• Research

AUG 2, 2016

S3 BLACKLIGHT: Keryx Pharma Production Problems Re-Ignites Short Selling

Keryx Biopharmaceuticals (KERX US) hit its year to date high of $7.53 on 7/26 but has dropped over 7% today and 42% in the last week to $4.38.

Keryx reported their 2nd quarter earnings this week and with increased revenues at $9.4 million and earnings per share loss of $0.42. Although revenues beat estimates by $500,000, earnings per share were $0.13 worse than expected. Keryx stock price, which was up 46% for the year last week, is now down 14% year to date.

Most damaging, was Keryx’s announcement that due to production problems they have run out of their main product, kidney drug Auryxia, and will not have any new inventory to sell until the 4th quarter. Because of this development, Keryx has withdrawn its financial guidance numbers for 2016.

KERX short interest is down $37 million, or 31% on the year and down $33 million, or 29% since the 2nd quarter. At $83 million, today’s short interest is less than a third of 2015’s average $255 million balance. The cost to borrow KERX stock has dropped to 4% fee, down from 7% fee in mid-June and 13% fee in May.

The S3 Crowding Indicator, an indicator of the magnitude of short activity relative to market cap and float, has had five instances of easing in the last month as short interest and cost to carry has lessened. The S3 Velocity Indicator, a measurement of relative change of shorting activity, has been trending downward but the 7 day trend line has reversed direction in the last week and has now crossed the 30 day line indicating a reversal of short momentum.

With Keryx’s production problems continuing into the 4th quarter and significantly affecting its revenue stream and cash burn rate we should see short interest continue to increase and stock borrow rates increase along with the potentially strong demand. Borrow rates will probably hit double figures when another 2-3 million shares of additional shorting hits the tape.

For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC
Ihor.Dusaniwsky@S3Partners.net
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.


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