Undaunted by Wall Street “Penalty Box,” Keryx Focuses on Kidney Drug

5/22/12Follow @arleneweintraub

On April 2, shares of New York-based Keryx Pharmaceuticals (NASDAQ: KERX) fell a stomach-churning 65 percent to $1.74 after the company announced that a late-stage trial of its colon cancer drug failed. But CEO Ron Bentsur was unfazed. In fact, he was so confident in the company’s other drug candidate—a treatment for kidney dialysis patients—that he turned around and bought 90,500 shares of Keryx on the open market. He now owns a total of 479,476 shares, according to SEC filings, making him the largest individual shareholder of the company. “I wanted to show I truly believe in the company,” Bentsur says of his stock purchase. “I wanted people to know there is still someone answering the door here.”

Investors would be forgiven for fearing that the doors might be shutting at Keryx. In March 2008, the company’s shares plummeted 81 percent in a day after it announced that what was then its lead product, a drug to treat diabetic neuropathy, failed in a late-stage trial. And now, with the failure of the colon cancer drug, called perifosine, the company has only one product candidate left in its pipeline, the dialysis treatment, ferric citrate (Zerenex). It’s no wonder that in the words of Bentsur, his company remains “deep in the penalty box.” Analysts expect Keryx to report a $34 million loss this year.

Keryx’s most recent troubles began in the pivotal trial of perifosine. In an earlier trial with 38 patients, the drug looked promising in combination with a Roche product called capecitabine (Xeloda): It extended median survival from seven to 17 months compared with capecitabine alone. But those results couldn’t be repeated in the larger trial, which enrolled 468 patients. Keryx abandoned the drug, returning the development rights back to the original owner, Quebec-based Aeterna Zentaris.

Some influential prognosticators were predicting perifosine’s demise long before the April announcement of the trial’s failure. Last September, TheStreet.com’s biotech scribe Adam Feuerstein teamed with University of Chicago oncologist and professor Mark Ratain to publish an article in the Journal of the National Cancer Institute demonstrating that 59 late-stage trials of cancer drugs performed in the last 10 years by microcap companies had all failed. If the pattern were to continue, Feuerstein suggested a month later, perifosine would also fail.

Feuerstein proposed that a primary reason for the failure of so many cancer drugs developed by small companies is, well, the smallness of the companies. In other words, he contended, if the drugs had shown any promise in earlier trials, big pharma companies would have bought them or their developers long before the pivotal trials were completed. Bentsur had expressed an interest in attracting a buyer, but perifosine remained unclaimed well into the late-stage trials. “What’s more likely to have happened already, says Ratain (and I agree with him) is that larger companies have already vetted the previous perifosine data and found it lacking,” Feuerstein wrote.

Bentsur declines to comment on TheStreet.com’s coverage, saying only, “People are entitled to their opinion.” As for the perifosine trials, he says, “Based on the information we had, we ran the best study we could.”

Keryx was founded in 1997 and went public three years later on two assets: the diabetes drug, which it licensed from Eli Lilly, and a technology it developed and hoped to apply to immune disorders. The company licensed perifosine from Aeterna Zentaris in 2003 and ferric citrate from Taiwan-based Panion & BF Biotech in 2005. Bentsur had been the company’s CFO, but left in 2006, after which time the company faltered when neither of its original programs panned out. The board lured Bentsur back to the company and named him CEO in 2009.

The stock was in the doldrums, but Bentsur believed the colon cancer and kidney drugs presented an attractive risk-reward balance. “Perifosine was a high-risk, high-reward situation,” he says. The kidney product, on the other hand, “did not have the same amount of pizzazz, but it was a much lower risk profile.”

Now Bentsur is facing his toughest challenge yet: He must persuade Wall Street that that, in fact, there is pizzazz in Keryx’s kidney program. The drug, ferric citrate, is designed to bind to phosphate—a chemical that builds up in the blood of patients with late-stage kidney disease—and shuttle it out of the body. Keryx expects to complete the pivotal trial by the end of the year and apply for FDA approval in the first quarter of next year.

Keryx’s drug, should it be approved, will be entering a fiercely competitive market, though. There are already three phosphate binders on the market, which are sold by Sanofi unit Genzyme, Irish drug giant Shire, and Fresenius Medical Care, which is an operator of dialysis clinics. Together they bring in an estimated $750 million a year in the U.S.

Bentsur believes Keryx’s phosphate binder will prove to be safer than the others—and more convenient. “On average, patients need to take 10 to 12 of these pills per day to get adequate control of their phosphate,” says Bentsur, who is so cognizant of the competition he carries a baggie around with him that contains samples of all his rivals’ phosphate binders. “We think we can cut the pill burden 20 percent at least.”

Keryx is also hoping to prove its drug will lessen the need for kidney patients to take iron supplements and the anemia fighter erythropoietin (EPO), which is marketed by Amgen (NASDAQ: AMGN) and Johnson & Johnson (NYSE: JNJ) . That’s because Keryx’s phosphate binder is made from iron. “Intuitively an iron-based phosphate binder should, over time, increase the iron stores of these patients,” which could in turn relieve the anemia, Bentsur says.

Last November, DaVita Clinical Research—an arm of a large chain of dialysis clinics—presented research at a conference showing that Keryx’s drug could produce cost savings of up to $320 per patient per month, if reductions in EPO use observed in initial trials translate to the real world. “That’s a pretty substantial number,” Bentsur says. Further studies on potential Medicare and managed-care savings were presented earlier this month at a conference of the National Kidney Foundation.

On April 23, Keryx announced positive results from a Japanese trial of its phosphate binder—giving the stock, which had fallen below $1.50, a bump to $1.75. (Shares closed yesterday at $1.78.) Bentsur is resigned to the fact that investors won’t fully regain confidence in Keryx until they see the results from the U.S. trials of the phosphate binder later this year. But he refuses to wallow in the company’s past failures. “It’s disappointing on many levels, and obviously it’s unfortunate for shareholders, and I’m one of them.” Bentsur says. “Our responsibility is not to be depressed for more than a day or two. We need to snap out of it and move forward.”

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