Keryx Biopharmaceuticals (NASDAQ:KERX) announced Monday morning that its Japanese development partner JT Tori Pharmaceutical Co. submitted a new drug application (NDA) for Zerenex, the company’s primary value driver. Although JT Tori has not published all of the results of its Phase III program for Zerenex as we expected, the NDA submission in Japan indicates that pivotal results for Zerenex are positive, also supporting that KERX’s Phase III trial results (anticipated any day) have a high chance of success. We believe the market will read through the news and start to build in success for KERX’s U.S. Phase III results, and the shares could break through $3.00 ahead of the actual data. Importantly, KERX will receive a $7M milestone payment from JT Tori within 30 days of the Japanese filing, bolstering the company’s cash position. As we stated in an earlier article on KERX, the phosphate binder market for dialysis patients in Japan is the third largest in the world. If Zerenex can substantially penetrate the Japanese phosphate binder market, this could be worth up to $1.00 a share for KERX.
The Japanese Zerenex filing is good news for Keryx, and because investors are still awaiting U.S. Phase III Zerenex data, the news will provide downside support if the U.S. data turn out unfavorable. While an unlikely scenario, failed U.S. data could have taken KERX below $1.00 prior to the filing news in Japan, however, we now see worst-case downside to the $1.00-$1.50 range, removing some of the downside risk in the stock. Nevertheless, KERX shares will trade higher Monday, and if the U.S. data are strong, as we expect, upside in KERX is likely to be substantial. Last week we wrote that KERX investors may be best served with an options play, which remains a pertinent strategy, although downside risk has been reduced by the JT Tori announcement.
