Is Now The Time To Buy Keryx Pharmaceuticals?

Shazir is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Recently, Keryx Pharmaceuticals (NASDAQ: KERX) achieved a new milestone as the company declared remarkable results from its Phase 3 trials of Zerenex. Zerenex is designed to control abnormally high levels of phosphate in the blood of End Stage Renal Disease (ESRD) patients. In the United States, there are about 500,000 patients that require this medication to survive. Worldwide, there are more than 2 million End Stage Renal Disease patients that require Keryx's drug for survival. The demand for this medication will grow exponentially as baby boomers grow older, and the need for treating hyperphosphatemia will only increase. Below are some answers for your questions:

Future

Investors who have already made tons of money in Keryx have a variety of options available to them right now. Some investors may wish to carry out gains while some may choose to wait for the FDA approval for Zerenex, which will probably occur in 2014. The easiest thing to do at this point would be to take out gains already made. If you would like to take the risk, then I do suggest that you wait for the approval of Zerenex. If the FDA does approve Zerenex, Keryx will exponentially increase its revenue. Keryx has had many EPS estimates; most of the estimates show that the pharmaceutical is a definite buy.

One more bullish factor to consider is the possibility of a buyout by a leading pharmaceutical company like Pfizer (NYSE: PFE), for the prospects of Zerenex. These companies usually offer a 50% or greater premium. A company like Pfizer might be interested in Keryx for a variety of reasons. Pfizer may be interested in Keryx's drug once they officially get this drug out on the market. Pfizer's history has shown that they show a strong interest in drug companies if the drug sells.

There have recently been rumors regarding the potential Pfizer buy-out of Rexhan Pharmaceuticals. Rexhan Pharmaceuticals is in its Phase 2 trials and is in a much earlier stage than Keryx. With Pfizer's cash hoard of $3.5 billion, it can easily afford to buyout Keryx. Pfizer has been looking to expand into new markets and it can with Zerenex. Much like Zerenex, Rexhan's drug Zoraxel is the only of its kind. This is just one example of the many buy-out possibilities that Keryx has in the future.

The volatility of Keryx's share price has decreased tremendously lately; shares traded went from 7 million per day recently to about 3.5 million. This is because Keryx has not had that much news. The target price was raised to $11 at Burrill Institutional Research from $6 based on the basis of a discounted revenues and earnings per share valuation methodology. This shows that people have faith in this company, and trust it with their money.

Downfall

Even though, there are many headwinds, there are still some tailwinds. Recently filed class action lawsuits have alleged that the company misinformed investors by providing misleading information to investors from June 1, 2009 to April 1, 2012. During that period of time, many investors suffered a 60% reduction in share price as results from its Phase 3 Trials did not reach the checkpoints that everyone had hoped for on improving patient survival. The company now reflects close to a 500 million market capitalization; it has just one product, yet to be approved by the FDA. If this fails, the company will go back to square one. Keryx has been around for fifteen years, and it has not accomplished that much, it has a drug with borderline potential that has a 50/50 shot at approval. The largest risk factor for an investor in Keryx is the possibility of Zerenex not being approved by the FDA.

Conclusion

Currently, shares of Keryx are trading at $6.82/share, which is roughly 30% down from its record high of $9.98 achieved on Jan. 31, 2013. Keryx still has tons of potential as discussed above to achieve new highs. The company is also moving to strengthen its financial position and announced that it has commenced a $55 million underwritten public offering of shares of its common stock. The company issued a statement regarding the offering:

"We intend to use the net proceeds from the sale of our common stock to fund pre-launch/launch inventory build-up and select pre-commercial/commercial activities related to Zerenex and other general corporate purposes."

I highly recommend buying Keryx if you are looking for a reasonable long-term bio-tech investment.


ms349846 has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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