When considering any stock for your portfolio, don't be swayed by just the positives. Examine its pros and cons, and decide whether its possible upsides outweigh its risks. Let's take a look at Keryx Biopharmaceuticals (Nasdaq: KERX ) today, and see why you might want to buy, sell, or hold it.
Keryx's industry is one draw, as our planet's growing and aging population will boost the prospects for drugs and treatments developed by biotech firms. But that's not enough -- a successful biotech company needs to bring successful treatments to market.
Keryx is promising, with a pipeline that features the colorectal cancer drug perifosine, which its developing with partner AEterna Zentaris (Nasdaq: AEZS ) . That drug is already in phase 3 clinical trials, as is Zerenex, Keryx's treatment for kidney failure. Good news from either of these fronts will likely send shares up considerably.
The possibility of Keryx being acquired is another reason why some have considered investing in it. Large pharmaceutical companies often snap up small biotechs in order to acquire their pipelines. Such acquisitions usually feature a price premium that sends shares up. Pfizer (NYSE: PFE ) is one possible acquirer. Its various blockbusters will be losing their patent protections over time, so it has been filling its pipeline via some buys -- recently snapping up Excaliard Pharmaceuticals, for example, which is developing treatments for skin scarring. Still, consider not letting Keryx's possible acquisition be your main reason for investing. It is, after all, mere speculation.
You might not want to be a Keryx investor if you have any kind of heart condition, as its stock is rather volatile. How volatile? Well, just look at these numbers reflecting its last decade:
|Year to date
Volatility, thy name is Keryx! Such a record has its appeal -- who wouldn't want to see years when a holding triples in value, or rises 11-fold? But ask yourself: How well could you stomach those big drops? That 97% fall was very close to 100%. It surely wiped out all of most shareholders' gains and put them in the red. That kind of year would have had many investors bailing -- and thereby missing out on the amazing recovery the following year. If you think the gains make the losses worthwhile, know that Keryx's 10-year average return is a 5% loss.
Still, the past is past, and what really matters for investors today is how we might expect stocks such as Keryx to perform in the future. Despite all the company's promise, it's good to remember that its drugs in development may ultimately fail -- they may not gain FDA approval and reach the market. Even if they do, sometimes that's not enough, as Dendreon (Nasdaq: DNDN ) learned when its prostate drug Provenge struggled to get out of the gate as doctors balked at prescribing the expensive treatment. (Sales are improving, though, and the prostate cancer drug market is estimated to be worth $9 billion.)
Just one negative decision from the FDA will likely send Keryx shares down sharply -- at least for a while. And in the meantime, the company is posting net losses.
You might also worry about competition. Many drugs on the market have competitors. A successful perifosine, for example, would compete for multiple-myeloma patients with Celgene's (Nasdaq: CELG ) Revlimid.
It's reasonable to just hold off on Keryx. It has a lot of potential, yes, but also a lot of risks. Perhaps wait for one of its treatments to start generating actual profits. At that point, you probably won't be able to buy in at today's relatively low price, of course, but you'll be buying a more reliable performer. If you're really itching to buy, you might just buy a small position, to start.
I'm going to hold off on Keryx for now, but it's certainly worth keeping an eye on.
Looking for promising investments? Here are "5 Stocks with Explosive Potential" and "4 Stocks as Cheap as They've Ever Been."