Keryx CEO vs. a Short-Seller: Zerenex Patent Debate

NEW YORK (TheStreet) -- For the last six weeks or so, Keryx Pharmaceuticals (KERX) has been weighed down by concerns that its promising phosphate binder Zerenex suffers from weak intellectual property protection and may be ineligible for full market exclusivity. Keryx CEO Ron Bentsur has used presentation slots at various investor conferences to rebut these concerns, but the company's stock price hasn't fully recovered.

On Tuesday, Bentsur devoted a big chunk of time on Keryx's quarterly conference call to a point-by-point explanation of Zerenex's intellectual property position, which he believes is strong today, getting stronger tomorrow, and will not adversely affect the drug's commercial potential at all. Keryx shares closed Tuesday down 3% to $7.13.

Not everyone agrees with Bentsur. Listening to Tuesday's call was an institutional investor who is shorting Keryx shares because he believes Zerenex's patent protection is weak. He also believes previous FDA approvals of drugs with identical active ingredients as Zerenex will block Keryx's attempt at gaining key patent extensions or New Chemical Entity (NCE) status. Without strong patents and five-plus years of U.S. market exclusivity, Keryx won't be able to land a marketing partner for Zerenex, the Keryx short-seller says. Without a marketing partner, Keryx will be forced to sell Zerenex on its own -- a task the company will not do successfully. Keryx is very much the Amarin (AMRN) story repeating itself, this investor believes.

What follows is a virtual "debate" between Bentsur and the aforementioned investor shorting Keryx. [His fund's rules do not allow him to be identified by name in the media, so he'll be referred to as "Keryx short-seller."]

Bentsur's quotes regarding Zerenex's patents and market exclusivity potential are pulled directly from Tuesday's conference call. Responses to Bentsur's remarks made by the Keryx short-seller were provided to me via email.

Bentsur: I would now like to discuss the IP protection for Zerenex, as this has been the subject of much dialog recently. Let me begin by saying that we strongly believe that Zerenex is well protected in the U.S. market until at least 2024.

Keryx short-seller: This assumes the granting of patent term extension, which we will see is not a given. Keryx does not have a real composition of matter patent for Zerenex. They do have a method of use patent ('706) covering the use of ferric citrate in dialysis that expires in 2017, plus several manufacturing patents that expire in 2023 and 2024. In order for Zerenex to be commercially viable, Keryx must convince the U.S. patent office to extend the life of the '706 patent for another five years. This is the "patent term extension" (PTE) that is much debated. Absent PTE, Zerenex's exclusivity may be short lived because generic companies could work around the remaining Zerenex manufacturing patents.

Bentsur: We believe that with our key API or drug substance, surface area and intrinsic dissolution patents which expire in 2024, it will not be possible for a generic to make a commercially viable ferric citrate without infringing on these patents. Simply put, in order to have a commercially viable ferric citrate, one has to have drug substance or API which is concentrated enough, otherwise, one would need large amounts of API and that would make any formulation extremely cumbersome. For example, this would translate into a very large number of pills, very large pills or a combination of both to get any meaningful or comparable therapeutic activity and in either case that would not be commercially viable...

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