Image source: Getty Images.

What happened

Investors in Keryx Biopharmaceuticals (KERX), a commercial-stage biopharma focused on renal diseases, had an August their portfolios would like to forget. Shares were obliterated during the month, dropping 44.3%, according to data from S&P Global Market Intelligence.

KERX Chart

KERX data by YCharts.

So what

The huge drop can be directly traced to an announcement made during the company's second-quarter earnings report.

Management stated that manufacturing issues were going to cause an interruption to the supply of Auryxia, the company's drug that helps patients with chronic kidney diseases on dialysis control their serum phosphorus levels. As a result, management will not have enough product to meet expected demand, causing them to abandon their financial guidance for 2016. 

Understandably, investors sold off the stock when the news hit the wires and have stayed down ever since.

Now what

Despite the terrible manufacturing news, Keryx's second-quarter results suggest that providers are finally starting to get comfortable using Auryxia. The company generated 13,150 prescriptions in the U.S. during the quarter, which was up a strong 44% over the first quarter of last year. That suggests that Auryxia is successfully stealing market share away from Sanofi's (SNY -0.31%) drugs Renagel and Renvela, which is an encouraging sign.

U.S. sales totaled $8.3 million, and when adding in the $1 million in royalties gained from its overseas partnership with Torii Pharmaceutical/Japan Tobacco, total revenue came in at $9.3 million. That was ahead of Wall Street's estimate of only $9 million.

Image source: Keryx Biopharmaceuticals.

Of course, we don't yet know how providers will respond to the news of manufacturing issues with Auryxia, so it's possible that the strong prescription growth we saw in the second quarter is about to come to a screeching halt. After all, Sanofi can now make the argument that potential supply issues are a yet another reason to stick with Renagel and Renvela instead of trying Auryxia, which may be messaging that resonates with some providers.

Looking forward, Keryx's management believes that this supply issue will be resolved by the fourth quarter. In addition, the company is still planning to file a label expansion claim with the Food and Drug Administration later this quarter to allow patients who are not on dialysis to use Auryxia. If that goes well, it could significantly expand the drug's addressable market.

Still, this news about manufacturing problems adds a huge unknown to this company's future. For that reason, it may make sense to stay away from this stock until we have more clarity about how this situation will play out.