® First Take Keryx Biopharmaceuticals Inc. (KERX) Price: $1.53 (04/23/2012 - Intraday), Price Target: $3.00, Market Cap(MM): $108.3, Rating: Market Outperform Reni Benjamin, Ph.D., Senior Biotechnology Analyst 212-430-1743 firstname.lastname@example.org Positive Top-Line Results Reported From the Phase 3 Trial of Zerenex in JapanJapan Tobacco (JT) Torii Reports Positive Data – Filing in 2013 Today, Keryx announced that the company’s Japanesepartner, Japan Tobacco (JT) Torii (TYO: 2914, Not Rated; TYO: 4551, Not Rated) reported positive top-line data from theopen-label randomized Phase 3 trial comparing Zerenex with Sevelamer Hydrochloride in 200 end-stage renal disease(ESRD) patients on hemodialysis with hyperphosphatemia. The patients were treated with Zerenex for 12 weeks tomeasure the primary endpoint of the change in the serum phosphorus levels. The top-line data reported that Zerenexshowed non-inferiority to Sevelamer. Based on the data, JT Torii is expected to file a marketing application in Japan by theend of March 31, 2013. Recently, JT Torii initiated a Phase 3 program evaluating Zerenex in Japan for the treatment ofhyperphosphatemia, triggering a $5 MM milestone payment to Keryx. Recall, JT Torii is planning a broad Phase 3 programcomprising of 6 Phase 3 trials spanning up to 710 patients. The JT Torii licensing agreement calls for JT Torii to pay up to$100 MM in up-front license fees and milestones to Keryx, of which $28 MM has been awarded to Keryx to date, as well asroyalty payments on net sales. Upon the Zerenex NDA submission in Japan, Keryx will receive a high single digit milestonepayment. In our opinion, the robust Phase 3 program being undertaken by JT Torii reflects a high degree of confidence thatZerenex has significant potential to penetrate both the dialysis as well as the non-dialysis chronic kidney disease (CKD)markets in Japan.Phase 3 Zerenex Trial for Hyperphosphatemia to Report in 4Q12 Keryx is conducting a 58-week long-term, multicenter,randomized, open-label, safety and efficacy Phase 3 trial evaluating Zerenex, a phosphate binder, in 440 patients withESRD on dialysis. During the recent call, management reiterated that the data from the Phase 3 trial is expected to beavailable in 4Q12, with potential filing of the NDA and MAA in 1H13. In our opinion, the long-term study of Zerenex has ahigher than average likelihood to succeed given that the short-term Phase 3 trial of Zerenex in ESRD patients met itsprimary endpoint of demonstrating a dose response in the change of serum phosphorous from baseline to day 28 (p-value< 0.0001). Of additional significance, Zerenex may reveal additional benefits in combating anemia if the Phase 3 datademonstrate a reduced need for intravenous and/or EPO blood cell stimulating drugs such as Procrit, Epogen and Aranesp.Zerenex Market Potential We would like to remind investors that the US market for phosphate binders in the dialysissetting is approximately $700 MM and the worldwide market is approximately $1.2 BN. The 25% year-over-year growth inthe phosphate binding market over the past 5 years has been driven by an increased incidence of dialysis with a growingdiabetic population, as well as price increases from the market leader Genzyme for Renagel and Renvela. We believe thatZerenex has the potential to address multiple deficiencies among marketed phosphate binders, and capture 14% of themarket, corresponding to peak US revenues of approximately $250 MM by 2018, if successful.Quick Take We are reiterating our Market Outperform / Speculative Risk rating and our target price of $3 based on adiscounted 2015 revenues and earnings multiples analysis. In our opinion, the positive top-line data from the Japanese trialreinforces the potential of Zerenex franchise, and bodes well for the ongoing Phase 3 trial of Zerenex in the US. Thepotential cost-savings benefit, combined with previous efficacy data, makes Zerenex an attractive treatment option in theapproximately $700 MM U.S. market for agents that lower phosphate in ESRD patients on dialysis. In our opinion, therecent weakness in shares provides an opportunity for the value-oriented investor to participate in the upside of the Zerenexfranchise. We believe that Keryx represents a significantly undervalued and underappreciated company and is potentiallysuitable for the risk-oriented investor. For definitions and the distribution of analyst ratings, and other disclosures, please refer to pages 2 - 3 of this report.
