The success of a clinical trial usually increases a company's stock price - Keryx (KERX) is no exception. With the announcement of a successful clinical trial of its new end-stage kidney medication, Zerenex, completed in Japan with the help of Japanese partners Torii Pharmaceutical and Japanese Tobacco, the stock price has jumped about 22%. Given that Keryx recently suffered a clinical trial failure of its other drug, perifosine, aimed at treating colorectal cancer, the news of this triumph may put the company back in the forefront along with other pharmaceutical companies like Valeant (VRX) and Abbott Laboratories (ABT), which have seen similar success with recent clinical trials.
The company's Japanese partners plan to apply for drug approval in Japan, which could make the stock price increase even more. Keryx, currently conducting a U.S. Phase lll clinical trial of Zerenex, may apply for FDA approval by the end of 2012. If approved, the drug could help reduce extremely high phosphate levels, also known as hyperphosphatemia in those with end-stage renal disease. The company should complete the Phase lll clinical trial by the fourth quarter of this year.
It seems that many people at Keryx, including Ron Bentsur, the company's Director Chief Executive Officer, had lots of faith in the outcome of these recent trials. On April 19, two days before the release of the Japanese clinical trial results, the SEC recorded Bentsur purchased 19,100 shares of Keryx worth about $25,000 on April 18. To put his purchase in perspective, over the past 12 months, about 128,000 shares of the company were purchased by company insiders. These shares totaled about $239,000.
For Keryx, the news of its latest clinical trial success comes at a good time as shares of the company went down earlier in the month after the clinical trial failure of perifosine. For those currently investing in the company, the stock price may continue to rise, especially once the drug receives approval in the Japanese and U.S. markets. Holding on to this stock for now could prove very profitable for the rest of the year.
If, for some reason, the drug does not receive approval for sale in either country, investors then need to reconsider maintaining Keryx stock in their portfolio. Without approval, the company cannot sell, manufacture, or distribute Zerenex. This would probably cause the stock price to decline. Investors should closely monitor the results of these reviews and approvals to determine whether to hold on to Keryx or dump it once the stock price begins to fall.
The major problem for investors, even after the news of clinical trial success for Zerenex, is that Keryx doesn't currently have any other drug treatments on the market, nor does it have any other drugs besides Zerenex and perifosine in its pipeline. Even if these drugs receive approval, it could take some time until sales increase enough to render a profit - if at all as the success of a drug treatment, even after FDA approval is never guaranteed. This may cause investors to get skittish, especially if Phase lll clinical trials for Zerenex do not turn out as well as the recent clinical trial in Japan. For investors looking for a risk with potential for very large payouts, Keryx is one company to continue investing in. But for those who need more security, investing in companies like Valeant and Abbott Laboratories may be better choices as these companies have multiple drug treatments in the market and in the pipeline. Investing in Keryx for the long term really depends on an investor's ability to take the ups with the downs.
Another issue that could affect sales is competition from other companies that manufacture drug treatments very similar to Zerenex. Treatments like Fosrenol and Calcichew, both manufactured by Shire (SHPGY), provide the same help to renal disease patients with hyperphosphatemia. Shire also has an extensive product portfolio, which appeals to investors looking to invest with a more financially secure company. Generic versions of these drug treatments include lanthanum and calcium acetate. For patients that can't afford brand name drugs, these generics are an attractive alternative.
News of clinical trial success or failure do affect the stock price, but in some cases, may not matter as much if a company has other products to fall back on. Unfortunately, Keryx does not have other products at the moment it can use to maintain investor faith. Other companies like Dendreon (DNDN), which only has one drug on the market, Provenge, used to help treat prostate cancer, have caused similar bouts of insecurity for investors.
For those who want a little more security and peace of mind when investing in pharmaceuticals, there are plenty of other options. Investing in companies with multiple drug treatments on the market help ease stress and make for better long-term investment options in most cases.
For example, Valeant has had its share of ups and downs. In 2009, even though the company, cited by many in the financial community, for designing a fair, but competitive pay package for current CEO J. Michael Pearson, also suffered through a failed clinical trial involving a pain treatment for shingles, a common skin condition. But the company eventually bounced back. In 2011, it reported successful results with a Phase III clinical trial for a drug treatment to treat Onchomycosis, a fungus that causes infection under the toenails. Valeant has since acquired several pharmaceutical companies and/or assets from companies including Atlantis Pharma, and Natur Produkt to build an even stronger portfolio.
Abbott Laboratories has seen success in recent clinical trials with its new Hepatitis C drug treatment. But unlike Keryx and Dendreon, Abbott has multiple drug treatments on the market and in its pipeline, which will soften the blow when clinical trial failures occur.
Other competitors like Spectrum (SPPI), which is also developing a Hepatitis C drug treatment, recently reported two clinical trial failures for its latest drug treatment, apaziquone, used to treat bladder cancer. Spectrum only has two drugs in its pipeline, both used to treat specific types of blood cancer, which may not be enough to keep it profitable in the long term. The company was recently added to the S&P SmallCap 600 Index.
Investing wisely depends on the level of risk an investor is willing to take for a profitable return. Short-term and long-term investment strategies can both yield a rate of return that is acceptable, but investors need to be willing to ride out the ups and downs while a company continues to test and post results of clinical trials.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.