BUY-Rated Clinical-Stage Companies: Keryx Biopharmaceuticals and TG Therapeutics

Jonathan Aschoff: Zerenex is a highly differentiated phosphate binder for end-stage renal disease (ESRD) and most likely Chronic Kidney Disease (CKD) as well. Approvals in Japan for use in ESRD and CKD patients are pending. Filings in the US and EU for use in ESRD patients should be submitted by the end of Q3 2013. Phase 2 Data for use in CKD patients in the US is also expected in Q3 2013. In the first quarter of 2013, a US Phase 3 trial proved the drug is safe and effective for use in ESRD patients. Although we haven’t seen data yet from Phase 3 ESRD and CKD trials in Japan, the company’s partner JT Torii Pharmaceutical (TYO:4551) has filed a new drug application (NDA) in Japan for use in ESRD and CKD patients, giving us reasonable confidence that the results are positive.

LSIN: How do the results build on the findings from the previous trials? Does the data continue to back that Zerenex has met its primary and secondary endpoints in the trial? What about cost savings? If approved, how will the drug benefit patients?

JA: Phase 3 more than confirmed the earlier Phase 2 data. It went beyond the earlier data. It has met five iron-related key secondary endpoints: increased trasferrin saturation (TSAT) scores; increased ferritin levels; well-maintained hemoglobin levels; reduction in the need for intravenous (IV) iron therapy; and reduction in the need for erythropoiesis-stimulating agents (ESAs) which are far more expensive than IV iron. Those are key secondary endpoints in addition to the phosphate control primary endpoint which was easily hit, demonstrating Zerenex was far superior to the placebo non-inferior to any approved phosphate binder used in the actively controlled portion of the trial in terms of phosphate control, and superior to approved phosphate binders regarding any conceivable iron parameter. The reduction in the need for IV iron and ESAs should result in a significant cost savings for providers of dialysis, especially as more ESRD drugs are bundled; the less they use the more they profit. It’s also a safer way of providing patients with iron versus IV iron, providing a significant extra benefit to patients.

LSIN: What’s the largest market for this drug? How does it stand up to other competing products?

JA: The market for this drug is about $1.7 billion globally, which breaks down to about $350 million in Japan; $350 million in the EU; about $800 million to $900 million in the U.S.; and about $200 million outside of those territories. For CKD, that market could be even more because there are about 1.5 million patients just in the U.S. The off label use of phosphate binders for CKD now totals about 50,000 later stage CKD patients. The CKD market I think will grow should Keryx get approval for Zerenex, and it’s really the only phosphate binder that could get approved for use in CKD patients at least in the U.S., where the FDA has said that it will only approve phosphate binders in CKD if they do more than just bind phosphate. Here we have a clear iron benefit that no other phosphate binder has; not even another phosphate binders that is iron based (PA21) has the kind of iron that readily dissolves into anything of biological utility.

LSIN: What has been the market reaction to the study results?

JA: It’s well up from the $1.67 share price this time last year. There was a huge uptake in the stock after the initial release of the Phase 3 trial results in January. The stock was in the $3.50 range before Phase 3 data in late January and is now trading at between $7 and $8 per share. Since the Phase 3 data came out earlier this year, some notable biotech savvy hedge funds have accumulated a few million shares each as well as a few other hedge funds with smaller positions.

LSIN: What’s the next step?  What are the odds of FDA approval and approval in other global markets?

JA: The next steps are filing a NDA with the FDA as well as a Marketing Authorization Application (MAA) with the European Medicines Agency and obtaining approval in Japan where their partner JT Torii has already filed a NDA for marketing approval in Japan in ESRD and CKD. Keryx is working on the completion of a Phase 2 study on the use of Zerenex for the management of serum phosphorus and iron deficiency in anemic patients with State 3 to 5 non-dialysis dependent (NDD) CKD, and that data is expected in the third quarter of this year. Then they’ll develop the drug further. I think there’s a 100 percent chance of approval in the U.S. and in other markets because of how well Zerenex controls phosphate and provides iron benefits. It is usefully differentiated.

LSIN: Is Keryx a possible buyout candidate?

JA: A buyout is the most likely end game scenario for Keryx given they’re a small company with a desirable differentiated drug.

LSIN: What are the upcoming catalysts that give investors reason to own this stock?

JA: 2013 is rich with important data catalysts for Keryx. The U.S. Phase 2 Trials in patients with NDD-CKD is expected to come out in the third quarter. The formal publication in an American medical journal of the late-stage results from JT Torii’s trial in NDD-CKD patients is expected this summer. And, of course, the NDA filing in the U.S. and the MAA filing in the EU by Keryx sometime this year.

LSIN: What’s your rating and price target for KERX?

JA: I have a BUY rating and a $15 price target for Keryx.

