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KERX is one the top holdings of my portfolio to which I categorized it as a growth stock – which means there is a potential for it to grow multi-fold in terms of the stock price.

I first talked about KERX in my earlier article and it gives a good summary of the stock.

At that time, I decided to sell put option on KERX at a strike price of $4 – this basically meant that I received money/premium to promise to buy KERX when the price is $4 or lower. That was a two month put contract and I received a premium of around 3.7% of the value of the contract.

Fast forward two months and KERX stock price were below $4 and I decided to let the option be exercised and buy the stock at $4.

So why did the stock went up by 10.2% in a day?

Seth Klarman recently commented on this company by admitting that it was a mistake that at first they first overestimated Auryxia sales and purchased their initial position at $14.50 per share. He remains confident in the long-term potential of Auryxia and his investment in KERX.

He believed that there is significant overreaction on the market sell off which drives the price of the stock down in less than three months from about $10 to near $3 – and they took advantage of the opportunity by investing additional capital on a private basis on what he feels is an incredible attractive valuation.

It also appears to be fairly easy to convince physicians of the benefits of the product as it has a high conversion rate proving that the drug is effective as well.

Although now the company does not have free cash flow yet, but there is a massive opportunity with the increase in the number of the sales force – this should further increase the adoption rate of Auryxia by getting more physician try out Auryxia through free samples.

Disclosure: I am long on KERX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. 

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Further Reading:

Do You Know What Is Private Equity?

Do You Know What Is Private Equity?