Keryx Biopharma (KERX) Announces Auryxia Supply Interruption; Provides Q2 Results

Keryx Biopharmaceuticals, Inc. (Nasdaq: KERX) announced that an interruption in the supply of Auryxia® (ferric citrate) tablets is imminent due to a production-related issue converting active pharmaceutical ingredient (API) to finished drug product. Keryx expects to make Auryxia available to patients when supply of Auryxia is back to adequate levels, which Keryx anticipates will be during the fourth quarter of 2016.

“We take our responsibility to patients and the treating community very seriously and recognize the impact this interruption of supply will cause for patients and their healthcare providers,” said Greg Madison, chief executive officer of Keryx Biopharmaceuticals. “Our field-based teams have been doing an outstanding job educating the community on the benefits of Auryxia and will be a critical resource during this supply interruption as we continue to support healthcare providers and their patients with hyperphosphatemia.”

About the Supply Interruption

Keryx has determined that a supply interruption is going to occur due to a production-related issue in converting API to finished drug product at its contract manufacturer. This issue has resulted in variable production yields of finished drug product and, as a result, the company has exhausted its reserve of finished drug product. At this time, current inventories of Auryxia are not sufficient to ensure uninterrupted patient access to this medicine. The supply interruption does not affect the safety profile of currently available Auryxia. Keryx is working with its existing manufacturer to resolve the production-related issue and rebuild adequate supply. In addition, since approval of Auryxia in 2014, Keryx has been working to bring a secondary manufacturer online to supply finished drug product. The company recently filed for approval of this manufacturer with the U.S. Food and Drug Administration (FDA) and the FDA has assigned a Prescription Drug User Fee Act (PDUFA) action date of November 13, 2016. The company expects to restore adequate supply of Auryxia and to make Auryxia available to patients during the fourth quarter of 2016.

This supply interruption does not affect the supply of ferric citrate (marketed as Riona®) manufactured and sold by Keryx’s Japanese partner.

Second Quarter Business Update

• Auryxia net U.S. product sales for the second quarter of 2016 were $8.3 million compared with $1.8 million in the second quarter of 2015. Second quarter 2016 sales resulted from approximately 13,150 prescriptions, which represents 44 percent growth compared to the first quarter of 2016.
• Keryx has met with the FDA to discuss expanding the label of ferric citrate to include the treatment of iron deficiency anemia (IDA) in stages 3 – 5 non-dialysis dependent chronic kidney disease (CKD) patients based on the results of the company’s Phase 3 pivotal study in this patient population. The company expects to file a supplemental new drug application (sNDA) with the FDA late in the third quarter of 2016.
• Keryx submitted several abstracts for potential presentation at the upcoming American Society of Nephrology’s (ASN) 2016 Kidney Week taking place November 15 – 20, 2016 based on its pivotal Phase 3 trial in this patient population.

Second Quarter Ended June 30, 2016 Financial Results“Although we are withdrawing our financial guidance for 2016, we believe we are well positioned financially to manage through this interruption in supply of Auryxia,” said Scott Holmes, chief financial officer of Keryx. “With our strong balance sheet and an appropriately aligned cost structure, we will ensure that we continue to make the necessary investments to emerge from this unexpected event in the best possible position.”

At June 30, 2016, the company had cash and cash equivalents of $155.8 million.

Total revenues for the quarter ended June 30, 2016 were approximately $9.3 million, compared with $2.5 million during the same period in 2015. Total revenues for the second quarter consisted of Auryxia net U.S. product sales of $8.3 million and license revenue of $1.0 million associated with royalties received on Riona® (ferric citrate) net sales from Keryx's Japanese partner. At June 30, 2016, Keryx had deferred revenue of $3.4 million, which represents Auryxia product shipped to customers, not yet dispensed as a patient prescription.

*** The Street was looking for revenue of $8.6 million.

Cost of goods sold for the quarter ended June 30, 2016 was $5.1 million, as compared with $0.3 million during the same period in 2015. Cost of goods sold for the quarter ended June 30, 2016 included $1.9 million in inventory write-offs associated with the production issue mentioned above.

Research and development expenses for the quarter ended June 30, 2016 were $7.0 million, as compared to $8.0 million during the same period in 2015. The decrease was primarily due to a reduction in clinical expenses associated with the company’s recently completed Phase 3 clinical trial evaluating ferric citrate for the treatment of IDA in adults with stage 3-5 non-dialysis dependent CKD.

Selling, general and administrative expenses for the quarter ended June 30, 2016 were $20.2 million, as compared with $20.8 million during the same period in 2015.

Net loss for the quarter ended June 30, 2016 was $44.7 million, or $0.42 per share, compared to a net loss of $26.9 million, or $0.26 per share, for the comparable quarter in 2015. The company’s net loss for the quarter ended June 30, 2016 included $18.5 million in non-cash interest expense related to amortization of the debt discount on its convertible senior notes issued in October 2015, as well as a $2.7 million non-cash charge related to the increase in fair value of the derivative liability that was recorded in connection with the issuance of the convertible senior notes.

*** The Street was looking for a loss of $0.28 per share.

Cash Operating Expenses (a non-GAAP measurement)*Total operating expenses (excluding cost of goods sold and license expenses) for the second quarter ended June 30, 2016 were $27.2 million, which included $4.8 million in non-cash expenses, thereby making cash operating expenses $22.4 million for the second quarter. During the same period in 2015, total operating expenses were $28.7 million, which included $4.6 million in non-cash expenses, thereby making cash operating expenses $24.1 million. Non-cash expenses referenced above include stock-based compensation expense, depreciation expense and certain non-cash commercial expenses, such as product samples.

2016 Financial GuidanceAs a result of the supply interruption, Keryx is withdrawing its 2016 financial guidance.

* Please refer to the section below titled “Use of Non-GAAP Financial Measures” for information about Keryx’s use of non-GAAP financial measures.

Conference Call Information Keryx will host an investor conference call today, August 1, 2016, at 8:30 a.m. EDT to discuss the supply interruption and financial results for the second quarter of 2016. In order to participate in the conference call, please call 1-(888) 396-2320 (U.S.), 1-(774) 264-7560 (outside the U.S.), call-in ID: 58777481. The call will also be webcast, which will be accessible through the Investors section of the company's website at www.keryx.com. The audio replay will be available at http://www.keryx.com for a period of 15 days after the call.

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