA approval early next month.
Putting It All Together
KERX stock was not been immune to the recent correction in the biotech sector -- it lost more than 30% of its value since the beginning of April. However, we believe that now is a quite attractive buying opportunity for KERX ahead of the FDA approval decision. We have become increasingly bullish on the prospects for Zerenex since we published of our previous article in July of 2013. Notably, investors who bought and held KERX stock from the publication of that article to today would have enjoyed a price appreciation of more than 50%.
Nevertheless, an investment in KERX is not without risk. As we mentioned in our last article, preclinical studies implicate Zerenex in gastrointestinal bleeding and liver toxicity in a canine model. This negative aspect of the drug's risk-reward profile prompted us to recommend a straddle option strategy leading up to the FDA's decision of whether to accept the Zerenex NDA for review. Today we recommend a straight long call (moderately out-of-the-money) strategy to take advantage of the depressed stock price and our assessment that there is a high likelihood for approval in early June.
Disclosure: I am long KERX.
Additional disclosure: Beacon VP Investments is a team of analysts. This article was written by Jacques Guyette and Luca Issi, two of our team members. We are not receiving compensation for the article and we have no business relationship with any company whose stock is mentioned in this article.