JMP Securities - Keryx Biopharmaceuticals ($KERX)

Biotechnology - Company Report November 14, 2011 Keryx Biopharmaceuticals, Inc. (1,2)Charles C. Duncan, PhDcduncan@jmpsecurities.com Zerenex Cost Savings Potential Overlooked(212) 906-3510 MARKET OUTPERFORM KERX $2.82Jason N. Butler, PhDjbutler@jmpsecurities.com(212) 906-3505 Price $2.82 FY Dec 2010A 2011E 2012E Target Price $8.00 Revenue (M) 1Q $0.0 $0.0A --Gena H. Wang, PhD 52-Wk Range $2.58 - $5.91 2Q $0.0 $5.0A --gwang@jmpsecurities.com Shares Out. (M) 59 3Q $0.0 $0.0A -- Market Cap. (M) $166 4Q $0.0 $0.0 --(212) 906-3528 Average Daily Vol. (000) 683 FY $0.0 $5.0 $8.0Roy Buchanan, PhD Float (M) $67rbuchanan@jmpsecurities.com 2010A 2011E 2012E LT Debt (M) $0 EPS 1Q ($0.07) ($0.10)A --(212) 906-3514 Cash (M) $47.2 2Q ($0.09) ($0.05)A -- Enterprise Value (M) $119 3Q ($0.10) ($0.15)A -- Cash/Share $0.80 4Q ($0.09) ($0.15) -- FY ($0.34) ($0.45) ($0.42) P/E NM NM NM Previous FY -- NC NC CY ($0.34) ($0.45) ($0.42) PE NM NM NM NC indicates no change to previous estimate. NE indicates no previous estimate. Source: Company reports and JMP Securities INVESTMENT HIGHLIGHTS • DaVita looks at Zerenex clinical data and provides compelling evidence for cost savings; reiterate Market Outperform rating and $8 price target on Keryx Biopharmaceuticals. Keryx released this morning two abstracts from presentations by DaVita Clinical Research at the American Society of Nephrology meeting over the weekend. The posters describe cost savings analyses carried out using data from the prior clinical studies of Zerenex. Zerenex is currently in Phase III testing for use in end-stage renal disease patients on dialysis and we anticipate data sometime in 2H12 and potential sales of ~$200MM in 2016. Our $8 price target is derived using a risk-adjusted, sum-of-the-parts analysis including perifosine (~$4) and Zerenex (~$4). • Cost savings analysis highlights potential for Zerenex to add value. In poster #1566, DaVita took historical changes of the iron-storage markers serum ferritin and transferring saturation (TSAT) and correlated changes in those values to project reductions in erythropoietin stimulating agent (ESA) and IV-iron usage for patients switching to Zerenex. A sensitivity analysis illustrating the major cost drivers is provided in Figure 1. The company derived an estimated cost savings from Zerenex usage, of ~$125/patient for moderate ESA use (4,500-9,000 units per session) and $320/patient for high ESA use (9,000 or more units per session). Our diligence suggests that ~80% of ESRD patients require ESAs and ~90% require phosphate binders. Using the derived savings of ~$90/patient/month for all patients, and our estimate of 7% Zerenex penetration in 2016 in the U.S., provides a potential cost savings of ~$38MM annually. • Physician behavior largely dictates cost benefit potential. The second poster presented by DaVita, #2647, analyzed ~130,000 patient records from DaVitas hemodialysis (HD) patient database from June 2008 to May 2010. The database was filtered to include patients whose TSAT increased by 10% or more and whose serum ferritin increased by 15 to 25%, to eventually include approximately two thousand HD patients. The company examined physician responses to the increases in TSAT and serum ferritin, finding a mean decrease in ESA dose of ~500 units and for iron of ~5.8mg per patient. With pressures on cost savings likely to only increase going forward, we view results such as these as likely to be useful in demonstrating Zerenexs utility in this setting and to drive robust clinical uptake. • The posters are available at http://www.davitaclinicalresearch.com/directory.asp FOR DISCLOSURE AND FOOTNOTE INFORMATION, REFER TO THE JMP FACTS AND DISCLOSURES SECTION

