Buy, Sell, or Hold: Keryx Pharmaceuticals

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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 Growth
2002 (78%)
2003 194%
2004 149%
2005 27%
2006 (9%)
2007 (37%)
2008 (97%)
2009 1,035%
2010 83%
2011 (45%)
Year to date 34%

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.

The verdict
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."

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter @SelenaMaranjian, holds no position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of Dendreon. Motley Fool newsletter services have recommended buying shares of Pfizer. 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.

Read/Post Comments (2) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 24, 2012, at 3:28 PM, Troy2008 wrote:

    Reasonable article, however the timeline is forcing me to take a huge position. No guts, no glory.


  • Report this Comment On February 27, 2012, at 4:53 PM, behemoth123 wrote:

    I'm afraid this is sort of a pointless article. It offers no insight one way or the other. If you would like to buy or short KERX, you are either betting on or against perifosine approval. Any article that fails to highlight why one or the other may happen, just really isn't adding anything. Thanks for the effort though!

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