Keryx Biopharmaceuticals Inc. April 23, 2012 RODMAN & RENSHAW RATING SYSTEM: Rodman & Renshaw employs a three tier rating system for evaluating both the potential return and risk associated with owning common equity shares of rated firms. The expected return of any given equity is measured on a RELATIVE basis of other companies in the same sector, as defined by First Call. The price objective is calculated to estimate the potential movement in price a given equity could achieve given certain targets are met over a defined time horizon. Price objectives are subject to exogenous factors including industry events and market volatility. The risk assessment evaluates the company specific risk and accounts for the following factors, maturity of market, maturity of technology, maturity of firm, cash utilization, and valuation considerations. Potential factors contributing to risk: relatively undefined market, new technologies, immature firm, high cash burn rates, intrinsic value weighted toward future earnings or events. RETURN ASSESSMENT q Market Outperform (Buy): The common stock of the company is expected to outperform a passive index comprised of all the common stock of companies within the same sector, as defined by First Call. q Market Perform (Hold): The common stock of the company is expected to mimic the performance of a passive index comprised of all the common stock of companies within the same sector, as defined by First Call. q Market Underperform (Sell): The common stock of the company is expected to underperform a passive index comprised of all the common stock of companies within the same sector, as defined by First Call. RISK ASSESSMENT q Speculative - The common stock risk level is significantly greater than market risk. The stock price of these equities is exceptionally volatile. q Aggressive - The common stock risk level is materially higher than market level risk. The stock price is typically more volatile than the general market. q Moderate - The common stock is moderately risky, or equivalent to stock market risk. The stock price volatility is typically in-line with movements in the general market. Rating and Price Target History for: Keryx Biopharmaceuticals Inc. (KERX) as of 04-20-2012 03/01/10 05/12/10 04/02/12 I:MO:$6 MO:$8 MO:$3 8 6 4 2 0 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 2010 2011 2012 Created by BlueMatrix RATING SUMMARY Distribution of Ratings Table IB Serv./Past 12 Mos Rating Count Percent Count Percent Market Outperform(MO) 82 63.08% 12 14.63% Market Perform(MP) 27 20.77% 3 11.11% Market Underperform(MU) 6 4.62% 0 0.00% Under Review(UR) 15 11.54% 4 26.67% Total 130 100% 19 100% Investment Banking Services include, but are not limited to, acting as a manager/co-manager in the underwriting or placement of securities, acting as financial advisor, and/or providing corporate finance or capital markets-related services to a company or one of its affiliates or subsidiaries within the past 12 months.RODMAN & RENSHAW EQUITY RESEARCH 2
Keryx Biopharmaceuticals Inc. April 23, 2012 ADDITIONAL DISCLOSURES Rodman & Renshaw, LLC. (the "Firm") is a member of FINRA and SIPC and a registered U.S. Broker-Dealer. ANALYST CERTIFICATION I, Reni Benjamin, Ph.D., hereby certify that the views expressed in this research report accurately reflect my personal views about the subject company(ies) and its (their) securities. None of the research analysts or the research analysts household has a financial interest in the securities of Keryx Biopharmaceuticals Inc. (including, without limitation, any option, right, warrant, future, long or short position). As of Mar 31 2012 neither the Firm nor its affiliates beneficially own 1% or more of any class of common equity securities of Keryx Biopharmaceuticals Inc.. Neither the research analyst nor the Firm has any material conflict of interest with Keryx Biopharmaceuticals Inc., of which the research analyst knows or has reason to know at the time of publication of this research report. The research analyst principally responsible for preparation of the report does not receive compensation that is based upon any specific investment banking services or transaction but is compensated based on factors including total revenue and profitability of the Firm, a substantial portion of which is derived from investment banking services. The Firm or its affiliates have received compensation from Keryx Biopharmaceuticals Inc. for investment banking services within twelve months before, and intends to seek compensation from the companies mentioned in this report for investment banking services within three months, following publication of the research report. Neither the research analyst nor any member of the research analysts household nor the Firm serves as an officer, director or advisory board member of Keryx Biopharmaceuticals Inc.. The Firm does make a market in Keryx Biopharmaceuticals Inc. securities as of the date of this research report. Any opinions expressed herein are statements of our judgment as of the date of publication and are subject to change without notice. Reproduction without written permission is prohibited. The intraday prices of securities mentioned in this report are as of Apr 23 2012. Additional information is available to clients upon written request. For complete research report on Keryx Biopharmaceuticals Inc., please call (212) 356-0500. Readers are advised that this analysis report is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy. The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of the available data. Past performance is no guarantee of future results.RODMAN & RENSHAW EQUITY RESEARCH 3