FIGURE 1: Sensitivity Analysis for Cost Savings PotentialSource: DaVita Clinical ResearchINVESTMENT RISKSClinical risk. Keryxs product candidates may fail to demonstrate adequate efficacy, safety, and/ortolerability in one or more clinical studies.Regulatory risk. Even if the companys product candidates do successfully complete clinicaldevelopment, regulatory approval may not be granted by the FDA or foreign regulatory authorities, andadditional studies may be required.Industry risk. The biotechnology industry is highly competitive with many firms developing noveltherapies that address Keryxs target diseases. It is possible that breakthrough competitor products ortherapies may render Keryxs pipeline obsolete and affect the future survival of the company.Additionally, there are a number of established products in several of the markets Keryx is targeting.Shifting patients to Keryxs products may require significant capital and resources.Balance sheet risk. The company has a history of losses, and consistent profitability is still several yearsaway. Since Keryx is burning cash in order to develop products and is expected to do so over the nearfuture, raising additional capital is crucial to the viability of the company. Keryx ended 4Q10 withapproximately $28.5MM in cash and equivalents with an average operational burn rate of $4.1MM perquarter for the past four quarters. Keryx anticipates that it has funding sufficient to complete the currentPhase III programs; however, after that, it may require additional funding.COMPANY DESCRIPTIONKeryx Biopharmaceuticals focuses on the development of novel treatments for cancer and renaldisease. The companys lead product candidates are perifosine and Zerenex, both of which arecurrently being evaluated in Phase III programs. Perifosine is an inhibitor of the PI3-kinase pathway andis being developed for the treatment of cancer. Keryx has ongoing Phase III programs for perifosine inmetastatic advanced colorectal cancer and multiple myeloma that are being conducted under SpecialProtocol Assessments (SPAs) as well as early stage programs in other indications. The companyssecond product candidate, Zerenex, is a phosphate binder being developed for the treatment ofhyperphosphatemia in patients with end-stage renal disease. Keryx recently released positive top lineresults from the first of two Phase III trials for Zerenex, which met its primary and secondary endpoints. 2

JMP FACTS AND DISCLOSURESAnalyst Certification:The research analyst(s) who prepared this report does/do hereby certify that the views presented in this report are in accordance with my/our personal views on the securitiesand issuers discussed in this report. As mandated by SEC Regulation AC no part of my/our compensation was, is or will be directly or indirectly related to the specific viewsor recommendations expressed herein. This certification is made under the obligations set forth in SEC Regulation AC. Any other person or entity may not use it for any otherpurpose. This certification is made based on my/our analysis on the date of this report’s publication. I/We assume no obligation to update this certification to reflect any facts,circumstances or events that may subsequently come to my/our attention. Signed Charles C. Duncan, PhD, Jason N. Butler, PhD, Gena H. Wang, PhD, Roy Buchanan, PhDPublicly Traded Companies Covered by JMP and Mentioned in This Report (as of November 14, 2011): Company Disclosures Keryx Biopharmaceuticals, Inc. (1,2)JMP Securities Disclosure Definitions:(1) JMP Securities currently makes a market in this security. (2) JMP Securities has received compensation for banking or other services rendered to this company in the past12 months. (3) JMP Securities was manager or co-manager of a public offering for this company in the past 12 months. (4) JMP Securities participated as an underwriting orselling group member of a public offering by this company in the past 12 months. (5) JMP Securities and/or its affiliates have obtained a position of at least 1% in the equitysecurities of this company during the ordinary course of its/their business/investments. (6) An officer of JMP Securities is a director or officer of this company. (7) The analystcovering this company (as defined in NASD Rule 2711) or a member of the analysts household has a financial interest in this company. (8) The analyst covering this companyor a member of the analyst’s household serves as an officer, director, or advisory board member of this company. (9) The analyst covering this company has had discussionsof employment with the company.JMP Securities Investment Opinion Definitions:Market Outperform (MO): JMP Securities expects the stock price to outperform relevant market indices over the next 12 months.Market Perform (MP): JMP Securities expects the stock price to perform in line with relevant market indices over the next 12 months.Market Underperform (MU): JMP Securities expects the stock price to underperform relevant market indices over the next 12 months.JMP Securities Research Ratings and Investment Banking Services: (as of October 3, 2011) # Cos # Cos % # Cos % Receiving % of Cos Regulatory Under of Regulatory Under of IB Services in With This JMP Rating Equivalent Coverage Total Rating Coverage Total Past 12 Months Rating Market Outperform Buy 207 66% Buy 207 66% 58 28% Market Perform Hold 105 33% Hold 105 33% 7 7% Market Underperform Sell 3 1% Sell 3 1% 0 0% TOTAL: 315 100% 315 100% 65 21%Stock Price Chart of Rating and Target Price Changes:Note: First annotation denotes initiation of coverage or 3 years, whichever is shorter. If no target price is listed, then the target price is N/A. In accordance with NASD Rule2711, the chart(s) below reflect(s) price range and any changes to the rating or price target as of the end of the most recent calendar quarter. The action reflected in this noteis not annotated in the stock price chart. Source: Jovus and JMP Securities.JMP Disclaimer:JMP Securities LLC (the “Firm”) compensates research analysts, like other Firm employees, based on the Firm’s profitability, which includes revenues from the Firm’sinstitutional sales, trading, and investment banking departments as well as on the quality of the services and activities performed that are intended to benefit the Firm’sinstitutional clients. These data have been prepared by JMP Securities LLC for informational purposes only and are based on information available to the public from sourcesthat we believe to be reliable, but we do not guarantee their accuracy or completeness. Any opinions and projections expressed herein reflect our judgment at this date andare subject to change without notice. These data are neither intended nor should be considered as an offer to sell or a solicitation or a basis for any contract for the purchaseof any security or other financial product. JMP Securities LLC, its affiliates, JMP Group LLC, Harvest Capital Strategies LLC, and their respective partners, directors, officers,and associates may have a long or short position in, may act as a market maker for, or may purchase or sell a position in the securities mentioned herein. JMP SecuritiesLLC or its affiliates may be performing, have performed, or seek to perform investment banking, advisory, or other services and may have acted as manager or co-managerfor a public offering of securities for any company mentioned herein. The reader should assume that JMP Securities LLC will solicit business from the company covered inthis report. Members of our Sales and Trading Department provide oral and/or written market opinions and trading strategies to our clients that reflect their personal opinionsabout stocks that are the subject of the firms research reports. Our research analysts discuss trading strategies with clients and complete surveys from clients that sometimesreflect short-term expectations for the price of the securities that are the subject of research reports. Those trading strategies and survey responses are distinct from theanalysts fundamental rating for the stock, which is based upon the analysts view compared to other stocks under coverage for the relevant time period. © Copyright 2011.All rights reserved by JMP Securities LLC. JMP Securities LLC is a member of FINRA, NYSE Arca, NASDAQ, and SIPC. 3

