Why Keryx Biopharmaceuticals, Inc. Shares Sank

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Keryx Biopharmaceuticals (NASDAQ: KERX  ) , a biopharmaceutical company focused on developing therapies to treat renal disease, tumbled as much as 10% after announcing a proposed $90 million public offering of stock after the closing bell last night.

So what: According to Keryx's late-day press release, JPMorgan Chase is helping the company underwrite a $90 million proposed stock offering, which Keryx plans to use to fund the pre-launch and launch inventory of Zerenex -- its experimental chronic kidney disease (CKD) drug designed to treat hyperphosphatemia, which is currently under review by the Food and Drug Administration – as well as the development of Zerenex in pre-dialysis and for general corporate purposes. Based on Keryx's current share price as of this writing, the common share offering would add close to 6.2 million new outstanding shares, diluting existing shareholders by about 7.5%.

Now what: Given that Keryx Biopharmaceuticals was trading near a 52-week high, a share offering was practically inevitable. The money generated from this offering is going to fuel its early-stage marketing for Zerenex, as well as product build-out, which is a key step to launching its new CKD product. However, you're also witnessing the downside to clinical-stage companies in that they have a tendency to squash any rally with dilutive share offerings to ensure they have enough cash left in the bank to keep their research going. While I'd certainly say Zerenex presents a favorable efficacy profile thus far, I'm simply not convinced that Keryx is anywhere near value territory here at a $1.2 billion market cap. As such, I'm planning on personally keeping my distance from this company until well after the FDA's decision on Zerenex.

Keryx has more than quadrupled during the past year -- and it still may have trouble keeping up with this top stock in 2014!
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  • Report this Comment On January 22, 2014, at 4:48 PM, cameron12x wrote:

    So, you're ignoring all of the other MAJOR catalysts with the stock?

    Do you not know that this drug was recently approved for marketing in Japan? This is no longer and "experimental drug." That categorization was a little off-base. The application for Europe is coming in the Spring. The U.S. is actually only the 3rd largest market for Zerenex.

    Ignore the stock if you wish, but you'll be missing out on pretty much a guaranteed "double" by summer. The efficacy and safety PROVEN in all of the trials is just too compelling to ignore.

    The Japanese didn't and the Americans and Europeans won't.

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