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Baupost’s Seth Klarman Takes 10% Stake in Keryx Biopharmaceuticals

Holly LaFon

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The Baupost Group’s Seth Klarman (Trades, Portfolio) has purchased a new holding that constitutes more than 5% of the company, requiring reporting during the quarter and appearing on GuruFocus RealTime Picks. The purchase was of 9,151,600 shares of Keryx Biopharmaceuticals (KERX), which represents 10.07% of the company’s shares outstanding.

Klarman made the transaction on April 30, when shares averaged $14.35, making the transaction value $131,325,460. Over the past year, Keryx Biopharmaceuticals’ stock price has increased 55%, including a 5.2% jump on Monday.

Keryx’s share price history:

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Klarman has been increasingly interested in pharmaceutical stocks. This year alone he has purchased large stakes in Idenix Pharmaceuticals Inc. (IDIX), Enzon Pharmaceuticals (ENZN) and Kindred Biosciences (KIN).

Keryx is a $1.16 billion market company that buys and develops drugs to treat diseases that receive less attention from the pharmaceutical community. Its current drug in development is KRX-0502, which could potentially relieve elevated phosphate levels which commonly plague chronic kidney disease patients on dialysis. Keryx is further investigating whether the drug is effective in the further treatment of iron deficiency anemia and elevated phosphorus in non-dialysis-dependent chronic kidney disease patients. Phase 3 of that trial is set to begin in third quarter 2014.

KRX-0502 has completed a U.S.-based Phase 3 clinical program, and a New Drug Application has been filed with the FDA with the goal date of June 7, 2014. Keryx also has plans to submit a Marketing Authorization Application (MAA) submission with the European Medicines Agency (EMA). If approved, the company would likely receive authorization by mid-2015.

Keryx’s shares slid substantially last week when it announced its first quarter 2014 financial results lower than analyst expectations. Keryx reported a net loss for the quarter totaling $13.5 million, or $0.15 per share, compared to a net loss of $2.1 million, or $0.03 per share in the prior-year quarter.

Keryx 10-year revenue and earnings history:

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Revenue was $10.0 million due to a milestone payment from its Japanese partner JT & Torii, for its drug Zerenex. Research and development expenses also increased by $9.3 million due to preparations for launching the new drug – including opening an office in Boston, where Klarman’s Baupost is based – and submission of its MAA and EMA.

Cash on the company’s balance sheet at the end of the quarter totaled $155.1 million, up from $55.7 million at year-end. The increase came primarily from a $107.6 million underwritten public offering of common stock held in the first quarter. Accumulated deficits stand at $452.9 million.

Keryx has a P/B ratio of 22.2, near a five-year high.

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Rating: 3.0/5 (2 votes)

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Comments

Belarophon
Belarophon - 2 months ago

Good luck Mr. Klarman. The 10-Year-Financials don't really show a 'Margin of Safety' - at least I can't find them among all these negative red numbers. I guess I have to let the pros grab all the good stuff :-)

Bradlewski
Bradlewski premium member - 2 weeks ago

Hey Belarophon.

I am just a Rule #1 investor and I can tell you there is more to getting a MOS (Margin Of Safety) than price. There are 3 more M's: Meaning, Moat, & Management.

Case in point: I bought IDIX late in 2013 in part because Seth has it. The rest of the story is their Meaning (one pill a day for any type of Hepatitis-C), their Moat (patent protection), their Management (their top guys are all specialized in the field). I bought in around $3.5. sold 50% of my position on Christmas eve 2013 when it hit $7. Then, I reloaded when it went back below $5. Sadly, i only expected it to go to $15 within 2yrs. Merck hit it out of the park and took the whole thing in cash for $24.5 in June while I was in Europe.

Bottom line is: Price is what you pay. Value is what you get. They are not the same. So, if all those negative red numbers have no MOS for you, find a wonderful business that does.

Enjoy.

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