JMP SECURITIES LLC600 Montgomery Street, Suite 1100, San Francisco, CA 94111-2713, www.jmpsecurities.comPeter V. ColemanDirector of Equity Research(415) 869-4455Financial Services Real EstateCapital Markets Hotels & ResortsDavid Trone (212) 906-3525 William C. Marks (415) 835-8944 Steven Fu, CFA (212) 906-3548 Chris Ross, CFA (212) 906-3532 Housing & Housing Supply Chain Michael G. Smith (415) 835-8965Consumer & Specialty Finance, Commercial BanksJohn Hecht (415) 835-3912 Land Development Kyle M. Joseph (415) 835-3940 Michael G. Smith (415) 835-8965Financial Processing & Outsourcing Real Estate & Property ServicesDavid M. Scharf (415) 835-8942 William C. Marks (415) 835-8944Kevane A. Wong (415) 835-8976 Real Estate Technology Michael G. Smith (415) 835-8965InsuranceMatthew J. Carletti (312) 768-1784 REITs: Healthcare Christine Worley (312) 768-1786 Peter L. Martin, CFA (415) 835-8904 Aaron Hecht (415) 835-3963Market StructureDavid M. Scharf (415) 835-8942 REITs: Office & Industrial Mitch Germain (212) 906-3546Kevane A. Wong (415) 835-8976Residential & Commercial Real Estate Finance TechnologySteven C. DeLaney (404) 848-7773 Clean Technology Trevor Cranston, CFA (415) 869-4431 Alex Gauna (415) 835-8998Trevor Cranston, CFA (415) 869-4431 Communications Equipment Erik Suppiger (415) 835-3918Healthcare SemiconductorsBiotechnology Alex Gauna (415) 835-8998Charles C. Duncan, PhD (212) 906-3510 Matt Danziger (415) 869-4454 Roy Buchanan, PhD (212) 906-3514 Jason N. Butler, PhD (212) 906-3505 Software Gena H. Wang, PhD (212) 906-3528 Patrick Walravens (415) 835-8943 Greg McDowell (415) 835-3934Liisa A. Bayko (312) 768-1785 Peter Lowry (415) 869-4418 Heather Behanna, PhD (312) 768-1795 Greg McDowell (415) 835-3934Jason N. Butler, PhD (212) 906-3505Healthcare Facilities & ServicesPeter L. Martin, CFA (415) 835-8904 Aaron Hecht (415) 835-3963Healthcare ServicesConstantine Davides, CFA (617) 235-8502 Tim McDonough (617) 235-8504Medical DevicesJ. T. Haresco, III, PhD (415) 869-4477For Additional InformationMark Lehmann Erin SeidemannPresident, JMP Securities Vice President, Publishing(415) 835-3908 (415) 835-3970

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JMP Securities - Keryx Biopharmaceuticals ($KERX)

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