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Can Keryx Succeed Without Partnership?

April 24, 2012 | About:
Keryx Biopharmaceuticals (NASDAQ:KERX) has a lot of negative press shining down darkly upon it after its cancer drug blundered in its final clinical phase. Keryx had a partnership with AEternia Zentaris (NASDAQ:AEZS)to create and take the cancer fighting therapy Perifosine through clinical trials into FDA approval. The drug failed to increase the survival rate of patients compared to the placebo patients in phase 3, causing a warranted 68% fall in share value. It is pretty certain that Perifosine will not pass FDA regulation.

There is a possibility of life after drug death for AEZS, but I believe Keryx won't be getting up anytime soon. Keryx only has one drug to fall back on, Zerenex, which is in phase 3 trials and results won't be available until the end of 2012. If Zerenex's results are satisfactory for FDA approval, the drug won't be seen on the market until mid to late 2013. With the failure of its cancer drug, Keryx may need to look to form a partnership to stay in the game while it awaits Zerenex clinical trial completion. However, even Zerenex, a hyperphosphatemia or renal disease drug, will face competition between a few more established companies on the market to sell in the kidney failure treatment market. I do not see any upside to Keryx in the future, and I think it is time to get out before there are even greater losses.

Keryx has a 52-week range of $1-$6 and a market capitalization of $112 million. A competitor of Keryx is found in the dianeal and extraneal kidney failure treatments of Baxter International (NYSE:BAX), showing a 52 week range of $48-$63 and a price to earnings ratio of 15.35. Baxter also has a market cap of $33 billion. Keryx has another competitor in the kidney drug Fosrenol by Shire (SHPGY), which has a 52 week range of $86-$109 and a price to earnings ratio of 21.27. Shire has a market cap of $18 billion. Lastly Keryx will face indirect competition when Sanofi's (NYSE:SNY) patent for kidney disease treatment Renagel ends and it goes generic. Sanofi has a market capitalization of $98 billion, a price to earnings ratio of 13.08, and a 52 week range of $31-$41.

Keryx only has Zerenex in its pipeline, and it faces too much competition on the market to raise much capital if it manages to become FDA approved. Shire has a chronic kidney disease treatmentFosrenol currently in FDA approved generating $167 million in sales in 2011. Furthermore, Baxter offers Dianeal and Extraneal kidney failure treatments that have been on the market for nearly 30 years. Lastly, Sanofi's Renagel is the number one choice for kidney failure treatment. Once it goes generic in 2014, there will be much cheaper and possibly more effective treatments than Zerenex on the market.

I do not see very many options left for Keryx. One option is to take the cancer drug Perifosine back to the development stage and try to work out the reason for the drug's failure and bring it back to clinical. Yet, this is a very expensive process that Keryx most likely won't be able to fund by itself. The only seemingly feasible way to accomplish this would be to find a business partner to provide capital, but considering normal trends of a failed drug when taken back to development, I doubt any company would invest in such an unpromising venture.

The only other option for Keryx is to scrap Perifosine and try to wisely spend its remaining $31 million on the production and advertisement of Zerenex. This path would probably also require a partnership of some kind and a lot of faith that not only would Zerenex pass FDA regulations but that it would also compete on the market. Chances of either path generating a wealthy cash flow are slim to none, with way too many downsides to justify investing or sitting on stock with this company. I predict Keryx will steadily decline to nothing, so now is the time to get out, before the losses become too much greater.

About the author:

I'm mostly interested in income investing using dividends, preferred stocks and other debt instruments, and pair trading.

I fundamentally analyze every business from the top down.

In my personal life, I have a strong Jewish faith and enjoy playing Scrabble and entrepreneurship.

Visit StockCroc's Website

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