Keryx Biopharmaceuticals Inc. (NASDAQ:KERX) shares had fallen 71 percent since April 2, when it announced the failure of the perifosine study in multiple myeloma.
Following the failure of the perifosine study, Keryx stock has traded down in the $1.50 range, compared to $4.98 on March 30. Meanwhile, the New York City-based company is likely to end the perifosine study in multiple myeloma due to the high cost, slow recruiting, and competitive environment.
Though, the failure of perifosine was a disappointment, the sell-off is overdone as investors seem to ignore the company's key drug Zerenex, which is being studied for the treatment for elevated phosphate levels (hyperphosphatemia) in patients with end-stage renal disease.
Zerenex is in Phase III studies for the treatment of hyperphosphatemia in dialysis patients. Zerenex has shown very strong data in efficacy studies, and presently the ongoing Phase III study is primarily aimed at developing a large safety database.
The late stage studies are being conducted under a Special Protocol Assessment (SPA) with the U.S. Food and Drug Administration (FDA), implying that if the currently ongoing trial is successful, then the company could gain FDA approval without requiring additional studies.
In Japan, Zerenex is in late stage study conducted by the company's Japanese partner, Japan Tobacco Inc. and Torii Pharmaceutical Co., Ltd.
Based on the Zerenex's efficacy to date, Zerenex comparatively has a much lower clinical risk than perifosine and the much simpler mechanism of action compared to a cancer drug.
"We estimate that KERX's second asset, Zerenex, is worth ~$3/share," Oppenheimer analyst Boris Peaker wrote in a recent note to clients.
The company expects the long-term Zerenex study to complete by year-end with a filing in the US and EU in the first quarter of 2013. The analyst models a conservative market penetration of 15 percent, which is justifiable based on the reduced pill burden and potential iron benefit of Zerenex.
Zerenex, if approved, have a significant market opportunity in the U.S., where there about 485,000 patients with end-stage renal disease, or ESRD, and the number of ESRD patients is projected to rise 60 percent to approximately 785,000 by 2020, according to data from the U.S. Renal Data System. The vast majority of ESRD patients, over 350,000, require dialysis.
The recent purchase of Keryx shares by its CEO Ron Bentsur in the open market also suggests that the company sees a greater probability of Zerenex approval that could act as a significant catalyst for the stock.
Keryx CEO, Ron Bentsur, had bought 71.4k shares of stock on April 4 in the open market at $1.38 a share. This is the largest open market purchase by the CEO since mid-2009.
"In our opinion this transaction further supports our thesis that Zerenex carries a low clinical risk and significant upside potential at current valuation," the analyst added.
Peaker estimates peak sales for Zerenex in excess of $300 million in the US, and royalties to Keryx from Japanese sales by partner JT Torii of up to $89 million a year.
"We believe that many KERX investors overlooked Zerenex and were largely focused on perifosine, and now investors interested in Zerenex may gain an opportunity to purchase this asset below our estimated NPV," said Peaker, who has an "outperform" rating and $3 price target on Keryx shares.