Keryx Jumps On GSK Buyout Rumor Print E-mail
By Brian Wilson, Lead Contributor   
Monday, 04 March 2013 03:32
Last Friday, there was yet another big surge of trading activity in shares of Keryx Biopharmaceuticals (NASDAQ: KERX). Roughly one hour after the opening bell, shares saw a violent move towards the upside. This buying spree was sustained throughout the rest of the trading session, bringing KERX about 11.8% higher by the closing bell.

This was ultimately traced back to rumors of a Keryx buyout by GlaxoSmithKline (NYSE: GSK), as supposedly discussed during the Citigroup 2013 Global healthcare Conference held last week in New York. The note containing rumor seems to originate from this blogspot posting, although the anonymity of the author and the lack of details about the claim should induce major skepticism.

Keryx significantly boosted the prospects of its flagship drug Zerenex with the phase III data  that was released back in January 2013. Since the phase III trial met its endpoints, the phase III data paves the way for a successful Zerenex NDA submission for the treatment of high phosphate levels in patients with late stage kidney disease, with a likely approval in early 2014.

This was clearly good news, and this was reflected in KERX share price which is up 175% since the start of the year.  Still, there are ongoing debates on whether or not the company is actually worth over $500 million.

The meat of Zerenex sales should be in dialysis patients, which are large in number and have little trouble with reimbursements for necessary medications. Basic estimates using this giant patient population put Zerenex sales in the hundreds of millions (with huge swings in your annual sales estimate depending on pricing and market penetration rates), although a few skeptics have brought up questions regarding Zerenex’s chemical “uniqueness”, as well as the legal protection it has for its targeted indication. Iron citrate is already used for other indications, and is a very simple ionic compound.

Keryx holds patent protection that is supposed to protect Zerenex from generic competition, although analysts are debating on the ability for these patents to be renewed, or even held after the drug launches. Perhaps more important is the NCE status of the drug, which means the difference between 3 or 5 years of exclusivity in the US market.

Due to uncertainty over the exclusivity of Zerenex, it seems that companies considering an acquisition would be hard pressed to go through with the transaction. Without its patent protection, Zerenex loses virtually all of its pricing power to generic ferric citrate and has no chance to justify its current valuation. The NCE status, determined by the FDA, will only be granted if Zerenex can be considered a new chemical entity. If you consider Zerenex for what it is – ferric citrate, it is hardly an original creation. The FDA’s opinion on the matter is not known, although I think they’ll be hard pressed to argue in favor of NCE status for Zerenex when the decision is ultimately made.

I would imagine that this uncertainty would prevent an acquisition of Keryx in the same manner that the questionable NCE status of Amarin’s (NASDAQ: AMRN) drug Vascepa hindered acquisition talks in 2012.

I think this also adds weight to the argument that Friday’s buyout rumor about GlaxoSmithKline was more likely a rumor fabricated for manipulative purposes than a legitimate informational leak from the Citigroup conference. If this is somehow proven in the near future, KERX should drop by about 12% to correct for the misinformation.

KERX currently seems trapped within a trading range of $6.50/share to $7.25/share, which reflects the market’s inability to take a fully bullish or bearish position on the stock. It seems that the buyout rumor has now moved KERX to the upper end of this trading range, where it met resistance all throughout Friday’s trading.

If KERX doesn’t see more buying momentum on the heels of this buyout speculation, the stock is likely to correct itself in the short term. Overall I don’t see a good trade on either side of the stock until we know more about Zerenex’s ability to protect itself.

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