LSIN:  Let’s talk about another company you cover with ties to KERX. At the American Society of Clinical Oncology Meeting last week, TG Therapeutics (NASDAQ:TGTX) announced preliminary results from a Phase 1 clinical study of TG-1101. Please tell us about this company, the drug and how it will benefit patients.

JA: TGTX’s management were at the helm of Keryx some years ago and were involved in the in-licensure of Zerenex from Panion & BF Biotech. TG-1101 (a.k.a. Utuxin) is a monoclonal anti-CD20 antibody under development for use in patients with non-Hodgkin’s lymphoma (NHL) and chronic lymphocytic leukemia (CLL). Most importantly, TG-1101 is being developed in Rituxan relapsed/refractory NHL patients. Rituxan is currently the market leader in anti-CD20 antibodies. The low fucose glycosylation on TG-1101 results in a higher antibody-dependent cellular cytotoxicity (ADCC) response than with Rituxan. And ADCC response is one way to reduce tumor burden. So for those patients who have relapsed on Rituxan, instead of subjecting them to a harsh chemotherapy regimen, why not try another similarly benign and similarly potent anti-CD20 antibody.

LSIN: What’s the largest market for this drug? How does it stand up to other competing products?

JA: The anti-CD20 market is worth $5 to $7 billion today and that should grow with the advent of TG-1101 and other anti-CD20 products, and I would expect it to grow because patients would not be shunted off to chemotherapy treatment as quickly. This drug is in the early stages so, at present, you cannot easily quantify how it stands up to other anti-CD20 drugs in the market. However, results have shown a 50 percent response rate in Rituxan relapsed/refracted lymphoma patients, which is impressive, but we need to watch the results going forward to determine the durability of these responses.

LSIN: What has been the market reaction to the study results?

JA: The stock market performance over the past year has been flat I think owing mostly to the illiquidity of the shares. The stock hasn’t moved much because of this low liquidity which hinders the ability of certain investors to invest at least for now, but I expect that liquidity to increase, partly due to the recent uplisting of the company’s shares to the NASDAQ Capital Market from the OTC Bulletin Board. TG has a strong cash position which should carry it through the middle of 2014.

LSIN: What are the next steps for TGTX?

JA: The next steps for TG-1101 are expansion of the higher dose cohorts in Phase 1 and monitoring the durability of patient responses from the Phase 1 dose escalation cohorts. TGTX presented dose escalation data from the Phase 1 trial at American Society of Clinical Oncology Meeting and will present preclinical combination data (TG-1101 plus TGR-1202) at the European Hematology Association this summer. There is also a trial with the combination of Celgene’s Revlimid and TG-1101 in patients with B-cell lymphoid malignancies, including NHL and CLL, who have relapsed or are refractory after CD20 directed antibody therapy. Initial results from that trial should be out at the end of this year at the American Society of Hematology (ASH) conference in December this year. ASH will also be the venue for dose expansion cohorts from the TG-1101 monotherapy trial (as well as follow up from dose escalation patients), and initial TGR-1202 Phase 1 efficacy data.

LSIN: What other products does TGTX have in the pipeline?

JA: TGTX also has a second drug, TGR-1202, for which they will release Phase 1 patient data at this year’s ASH conference. TGR-1202 is a PI3K-inhibitor. That’s a very high interest target these days. Pending the preclinical combination data with TG-1101 and TGR-1202, combination clinical development in patients with hematologic malignancies could start later this year.

LSIN: Is TGTX a possible buyout candidate?

JA: Yes. TGTX, should it have positive mid-stage clinical trial results, clearly fits the description of a company that becomes a buyout target versus grows itself into a commercial entity. All they need is the positive clinical safety and efficacy results from meaningful non-pivotal trials.

LSIN: What’s your rating and price target for TGTX?

JA: I have a Buy Rating and $13 price target for TGTX.

LSIN: Thanks for your time and your insight, Jonathan.

JA: Thank you as well.

Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.

Brean Capital, LLC makes a market in the securities of Keryx Biopharmaceuticals, Inc.

Keryx Biopharmaceuticals, Inc. is, or within the last 12 months has been, a client of Brean Capital, LLC, and investment banking and/or advisory services are being, or have been provided.

Brean Capital, LLC has managed or co-managed a public offering or placement of securities of Keryx Biopharmaceuticals, Inc. within the past 12 months.

Brean Capital, LLC expects to receive compensation for investment banking and/or advisory services from Keryx Biopharmaceuticals, Inc. within the next 3 months.

Brean Capital, LLC has received compensation for investment banking and/or advisory services from Keryx Biopharmaceuticals, Inc. within the past 12 months.

 Brean Capital, LLC makes a market in the securities of TG Therapeutics, Inc.