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Editor's Note: A previous version of this article implied an incorrect date for the acquisition of ACCESS Oncology, which was purchased in 2004. The error has been corrected. The Fool regrets the error.

Keryx Biopharmaceuticals  (NASDAQ: KERX  ) is a biotechnology company focused on the renal disease market. The company really only has one product which is Zerenex (ferric citrate coordination complex) an oral iron based compound, which they are pursuing in two main indications: Chronic Kidney Disease (CKD) for dialysis dependent and non-dialysis-dependent patients. Zerenex recently completed its phase 3 trial for dialysis dependent patients, giving investors some reason to be excited, however the PDUFA (Prescription Drug User Fee Act) goal date was recently extended from June 7, 2014 to September 7, 2014.

The timing of approval and ultimately commercialization of Zerenex is a larger risk factor for Keryx versus other biotechnology investments given its limited drug pipeline. Baupost Group, a large Boston based hedge fund, is the largest institutional holder of Keryx. Baupost Group currently owns 6,310,850 shares (6.9%) of Keryx. Baupost historically has taken a long term outlook in its investments and does not employ a trading based strategy; thus, they likely view Keryx as undervalued. Baupost Group also has a strong long term track record, as one of the largest hedge funds in the world, so their investments usually warrant further analysis.

Zerenex's opportunity
Now, Zerenex could tap into an enormous market opportunity for the company going forward with 20 million people in the U.S. having some form of CKD.  Keryx's lead product focuses on individuals within the CKD market who are dialysis dependent, with approximately 450,000 dialysis patients in the U.S, with the NDA specifically addressing the dialysis dependent indication. Thus the longer-term opportunity is for Keryx to provide treatment for CKD patients earlier before they need dialysis, and penetrate the larger 20 million person market in the U.S.  

In order to expand their market, Keryx recently conducted a pivotal phase 2 study for the treatment of iron deficiency anemia in non-dialysis (stage 3-5) CKD patients. The results were supportive of the company continuing development of the drug for NDD-CKD (Non-Dialysis-Dependent CKD). The phase 3 data of Zerenex in NDD-CKD is going to be a major event for Keryx, although investors may be waiting for a while given that enrollment has not yet begun per The international market is also a growth opportunity for Keryx going forward. Keryx has global commercial rights to ferric citrate in most markets, and is currently pursuing a Marketing Authorization Application with the European Medicines Agency. Thus Keryx is looking to grow internationally and help diversify its potential revenues from the U.S.

Incoming catalysts
Acquisitions could be a key future driver of growth for Keryx Shareholders. The company acquired ACCESS Oncology in 2004, adding three clinical stage oncology drug candidates to its pipeline. Over the longer term (I'm speculating here), I could see Keryx using either stock or its large cash balance of $155 million, as of March 31, 2014, to pursue relevant growth opportunities. This should help to reduce the risk of Keryx being solely dependent on Zerenex, although that is still obviously the key to investing at the present time.

Earnings will also likely meaningfully move Keryx's stock price going forward, with the stock falling 13% upon missing analyst expectations in the first quarter. The stock price is likely to react strongly to the earnings in the end of July, because investors tend to take an in depth look at whether expenses are being effectively controlled. Keryx generated negative $34 million in operating cash flow over the trailing 12 months, recently conducting a stock sale diluting investors, but the stock sale effectively capitalized the company for the near future.

Final thoughts
Ultimately Keryx looks like a very binary investment opportunity. The company is targeting an enormous multi-billion dollar market but its pipeline is very concentrated on Zerenex. If you believe in Zerenex is the best treatment for CDK, the company has patents protecting it until at least 2024. With only one advanced pipeline candidate and the need to built out a large sales force -- and without previous sales experience -- this stock may be a good one to watch from the sidelines instead of investing in a coin flip.

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Read/Post Comments (2) | Recommend This Article (1)

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 July 22, 2014, at 12:31 PM, aldehyde wrote:

    another soft bash piece ! you'll eat your words

  • Report this Comment On July 23, 2014, at 10:38 AM, pwmljm wrote:

    The shares shown as held by the Baupost Group appear low as compared to their SEC filing. Another error in this poorly written article?

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