The Baupost Group buys a new position in Keryx Biopharmaceuticals

Smita Nair

Must-know highlights of the Baupost Group’s 1Q 2014 positions (Part 3 of 7)

(Continued from Part 2)

The Baupost Group and Keryx Biopharmaceuticals

Seth Klarman’s Baupost Group initiated positions in Cheniere Energy Inc. (LNG), Keryx Biopharmaceuticals (KERX), and RF Micro Devices Inc. (RFMD), and the fund exited its positions in Fidelity National Financial (FNF) and Rovi Corp. (ROVI). The fund also pared its position in British oil company BP (BP).

The Baupost Group initiated a position in Keryx Biopharmaceuticals (KERX) that accounted for 2.60% of the fund’s total portfolio.

Keryx Biopharmaceuticals is a biopharmaceutical company focused on the acquisition, development, and commercialization of pharmaceutical products for the treatment of renal disease. Its only drug candidate is Zerenex (ferric citrate), which is an oral, ferric iron–based phosphate binder. Keryx has completed a U.S.-based phase 3 clinical program for Zerenex for the treatment of hyperphosphatemia (elevated phosphate levels) in dialysis-dependent CKD patients. Its New Drug Application, or NDA, is currently under review by the FDA.

The company recently said the Prescription Drug User Fee Act or PDUFA goal date was extended to September 7, 2014.

Market opportunities for only drug candidate, Zerenex

In terms of market opportunity, Keryx said in its annual filing, “In the U.S., according to data from the U.S. Renal Data System, there are approximately 600,000 patients with end-stage renal disease, or ESRD, and the number of ESRD patients is projected to continue to rise in the future. The majority of ESRD patients, over 400,000, require dialysis. Worldwide, there are approximately 3 million patients with ESRD, with the majority of ESRD patients, over 2.3 million, requiring dialysis. Phosphate retention and the resulting hyperphosphatemia in patients with ESRD on dialysis are usually associated with secondary hyperparathyroidism, renal osteodystrophy, soft tissue mineralization and the progression of renal failure. ESRD patients usually require treatment with phosphate-binding agents to lower and maintain serum phosphorus at acceptable levels.”

Keryx added that Zerenex has the potential to be an effective and safe treatment for lowering or maintaining serum phosphorus levels and treating iron deficiency anemia in patients with CKD on dialysis and NDD-CKD. The global market for phosphate binders has been estimated at $2.4 billion.

Keryx said in a January conference, “The worldwide phosphate binder sales are 1.7 billion approximately and that is growing at a rate of about 10% year-on-year.” The company said there are four phosphate binders that have been approved. Sanofi’s (SNY) Renagel/Renvela, which is the market leader, Fresenius’ Phoslo and Velphoro, and Shire’s (SHPG) Fosrenol.

1Q 2014 results misses on earnings

The company’s 1Q 2014 results missed on earnings but beat on revenue. Keryx saw a net loss of $13.5 million, or $0.15 per share, compared to a net loss of $2.1 million, or $0.03 per share, for the comparable quarter in 2013. In January 2014, the company recorded license revenue of $10 million for the milestone payment received from its Japanese partner for Zerenex. Japan Tobacco Inc. and Torii Pharmaceutical (JT/Torii), Keryx’s Japanese partners, received manufacturing and marketing approval of ferric citrate in Japan for the improvement of hyperphosphatemia in patients with CKD, including both dialysis-dependent and non–dialysis-dependent CKD. The Japanese launch is planned for May 12, 2014, where it will be marketed as Riona. Keryx will receive royalties on net sales of Riona in Japan.

In the first quarter, Keryx raised approximately $107.6 million through an underwritten public offering of common stock, ending the quarter with $155.1 million of cash, cash equivalents, short-term investments, and interest receivable—and no debt. Keryx said it intended to use the net proceeds to fund pre-launch or launch inventory build-up and pre-commercial or commercial activities related to Zerenex, the ongoing development of Zerenex in pre-dialysis, and other general corporate purposes.

The stock has rallied since last year and is up more than 300%. According to a Wainwright analyst, “Despite the delay, with $155 MM in cash and cash equivalents, the high likelihood of a 2014 US launch, royalties from Japanese partner JT Torii, and a patent portfolio which bars competition until at least 2024, we believe shares of Keryx remain undervalued and represent upside to the risk-tolerant, long-term investor.”

Continue to Part 4

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