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Here’s A Near Term Play In Keryx Biopharmaceuticals (NASDAQ:KERX)

Here's a look at an upcoming binary event for Keryx Pharmaceuticals.

Between the end of January this year and the start of October, Keryx Biopharmaceuticals (KERX) rose from around $4.50 a share to $8 a piece. That’s a close to 75% appreciation.

Over the last few weeks, however, the company has collapsed to current levels in and around $5.27. It’s sitting 35% off highs and sentiment surrounding the stock is decidedly negative, with around 25% of the outstanding base being sold short at the end of last month.

I believe this could be a nice opportunity to pick up an exposure to the company ahead of a major binary event – one that has the potential to not only turn Keryx around and get it back trading towards the above mentioned highs, but to push it beyond these highs and into double figures before the close of the year.

Here’s what I’m looking at.

For anyone new to Keryx, the company is a bit of a strange one. It’s got one product and one product alone in its commercial portfolio and its entire development pipeline amounts to one asset, the same product that’s already approved, but targeting an expanded indication on the initial approval.

The product I’m talking about is called Auryxia and it’s currently approved as a treatment for the control of serum phosphorus levels in patients with chronic kidney disease (CKD) on dialysis. The drug is a pretty simple one from a mechanism of action (MOA) perspective – it’s a phosphate binder, meaning it binds to phosphorous in the blood and, in turn, ensures that the phosphorous isn’t absorbed – but this doesn’t necessarily limit its potential for revenue generation in the US. The target indication of increased phosphorus levels in this patient group doesn’t have any really effective treatment options available (except this one, of course) and this led to markets getting pretty excited as and when the asset was approved by the FDA in the US back in 2014.

At the time, estimates forecasted peak sales for the drug at more than $1 billion.

The company hasn’t been able to turn out these numbers (nowhere near actually) but sales are growing and are expected to hit around $66 million this year, as compares to just $32 million last year.

Anyway, that’s only a small part of the story.

Keryx submitted a supplemental New Drug Application (sNDA) to the FDA earlier this year in an attempt to expand the potential target population to include the treatment of iron deficiency anemia in patients with non-dialysis dependent chronic kidney disease.

Subsequent to the submission, the FDA quickly accepted the application and set a PDUFA date for the drug of November 6, 2017. That’s less than two weeks from now.

Why is this a big deal?

Because the target market that the company is going after with the sNDA includes around 650,000 individuals in the US. The market for which the drug is already approved is around 100,000, with the company reporting about 20,000 prescriptions filled during the second quarter of this year.

In other words, we’re looking at a massive increase in potential sales revenues.

So what are the chances of approval?

Well, the data on which the application is based looks strong. In the study, treatment with Auryxia demonstrated significant increases in hemoglobin levels of >1 g/dL at any point during the 16-week efficacy period for the majority of patients (52.1%, or 61 out of the 117 enrolled), a clinically meaningful result. It’s not foolproof – a 90% rate would have been better – but in a population with very few treatment options once standard of care has failed, it’s not too bad at all.

Safety was no issue, as was expected, with this drug already having been administered to a large number of patients as part of he initial approval rollout.

So, there’s the setup – a position in Keryx in anticipation of approval come November 6. It’s not a risk free exposure, but it’s a potentially rewarding one if it concludes favorably for the company come decision day.