Keryx: Cut Through The Noise and Get To The Substance Print E-mail
By Staff and Wire Reports   
Wednesday, 13 November 2013 00:00
icon_newsnotesTwitter can be a great source of information for an ever-increasing number of investors. But as with most technological inventions, it can be misused.

The back and forth yesterday on two stocks with large moves was a case in point. Sarepta Therapeutics Inc (NASDAQ:SRPT) traded down 62.5%, effectively wiping out all of the gains that the company's share price had made during the past year. Another company, Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) soared 91% on a positive recommendation for approval by the FDA reviewer ahead of an Advisory Committee hearing scheduled for this Thursday.  In both of these instances - name calling and limited analysis on Twitter drowned out most all of the substantive analysis, and some investors have lost big money.

It’s a shame, because substantive analysis is out there, and the internet makes it readily available if you know who to follow - and whose opinions you need to more or less discount.  Sometimes you can even use the noise to your advantage.  When one side of the discussion is engaging in name calling and avoiding substantive information, it may be a signal to dig into the story deeper, and it may also provide investors an opportunity to take advantage of the misinformation and mispricing of a stock.

Recently, PropThink published an article outlining the Keryx Biopharmaceuticals (NASDAQ:KERX) story (see here), in which the author did a good job of setting out the recent clinical trial results and the reasons why the market opportunity for the company's late-stage drug, Zerenex, is compelling.  Actually, Zerenex addresses two different markets. It is a phosphate binder and will compete in a well-established product class. Currently marketed phosphate binders are approved to prevent hyperphosphatemia in patients on dialysis, who are unable to excrete excess levels of phosphates.  Phosphate binders work in the gut to prevent absorption of dietary phosphate.  Zerenex is a complex of ferric citrate which works well in that regard and, importantly, has an added benefit.  In addition to its other qualities (low pill burden, well tolerated, and doesn't contain heavy metals or contribute to calcium buildup), the drug has been shown to deliver iron to patients on dialysis, and to improve their iron stores.  That matters to dialysis providers because it has been clinically proven to lower the need for IV iron, or even to eliminate it.  And, the dialysis providers also have to give far less erythropoetin (Epo) - which is really expensive.  

Both of these drugs (IV iron and Epo ) are in the dialysis "bundle" which means that dialysis providers pay for whatever they use versus the fixed reimbursement that they get from the government.  So the less IV iron they use and the less Epo they use - the more money goes to their bottom line.  Pretty simple, basic economics.  While there may be no such thing as a free lunch, this comes pretty close from the dialysis provider's perspective. At least until 2016, when the bundle rules are expected to change.

The other market opportunity for Zerenex (also delineated in the PropThink article) is in Chronic Kidney Disease (CKD). This segment is made up of patients who are not yet on dialysis. In fact, many of these patients actually die before kidney function declines so far as to require dialysis. The FDA has never approved a phosphate binder in this setting because no company has successfully conducted an outcome study and proven prospectively that controlling phosphate levels improves clinical outcomes.  However, Keryx recently conducted a Phase II trial that demonstrated a statistically significant improvement (p<.001) in hemoglobin levels in CKD patients who were Stage III - V.  That is comparable to IV irons, which are already approved for anemia in CKD patients based on similar increases in hemoglobin. Plus, Zerenex appears to be far safer than the IV irons, which are associated with severe and life-threatening adverse events. If Zerenex is approved for anemia in CKD patients who have hyperphosphatemia, then Keryx would have the only phosphate binder approved in this indication in the U.S.  Given the strength of the clinical data thus far, it increasingly looks like they will.

So, pretty good stuff fundamentally, but the noise surrounding the story has been deafening. The bears compare the Keryx story to Amarin Corporation (NASDAQ:AMRN), a company that developed a highly-refined fish oil to treat high triglyceride levels.  Amarin competes against GSK in that indication and the launch has been lackluster. Recently, an FDA Advisory Committee reviewing an expanded indication for moderately high triglycerides recommended that Amarin complete an outcome study before approval can be granted, citing that managing moderately high triglycerides may not be a good indicator of true health benefits. It is hard to see how competing against GSK in a primary care setting can be compared to selling Zerenex and its unique product profile to targeted audiences like dialysis providers and nephrologists, particularly when there are clear patient benefits as well as cost savings to the healthcare system. Probably, the worst part of the Amarin-Keryx comparison is that Amarin’s Vascepa was recently rejected by the FDA Advisory Committee for a new indication because of large prospective clinical studies with other triglyceride-lowering products that demonstrate the lack of benefit in patients with mixed dyslipidemia. On the contrary, no such data exists to cause an FDA Advisory Committee or the FDA itself to question Zerenex’s benefits in dialysis or pre-dialysis (CKD).

Unfortunately, the noise on twitter continues by authors making inappropriate comparisons and using innuendos to make their point. The lack of substantive data-driven arguments in these blogs, which are coincidentally being written by authors that have been extremely wrong on the Keryx story this year, provides clues that investors should look beyond the noise and take advantage of the articles that are providing real insight on owning biotech stocks. The good news is that the “hit pieces” that are being published on Keryx are providing investors with an opportunity to build positions in the stock at discounted prices. This is what’s known as a buying opportunity, as the people Tweeting on Keryx still need to provide substantive analysis behind their negative call on the stock, rather than using false logic.

Bottom line, the analogy between Keryx and Amarin is inappropriate and cherry picks for similarities between the two companies, and avoids major differences between the companies so the author can simply make his case. We believe Zerenex is a truly differentiated product, which has clinical study results backing the drug’s utility in both CKD and dialysis. And at currently prices, Keryx shares seem to offer investors a chance to earn a strong return from the Zerenex story.

To summarize, the most obvious differences between Amarin and Keryx not taken into account by the blogger asserting his case are:
1. Amarin's Vascepa was being developed for a very large, very expensive to penetrate, primary care market, where Zerenex will enter two focused treatment segments that can be leveraged by a reasonably sized sales and marketing effort.
2. Vascepa has at best, marginal elements of differentiation versus competing fish oil products like Lovaza, while Zerenex offers substantially different benefits relative to its competition; and
3. There are precedents that Vascepa's triglyceride-lowering effects in the body may not provide true health benefits, hence the FDA Panel's recent negative decision, but with regard to Zerenex, an ability to manage phosphate and anemia in patients with kidney failure is undisputed.

The point here is that investors need to be aware of comparisons that really haven't contemplated the relevant facts, and rather, they rely on superficial observations that can fool readers into thinkng that stock stories are related. In fact, while precedents can be important, each stock story, particularly in biotech, needs to be evaluated on its own merits.


Disclosure: None

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