Keryx Biopharmaceuticals Inc.'s (KERX, Financial) main asset, Auryxia, is a phosphate binder, which is approved for two indications:
- The control of serum phosphorous levels in adults with chronic kidney disease on dialysis.
- Iron replacement product for treatment of iron deficiency anemia in adults with CKD not on dialysis.
The IDA indication, which was approved last November, has the bigger market size.
Iron deficiency anemia is a virtually uncapped opportunity in millions of people living with chronic kidney disease and could get potential benefits from Auryxia. This is because it is the only oral Food and Drung Administration-approved option specifically for these patients. With the approval of the IDA indication, the company is uniquely positioned to offer patients and their health care providers a medicine that can treat two distinct but related complications of chronic kidney disease.
The clinical challenge associated with iron deficiency anemia is a real issue for nephrologists. Iron deficiency anemia is extremely prevalent among nephrology patients, having a significant impact on the patient’s quality of life.
The treatment guidelines for anemia and CKD are explicit about trying an oral iron before moving to more invasive, intravenous therapies for treatment. But nephrologists have limited success with traditional oral irons, which makes Auryxia a viable option.
Profitability issue
Despite the many positive factors about Auryxia and the approval of its second use in IDA, the stock has not moved much. One reason for this is the company isn’t making much money from Auryxia’s sales since it had to give substantial discounts to big payers in order to get some of them on board. This has led to a substantial decrease in net revenue per script and, consequently, a huge reduction of patient lifetime value. The gross-to-net adjustment in the third quarter was around 55%, which meant the company didn’t make much profit even though the prescription numbers were growing.
The company saw stabilization in the gross-to-net adjustment in the fourth quarter at 54%, in line with the 56% in the third quarter. Yet, it isn’t where the market wants it to be.
The issue with hyperphosphatemia use is that 60% of the business in the third quarter came from Medicare Part D payers, which forced Keryx to give a discount. Also, in the fourth quarter, commercial payers represented roughly 21% of the business with the balance coming from government and cash payers. This ought to change with the launch of the IDA use. Overtime, the increased IDA-related tablet growth should favorably impact the overall gross-to-net adjustments, given that IDA prescriptions are expected to be more weighted from commercial payers. It will take some time to realize this benefit though.
Margin and pricing should improve eventually, as payers will appreciate Auryxia's excellent value proposition. It reduces the need for IV iron infusions, which have implicit complications. Avoiding IV infusions improves the general wellbeing of IDA patients. Thus, even if the drug price increases, it will still save users money.
The starting dose for IDA is three tablets per day versus six tablets per day for hyperphosphatemia. Although IDA users come from commercial payers, they use fewer tablets, which is a negative factor for eventual profitability.
Sales
The positive of the business is that the sales, prescription numbers and market shares are growing nicely. In the last quarterly report, the company reported fourth-quarter prescriptions increased by 22% to 30,400 prescriptions, which reflects a strong prescription demand and a tablet volume growth.
Auryxia TRX growth in the fourth quarter outpaced that of every other phosphate binder, including Sevelamer. In fact, the market share increased to over 4%. The company entered 2017 as one of the least prescribed phosphate binders and exited the year as the third most prescribed behind Sevelamer and calcium acetate.
Auryxia’s product sales for 2017 totaled $55.5 million, doubling from 2016. The fourth-quarter growth came from the hyperphosphatemia market.
Future plans for Auryxia
The company hopes Auryxia will become the brand that nephrologists see as the new standard of care because it's the only therapy approved to treat two distinct yet related complications of CKD.
Awareness of Auryxia’s new indication is strong, with 80% of nephrologists aware of its indication for IDA in patients with CKD not on dialysis. This research was carried out in December, and to have this level of awareness after just one month of promotional efforts is impressive and bodes well for obtaining new prescriptions from nephrologists.
Nephrologist care is available for 1.4 million patients who could potentially benefit from Auryxia. However, another 14 million people with CKD are not under nephrologist care. This represents a huge market expansion opportunity for Auryxia if the company can raise public awareness about the drug.
Financials
The company ended the fourth quarter with $93.5 million in cash and didn’t raise capital. They have $30 million net loss per quarter and a controlled equity offering sales agreement in place with Cantor Fitzgerald, allowing them to sell stock in small increments, which plans against the stock price. They also have $120 million in loans.
The frustrating thing for investors, however, is the company isn’t willing to give sales guidance for 2018. So it’s hard to assess the financials for 2018. I assume the company wants to be conservative, but it becomes a headwind for the share price. Since they managed to double the sales from 2016 to 2017 with only one approved use, I think 80% to 100% growth in sales (i.e., $100 million to $120 million) is possible in 2018 considering the addition of the new approved use. But it is still not enough to make the company profitable in 2018.
Conclusion
Keryx has a nice drug with big potential. The company is doing a good job of gaining market share and increasing the prescription numbers, but financially, it has an uphill battle in 2018. I would wait until the second half of the year to see how sales go and how it solves its financial issues before investing in the stock. I figure the market wants some visibility as well before they can invest with conviction. This situation reminds me of Synergy Pharmaceuticals (SGYP, Financial), where the company struggles to become profitable in spite of its good drug.
Disclosure: No positions.
