These 4 Biotech Stocks Have Upside, Says Burrill's Senior Analyst
Dr. Benjamin: In our view, a significant amount of noise has been generated regarding the potential for a NCE designation for Zerenex. Both the bulls and bears seem to agree that Keryx's '706 patent is solid and covers the method of use of ferric citrate to control phosphate levels in patients with hyperphosphatemia. This patent will expire in 2017. The issue appears to be whether Zerenex can obtain a patent extension of 5 years based on a new chemical entity designation. Regardless of the NCE status, we do believe the company will qualify for a new clinical investigations extension which could provide a protection until 2020. Of important, we believe the recent patents filed regarding the non-obvious findings surrounding Zerenex's benefit in iron storage parameters and anemia benefit could prove more beneficial during potential partnering discussions.
In addition, investors shouldn't forget that Keryx's '235 and '851 patents are set to expire in 2023 and 2024. The '235 patent covers the manufacturing process of ferric citrate, while the '851 patent covers the preparation of a drug with a specified intrinsic dissolution rate. The importance of the manufacturing process should not be brushed aside. Our discussions with management suggest that replicating an equivalent pharmacodynamic profile will prove to be extremely tough for any generic challenger.
Dr. Benjamin: According to our projections, taking into account the 4Q12 cash position, the recent financial raise of $80 MM and the 1Q13 burn rate, we believe the company currently has approximately $91 MM in the bank. These cash reserves are more than enough to take the company through profitability, if a larger suitor has not come and acquired the company before hand.
Yoffe: What is your rating and price target for KERX?
Dr. Benjamin: We currently have a Market Outperform (Speculative Risk) rating for Keryx, and our 12-month target price is $11, based on a revenue/EPS multiples analysis. Utilizing our 2018 revenues of $287.5 MM and EPS of $1.15, and applying a revenue multiple of 8X and EPS multiple of 26X, we further apply a discount rate of 20% (takes into account regulatory approval risk) to derive a target price of $11 in twelve months.