Market Overview

PropThink: Playing KERX Uncertainty with Short-Term Options


Keryx Biopharmaceuticals (KERX) issued a press release on Thursday morning related to the Medicare bundle for oral-only phosphate binders, which would positively impact the company's lead candidate Zerenex if the drug receives FDA approval. However, the information is largely unimportant in the near-term as investors await pivotal clinical trial data for Zerenex. The drug is a ferric iron-based compound taken orally to bind phosphate in the gastrointestinal tract (Read more in our prior report). Notably, the Phase III data were supposed to be finalized and announced by the end of 2012, leaving investors wondering about the delay. Silence from the company could be taken negatively as a sign that KERX is reanalyzing the trial data, or it could simply be that the data are not yet available. All investors can do is sit and wait, but we're hard pressed to believe that the company can go much further into January without at least offering some insight about the delay. CEO Ron Bentsur said in the press release that they "eagerly await the pending top-line data," suggesting: 1) that he had not seen the data as of Thursday morning; and 2) that the results are expected soon.

Whether the data are positive or negative, we expect major swings in KERX's stock price, and for those wishing to play the binary event, options present an interesting and potentially profitable strategy. If data are highly positive, we expect the stock to trade to at least the $4 level, and into the high single-digits if Zerenex can show that it spares IV Iron or ESA's when treating dialysis patients for anemia. On the flip side, negative results could move KERX close to its cash per share, at or near $0.28. Continue reading.

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