Is Keryx Pharmaceuticals Heading For The Dollar Mark?

The dust has settled, the skies have cleared and the skies have calmed - at least for now.

When Kerxy Pharmaceuticals (NASDAQ:KERX) announced earlier this month that Phase III trials failed for its lead cancer-fighting product, Perifisone, it brought a stark reminder and a swift dose of reality to investors of the biotech and small pharmaceutical sector who can often make out like bandits by riding the waves, but can just as easily see the paper gains disappear by holding on for just a little bit too long.

The reminder that Keryx gave us this month was that no matter how smooth the sailing looks in this sector, the best move is often to take advantage of the inherent volatility and speculative nature of betting on clinical trials and FDA decisions by playing the spikes and dips; keeping a base of long shares is fine - but it's also a wise play, in my opinion, to have a handful of trading shares that allow for some peaks and valleys trading.

That ensures that one can stay ahead of the game and play the key catalysts on house money.

Now that the news has been released and digested for Keryx, the share price has experienced a steady decline since the immediate drop following the failed results. Although there was a brief stay at right around the $1.50 mark and a couple of bounces where traders were able to make a few bucks, a dip towards a dollar looks about inevitable at this point.

With that being said, the arguments are sure to arise that the lower KERX drops, the better buy the stock becomes for those that would like to load up for 'Round 2' - which would be anticipation of the Zerenex trial results that are due later this year.

Zerenex is an oral compound intended to treat hyperphosphatemia (elevated phosphate levels) in patients with end-stage renal disease and has recently taken the media spotlight where Keryx is concerned - given the fact that there's not much more to talk about right now - although Zerenex arguably does not stand to make as much on the market as Perifisone would have, had it been approved.

That fact may be true, but there's also merit to the argument that the dropping share price of KERX might have opened up a nice speculative buy, given that positive Phase III results for Zerenex would almost certainly launch the share price higher than the $100 million market cap where the stock currently trades.

Zerenex, if approved, would look to gain a share of a $700-$750 million market in the United States - $1.5 billion worldwide - and realizing only a small portion of that market would make a significant difference to the revenue-less Keryx; although commercialization is still but a blip on the horizon, assuming the Phase III trials are successful later this year.

In the world of the biotech/small pharma sector where swing/day/momentum traders like to play, two-three quarters down the road is a near lifetime. The key is, however, to be in before the tide rises and the short term speculative players move in before the catalyst hits.

It's likely that another speculative run may occur before the Zerenex results are announced, at least giving those investors that held through the Perifisone results a chance to make some cash back, but given the time in between now and those results, it's also likely that a dip closer to a dollar is likely.

Any significant broad market pullback could even send shares below that mark.

In an attempt to reassure investors that the company has not lost faith, insiders have been buying recently. That's a solid sign right there - you always like it when the insiders put their money where their mouths are - but it's also an expected occurrence that the company needs to do to keep investors interested.

Keep an eye on Keryx - there may be months of lull between news, but the more speculative investors might again be attracted the company as the share price dips.

The question is, how low can it go?

Disclosure: No Position.

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Tagged: , Drug Manufacturers - Major
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