On August 29, 2012, shares of Keryx Biopharmaceuticals, Inc. (Nasdaq: KERX), a company focused on pharmaceutical products for patients with renal disease, closed for the day's session at $2.06. Exactly two years later, on August 29, 2014, the same stock closed at $18.19.
That's right. Investors made a 780% profit over their original position, and it looked like the price per share (PPS) was destined to climb considerably higher.
In fact, analysts had set their average first-year target for the stock at about $23. And there was every reason to believe KERX would reach and break through that target after the FDA approved it for marketing in the United States on its PDUFA date, set for September 7.
But then something odd happened...
The FDA rendered its decision early, on September 5, and although the news was good -KERX's drug had been approved - the stock fell more than 11% by the session opening the following Monday and continued falling over the next few weeks - giving traders today an opportunity to take advantage of the situation and make huge profits.
Here's why...A Great Drug with Phenomenal Potential
The developmental drug undergoing review, ferric citrate (formerly Zerenex), treats high phosphate levels (hyperphosphatemia) in patients with chronic kidney disease (CKD) who are on dialysis. People with this condition can end up with bone disease, vascular calcification, cardiovascular disease - and early death. Ferric citrate demonstrated that it could significantly lower phosphate in the blood, with an excellent safety and tolerability profile.
But that isn't its only benefit.
As it turns out, the drug can simultaneously treat iron deficiency anemia (IDA), a common secondary disorder in CKD patients with high phosphate levels. This, of course, would be a separate indication for the drug, and the FDA would not be reviewing both indications at the same time.
In fact, the agency would be unlikely to approve a separate indication for the treatment of IDA, because this isn't a drug you would want to give to patients who don't have hyperphosphatemia. Still, both the medical community and Wall Street viewed this as a huge plus for ferric citrate, lifting it head and shoulders above its competitors.
In fact, it could quickly knock its competitors out of the ring and earn very, very big profits. For dialysis patients alone, it would be in the $250 million to $500 million range, but KERX hopes to expand that market to include pre-dialysis patients, which would put it in the $1.2 billion range - a blockbuster.
So you might think Wall Street would hold a parade on approval of a drug like this one. But it was not to be. Instead, the press, along with many so-called "experts" on the Web, completely misunderstood and misrepresented the agency's decision and actually turned great news into bad.The Media Apologizes
You see, as KERX was preparing its press release to announce the FDA approval, it requested a temporary halt to trading in its stock. This is a common practice among pharmaceutical companies when they're about to make an important announcement that may affect stock market sentiment.
During the halt, the Associated Press (AP), a not-for-profit cooperative of news organizations, released a story that the approval came with a caveat: the label would have to include a warning that instructed physicians to monitor blood iron levels in patients who were already on iron replacement therapy-that is, were already taking drugs for IDA. So as a result of this "unexpected" warning, the AP story said, the price-per-share (PPS) for KERX had already dropped by nearly six 6%.
That's right. The story made this claim while trading was still halted...
It is true that the stock had dipped nearly 6% and then rebounded a couple of points before the trading halt, but that actually had nothing to do with anything on a warning label. It was the kind of trading activity we often see before a binary regulatory catalyst, as traders executed options and cashed in on the run-up. AP got it wrong, and as a result, started an avalanche of panic selling.
AP eventually sent out a "correction" of the original article as soon as it realized its mistake.
But too late. The damage was done. And there would be more to follow, because not only had AP misstated the facts about what had happened before the halt, but it completely misinterpreted the importance of the warning label.
The story's position was that the warning label was unexpected and would dampen sales, and that what had been perceived as a great benefit of ferric citrate - its ability to increase iron levels in the blood and thus control IDA - was actually a big problem. To make matters worse, after AP published this explanation, nearly all of the "experts" on the Web, instead of thinking for themselves, repeated it.
And it was all nonsense.The Real Story
Anyone who has any familiarity with medication labeling would know immediately that there is absolutely nothing unusual or unexpected about the way FDA instructed KERX to label its product. Every prescription drug ever manufactured has come with precautions on the label, and many, many of them carry warnings about use with other medications - especially ones that either work in the same way as the prescribed drug or that might combine with the drug to make it more powerful. If your family doctor prescribed an aspirin product for you, for example, he or she would certainly want to monitor any aspirin you might be taking from another source to prevent aspirin poisoning.
As for the label instruction to monitor iron levels in the blood if the patient is taking other iron supplementation - the fact is that all dialysis patients on prescription iron supplements are already monitored.
The AP piece also suggested that some analysts had expected the label to highlight the drug's ability to treat anemia. This is utter nonsense. KERX never submitted the drug for this indication, so there was absolutely no way the FDA would allow the manufacturer to do this. In fact, the only place on the label where the information about the drug's effects on serum iron levels could possibly appear would be with the "warnings," that is, the side effects, etc.
And that is a very good thing. It gives the KERX sales force the legitimate opportunity to discuss, inform, and educate doctors about the drug's marvelous effects on serum iron levels. It tells physicians that the FDA sees and recognizes these effects. It is, in fact, exactly what KERX needed to penetrate and snag a big portion of a $1.2 billion market.
With the confusion out of the way, it's our turn to make a move...Now There's a Big Opportunity
Currently, KERX is perfectly positioned to take that market by storm. At the same time, the share price for KERX stock is artificially depressed due to the blunders and misunderstandings of the media.
So investors currently have an extraordinary opportunity - maybe a once in a lifetime opportunity - to get in on this stock at a deep discount.
I say "investors" rather than "traders" because this is a long-term play. KERX is poised to do great things over the next couple of years, and taking full advantage of the opportunity will mean getting in and staying with the company for at least that long. But the results will make the wait worthwhile.