4 Reasons Why Wall Street Hates Keryx Biopharmaceuticals Inc.

The FDA is set to review Keryx Biopharmaceuticals' flagship drug Zerenex later this year. Yet short-sellers have been piling into the stock ahead of this event. Should you be worried?

Jun 6, 2014 at 6:00PM

Shares of the clinical-stage biotech Keryx Biopharmaceuticals (NASDAQ:KERX)have risen over 84% in the past year following a positive data readout for the company's flagship drug, Zerenex, indicated as a potential treatment for hyperphosphatemia in dialysis-dependent chronic kidney disease, or CKD, patients. Even so, short-sellers have been piling into the stock ahead of the drug's Prescription Drug User Fee Act goal date of Sept. 7, 2014. 

KERX Chart

KERX data by YCharts.

With short-sellers now holding close to 23% of the float, it's important to consider four reasons why Wall Street is betting against Keryx going into this key event. 

Reason No. 1
Short-sellers have repeatedly cited Keryx's lack of ownership over Zerenex as a cause for concern. Keryx licensed Zerenex from Panion & BF Biotech. While in-licensing is a fairly standard process across the health care industry, shorts have argued that Zerenex's continued development for additional indications and commercial performance depends at least partly on its owner. Put simply, if Panion & BF Biotech does not hold up its end of the bargain, Keryx could have trouble maximizing Zerenex's commercial potential.

My view is that such trouble is unlikely for one reason. Licensing agreements almost always have well-defined clauses that allow the licensee to seek financial compensation in case a partner causes an unwarranted delay. In other words, Keryx should have legal recourse in the event that Panion & BF Biotech drags its feet. Conversely, Keryx also must meet certain developmental milestones to keep the license in good standing, but with the drug now under regulatory review the company appears to be well on track to meet this obligation. Overall, I don't see this in-licensing issue as a major red flag.    

Reason No. 2
Concerns have also been voiced over Keryx's lack of a partnership to market Zerenex. The idea is that large pharmas simply aren't interested in this drug because its commercial potential isn't that impressive. Indeed, we haven't heard much from Keryx regarding expectations on peak sales for Zerenex for this initial indication. That said, I think Keryx likely wants to market the drug in the U.S., and perhaps in the EU, itself during the initial launch in order to receive the bulk of the revenue. I would only expect the company to seek a partner in other foreign markets like it has previously in Japan.

Reason No. 3  
One of the best arguments going for short-sellers is the existing competition within the phosphate-binding market space. Presently, Sanofi's (NYSE:SNY) Renagel and Renvela dominate this market, with a handful of other products available as well. 

The counterargument is that Zerenex has a better clinical profile with fewer side effects than these other products. While that may be true, it's important to keep in mind that Keryx will be competing against large pharmas with a wealth of marketing experience. Whether it can overcome this lack of marketing experience remains an open question. 

Reason No. 4
Keryx's pipeline is Zerenex. Although the company is looking to expand Zerenex's label, the truth is that Keryx is highly dependent upon the success of this single drug. If Zerenex fails to live up to some investors' lofty expectations, the market could sour on Keryx in a hurry.  

Foolish wrap-up
It's safe to say that investors never like to see shorts making a huge bet against one of their long positions. By the same token, short-sellers aren't always correct in their investing thesis.

When considering the four reasons above, I think the biggest issue moving forward is Zerenex's commercial potential as a treatment for hyperphosphatemia. Assuming FDA approval come September, the pressure will be on Keryx to quickly garner market share in this space given that the company already sports a market cap of $1.25 billion.

If the launch is strong, as predicted by bulls, then Keryx looks like a good short-squeeze candidate. On the flip side, short-sellers will undoubtedly be ready if the numbers are weak. Overall, I think long-term investors should remain on the sidelines until the approval is in the bag and the first full-quarter sales are posted.  

Will this stock be your next multi-bagger?
Give us five minutes and we'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks one stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

George Budwell 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers