Keryx: Attractive In Front Of Catalyst-Rich Second Half

Shares of Keryx Biopharmaceuticals (KERX) continue to trade within a tight range, but with several catalyzing events approaching, we believe the stock is ready to breakout. In particular, clinical evidence for a second, larger indication for Keryx’s late-stage phosphate binder Zerenex will be released in the third quarter. The company’s Japanese partner JT Torii should reveal critical late-stage results from its own studies soon, and given that JT Torii has already filed for this additional indication (Chronic Kidney Disease, or pre-dialysis) in Japan, we believe the supportive data are strong. In April, PropThink outlined why KERX has essentially been de-risked through the third quarter of this year, suggesting that accumulating shares ahead of key catalysts offered a buying opportunity, particularly given our belief that KERX remains fundamentally undervalued. This weekend, Keryx will present additional data from its Phase III program for Zerenex in End-Stage Renal Disease at the World Congress of Nephrology 2013 meeting in Hong Kong. While the presentation won’t feature the entirety of the Phase III results (full results expected at the American Society of Nephrology [ASN] meeting in November), the event is Zerenex’s first major debut at a large medical venue, and doctors from around the world as well as pharmaceutical representatives will be making the rounds. Moreover, sometime this summer we expect that an American medical journal will publish the late-stage results from JT Torii’s trial in patients that have chronic kidney disease (CKD). This is a considerably larger market than the End-Stage Renal Disease (ESRD) opportunity and is largely being omitted from analyst estimates for Zerenex. Finally in the third quarter, KERX expects to release its own results from a Phase II trial in CKD patients, and with the company planning to file a New Drug Application for Zerenex in the third quarter as well, momentum should build. We believe that current evidence indicates these events are already significantly de-risked, and picking up shares of KERX at the bottom of its recent trading range makes for a compelling opportunity

Keryx to present ESRD data this Monday at international nephrology conference. The World Congress of Nephrology (WCN), sponsored by the International Society of Nephrologists, begins this weekend, running from May 31 through June 4. Keryx’s primary investigator for the Phase III Zerenex program, Dr. Julia Lewis, will present additional findings from Keryx’s ESRD trials on Monday during a lunchtime presentation. The WCN meeting is held just once every two years and is widely attended by international nephrologists, particularly key opinion leaders from Europe, a major market for Zerenex (Keryx should file for approval in the EU by year end). Dr. Lewis’ presentation will be one of three made during the lunch session, and the Phase III Zerenex data is the only clinical presentation. While the company is saving the full Zerenex Phase III data set for the U.S.-based ASN meeting later this year (Kidney Week 2013 in November), the presentation at WCN should contain some incremental data on the phosphate-binding effects, as well as the IV iron and ESA-sparing benefits of Zerenex. In our view, Zerenex could receive strong visibility during WCN, going a long way toward negotiations with potential marketing partners or suitors. Considering that the World Congress is a global event, we suspect that engaging prospective ex-U.S. partners for Zerenex will be a focus for the company as well (Zerenex is already partnered with JT Torii in Asia) as domestic suppliers are more apt to attend the ASN’s Kidney Week. By the Kidney Week in November, we expect Keryx to have the full results for both the long-term ESRD study and the currently ongoing CKD study, and the company has indicated that it will be presenting up to 10 abstracts on Zerenex at the meeting. Here, perhaps, is the most important venue this year, as U.S. physicians, investors, and pharmaceuticals will be in strong attendance. However, an early look at physician’s reception to Zerenex at WCN will be interesting, and suitors are likely to be attentive to the response.

CKD results from Japanese trials forthcoming. Keryx thus far has generated strong results in late-stage studies for ESRD patients, the last stage of renal failure that requires regular dialysis to keep the blood filtered properly. But anemic CKD patients who have not yet progressed to dialysis represent a considerably larger market opportunity than ESRD alone, and thus far, the evidence suggests that Zerenex works in this larger population. Keryx is conducting its own CKD study, which will read out in the third quarter of this year, but Keryx’s Japanese partner JT Torii already filed for the CKD indication in Japan. While JT Torii has not released the results of its own studies in ESRD or CKD, the Japanese company plans to reveal these results in a major U.S. nephrology journal in the next few months (we expect this summer). The CKD findings will be highly suggestive of what to expect from Keryx’s own ongoing CKD study, which will read out next quarter. Thus, there are two real catalysts approaching to support Zerenex’s CKD indication, a market on which investors have yet to focus and analysts have not yet factored into models.

  1. The publication of JT Torii’s CKD results that were part of the Japanese regulatory filing – sometime this summer.
  2. The release of Keryx’s own Phase II CKD results, due in the third quarter.

As noted above, JT Torii’s filing for both indications in Japan suggests to us that Zerenex in CKD is safe and efficacious, and that these data will impress. In fact, analyst’s could begin to add the impact of this indication into models once CKD data materializes; as a result, financial forecasts and price targets for KERX should rise.

Issues with competing anemia products bode well for Zerenex and discussions at WCN. We note that in the last few months, the CKD treatment community has been confronted by two challenges to anemia treatment: Affymax’s (AFFY) Omontys recall in February and AMAG Pharma’s (AMAG) Rienso (Feraheme in the U.S.) recall last week. With Omontys off the market and Amgen’s (AMGN) Epogen now the only game in town, dialysis providers are likely to welcome Zerenex to help spare Epogen use and ultimately save money treating patients. On Wednesday, an analyst noted that Amgen has again raised the price of Epogen with competitors out of the way. While the Rienso recall (in response to a patient death) appears to be related to a single batch, providers are likely to give a little more thought to their prescribing habits for Feraheme/Rienso. Not only is Feraheme/Rienso known to cause severe hypersensitivity (patient’s wait near a crash cart for an hour after dosing) but it’s also an IV iron product, which is much less convenient than Zerenex’s oral formulation. In that regard, Zerenex has an opportunity to become standard treatment for anemia in CKD patients, over both oral and IV iron products, which have significant side effects.

Finally, Keryx will file a NDA for Zerenex with the FDA in the middle of the third quarter, an event that should drive shares incrementally higher. Keep in mind, the Phase III ESRD study was carried out under a Special Protocol Assessment from the FDA, suggesting that the positive results from the Phase III program are sufficient for FDA approval.

KERX formed a new channel at the beginning of April and has continued to trade in the high-$7 to high-$8 range, with repeat support at $7.61. With an industry event this weekend to pique interest in Zerenex, the release of pivotal CKD data out of Japan this summer, a NDA filing midway through the 3Q, and key U.S. CKD data at the end of the 3Q, there’s a lot going on to break KERX out of its current trend — returning to its pre-financing high of $9.98 isn’t out of the question as these catalysts unfold.

In connection with KERX, PropThink has taken a long position.