Significant Catalyst Should Further Rally Keryx Pharmaceuticals Print E-mail
By Scott Matusow   
Wednesday, 24 July 2013 07:48
Recently, we have detailed companies that have released positive Phase III data because we believe several of these companies continue to be under speculation value. Companies who have strong management, cash, and a strong pipeline can be very profitable for investors.

Keryx Pharmaceuticals (NASDAQ: KERX) is a company that works on developing and commercializing novel therapies for the treatment of renal disease. We feel that with positive Phase III data in hand and another Phase II data release coming in the third quarter, Keryx will see a significant catalyst run in the coming months.

  • Kidney Disease

Keryx's main drug in the pipeline is Zerenex, which is being tested in clinical trials to treat End State Renal Disease (ESRD) and Chronic Kidney Disease (CKD). Chronic Kidney Disease is defined as a progressive loss of renal function over a period of months or even years. The symptoms of worsening kidney function are non-specific, and may include feeling generally unwell and experiencing a reduced appetite.

The severity of Chronic Kidney Disease is classified in five stages. Stage 1 is the mildest form and stage 5 is considered the most severe. Stage 5 means a patient has a very poor life expectancy if the condition is not treated.

The vast majority of patients with ESRD, or stage 5 kidney disease, require dialysis and are typically in extreme danger of kidney failure. In patients with kidney disease, dietary phosphates are not properly filtered out of the blood due to the lowered renal function.

For this reason, phosphate binders are taken at meal time when dietary phosphates enter the body after eating. Drugs within this class work by simply reducing absorption of these phosphates into the body. Phosphate binders chemically bind to the phosphates in the gastrointestinal tract. This renders them insoluble and therefore non absorbable.

Several types of these phosphate binding drugs have been used over the years with some becoming obsolete. Due to unwanted long-term side effects, doctors have trouble prescribing some of these treatments for an extended period of time. Aluminum-based drugs are also rarely used anymore because the absorption of aluminum in the body causes more unwanted side effects. Calcium binders are also widely used, but the prolonged use of them leads to an imbalance of calcium into the body. The most commonly prescribed phosphate binder is called a non-calcium-type binder. Since many of these drugs are becoming obsolete, we believe Keryx is set to eventually take a strong share of the market.

Investors had been skeptical of Zerenex as a viable competitor to other phosphate binders such as Sanofi's (NYSE: SNY) Renagel and Renvela, until Keryx released several sets of Phase III trial data that validated the therapy as a possible more effective and better option.

  • Upcoming Catalysts

Keryx has brought three-fold returns over the past year to investors who took a chance on the Phase III results of its phosphate binder, Zerenex, being positive. The chance paid off for Keryx investors when in January, the company reported positive top-line data for the drug.

Keryx is currently seeking to submit a New Drug Application (NDA) before mid-2013, and a marketing application (MAA) in the EU. Phase III results have been spectacular for patients with End-Stage Renal Disease (ESRD), but the market has not priced in the value for the product on its potential approval in our opinion.

Keryx also has another opportunity for Zerenex. The company is looking to use Zerenex in patients with Chronic Kidney Disease and is awaiting Phase II results. Commenting on Keryx's last quarter, Ron Bentsur, the Company's Chief Executive Officer said:

“Following the announcement of top-line data, we are now focusing our efforts and resources toward the pending NDA and MAA submissions. We are also progressing with the U.S. Phase 2 CKD study, for which we expect to report top-line data in the third quarter of 2013.

It's early in Zerenex's clinical studies for Chronic Kidney Disease, but the market opportunity is much larger for this indication. It would be the first phosphate binder to be approved by the FDA for non-dialysis dependent chronic kidney disease (NDD-CKD). We feel the market has yet to take into account the un-met need potential of this additional indication for Zerenex.

  • Recent Phase III Data Releases

Some of the best companies that has covered this year include AcelRx Pharmaceuticals (NASDAQ: ACRX), Trius Therapeutics (NASDAQ: TSRX), and ACADIA Pharmaceuticals (NASDAQ: ACAD). These companies had significant runs before and after Phase III data releases.

  • ACADIA Pharmaceuticals. We first wrote about ACADIA in March of 2012, when the stock was under $2 a share. We pointed out how Parkinson's disease psychosis (PDP) was an unmet need and that there was a strong chance the company would have success with its newly designed Phase III trial for its lead drug pimavanserin. In November of 2012, the company reported that pimavanserin showed success in the trial. Since that time, the stock has gone parabolic, hitting an all-time high of $20.68 recently. ACADIA might be a good acquisition target for a large pharma in the next year or so. We believe pimavanserin will gain FDA approval by late 2014.
  • AcelRx Pharmaceuticals. We originally wrote about AcelRx in March of this year, after the company announced top-line data results. The company reported positive results for the second of three Phase III studies and the first of two pivotal placebo-controlled Phase III studies for its Sufentanil NanoTab PCA (patient-controlled analgesia). Since then, the stock has tripled in price from $4.50 to a recent high of $13.50. Additionally, we have heard that the company is being "shopped around" as a possible acquisition target, which has caused even more price appreciation in such a short amount of time.
  • Trius Therapeutics. We first started covering Trius back in March of this year before Trius announced positive results of its Phase III trials in April of this year, which was named ESTABLISH-2. Results from the first phase III trial, ESTABLISH-1, were reported earlier this year. Trius has been one of our best small cap biotech investments, gaining nearly 200% since our first article in March. It's worth noting that merger and acquisition chatter is strong with Trius, and we believe it's a 70% chance the company will be acquired before the middle of next year.

As we can see, the three biotechs mentioned above rallied much higher after they announced positive data. We feel Keryx will follow suit and gain a significantly higher valuation in the coming months.

  • Conclusion

The phosphate binder market alone is worth over $1.5 billion worldwide, notwithstanding the potential for additional revenue from the NDD-CKD indication. With a market cap of $702.77M, Keryx is undervalued. We feel Keryx has an excellent chance to be a double gainer within a year.

Keryx has a strong chance to experience significant price appreciation in front of its pending Phase II data release which is due in the current quarter. With positive Phase III data already in hand for one indication, the company has now become significantly de-risked. As mentioned, we feel that the data release for CKD is a very significant catalyst because this indication is for a much larger market.

We believe Keryx can run up to about $10 a share before the near-term data release, and eventually see a price north of $16 within 8 to 16 months.

Disclosure: Long KERX.

Disclaimer: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. They are my opinions only. Trading stocks is risky -- always be sure to know and understand your risk tolerance. You can incur substantial financial losses in any trade or investment. Always do your own due diligence before buying and selling any stock, and/or consult with a licensed financial adviser.



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