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
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
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
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 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
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
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.
I'm going to hold off on Keryx for now, but it's certainly worth keeping an eye on.
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.