October 16, 2015
By Mark Terry, BioSpace.com Breaking News Staff
Boston-based Keryx Biopharmaceuticals ’ stock took a much-needed hop yesterday after the company announced it had inked an agreement with The Baupost Group, LLC to raise $125 million through the private placement of Convertible Senior Notes.
Keryx focuses on renal disease and in December 2014 launched its first product, Auryxia (ferric citrate), to control serum phosphorus levels (hyperphosphatemia) in kidney dialysis patients. The drug was approved in January 2014 in Japan, and is marketed as Riona by its Japanese partner, Japan Tobacco Inc. and Torii Pharmaceutical Co. Ltd. In September 2015, it received approval by the European Commission.
The company also announced that it had begun a cost-cutting plan, which would slash the company’s cash operating expenses, minus the cost of sold goods, to between $87 million and $92 million in 2016.
“We have a significant opportunity with Auryxia and, as we previously outlined, have adapted our strategy to improve the launch of Auryxia in the U.S., including the planned increase of our field-based sales force by approximately 50 percent,” said Greg Madision, chief executive officer of Keryx in a statement. “We continue to be focused on critical activities to drive increased revenue from Auryxia and to advance our label expansion efforts, with data expected early in the second quarter of 2016 from our phase III trial in pre-dialysis patients with iron deficiency anemia.”
Keryx jumped from $3.71 on Oct. 14 to $4.16 on Oct. 15 after the news. It is currently trading for $3.98. That’s modestly good news for the company, whose stock has been on a slow and steady decline for the last year. On Nov. 6, 2014, shares traded for $17.20, dropped to $14.31 on Mar. 20, 2015, hit $9.32 on May 8 and $3.19 on Oct. 1.
Although seemingly positive news to the company, a large number of short investors invest in Keryx, and are probably not pleased with the improvement. Short investors essentially bet on a stock price going down. According to BizJournals, Keryx is typically among the top five most-shorted biotech companies in Massachusetts over the last year.
The big plus to the Baupost investment is that Keryx won’t need a second public-share offering in the short-term, which would push down on its share price. The zero-coupon convertible notes will mature in October 2020. If those notes are exercised, they will turn into common stock shares at a price of $3.74.
A number of analysts at Maxim, J.P. Morgan and Brean Capital have projected that Auryxia will be the biggest leader in the market for phosphate binders. It is currently conducting a clinical trial in patients with anemia who aren’t on dialysis. If that trial proves successful, it would potentially broaden the market for the drug by a factor of four.
However, the growth of the drug has been slower than expected, due partially to insurer’s reluctance to pay for it and an FDA-mandated warning label regarding monitoring iron levels in the blood. Keryx, however, points out that monitoring iron levels in dialysis patients is already standard practice.
The primary competitor for the drug is Sanofi ’s Renvela, but with the new money, the approval in Europe and the 50 percent expansion of the company’s sales teams, Keryx is likely to eat up Sanofi’s share of the market.
Brian Feroldi, writing for The Motley Fool, says, “The Baupost Group is certainly bullish on the future prospects of Keryx; otherwise, they wouldn’t have made this new investment. It therefore might not be a bad idea to piggyback alongside a great investors, and buy a few shares of this beaten-up biopharma.”
