Keryx Biopharmaceuticals: An Interesting Small Cap Value Play

Keryx biopharmaceuticals

I just read an excellent article on Seekingalpha regarding the bullish case for the company Keryx Biopharmaceuticals. I must admit that Biopharma is not my forte and I probably will not buy the stock as it is outside my circle of competence. However, I thought many of the more astute investors might be interested in Keryx.

I must also admit I do not like to use TTM for valuation metrics( I prefer average 3 or 5 years of earnings) but in young companies I do not think this is always fair( this might be hypocritical on my part I admit but I think there is merit to doing this).

I investigated further, the stock was trading at P/E 15 but went up a lot after a buy recommendation several days ago from an analyst . The company is trading at a P/E of 19. The company has plenty of cash and little debt (which is many times a problem for biotech companies). The company has no long term debt, and has TOTAL liabilities of 9 million versus cash and short term investments of about 34 million. The company is cash flow negatives from operations but this is slowing going from $57 million in 2007, to $38 million in 2008, to only $5 million in 2009(despite the massive decrease in earnings due to the great recession),

In terms of earnings the company lost a lot of money in 2007 and 2008 but made $10 million in 2009. It has a return on equity of 51%. In addition its return on sales are 48%, ROA 38%, and ROI of 51%. These figures are all within the top 80 to 90% of companies in the industry.

The seeking Alpha article states that the company has a Myeloma drug Perifosine in stage III. Currently over 10,000 people die from myeloma a year.

The author Jeremy Richards states in his SeekingAlpha article

“Assuming that 50% of the 10,580 deaths are to receive Perifosine and that the average cost of treatment is $5,000 per month (Velcade is $45,000). Also note the average course of treatment is 22.5 months (averagesurvival rate from the phase II trial), but for simplicity and a more conservative estimate, I will just assume that treatment is received for only 12 months. Thus, the number of patients to go on and off treatment each month is equal.

To read the rest of the article on Guru Focus please click here

If anyone wants to see more on the bullish case for Keryx check out the article a seperate article on my website about Keryx [valuewalk.com]

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