Yesterday we closed out of approximately half of our KERX positions. KERX surprised investors early Monday with news of a supply disruption with their drug Auryxia. KERX set expectations that the supply issue will not be resolved until late this year. We are expecting this issue to result in negative earnings for the next 2-3 quarters.
I have said for a long time that I believed KERX needed two positive quarters this year, and once we saw those we should see strong growth going forward. The first quarter results were good. However, yesterday’s announcement could not have been predicted, and was highly disappointing.
We did not exit the entire position because we have thought for a while that KERX is a good acquisition target for a private equity firm. If they were to be acquired, we think the price will spike up and give us an opportunity to exit the remainder of the position.
Prior to the surprise announcement, KERX had grown 127% since we called the market bottom on February 11. Yesterday’s news cut that growth to 46%.