Baupost Group, the hedge fund managed by acclaimed value investor Seth Klarman, has once again boosted its holding in Keryx Biopharmaceuticals.
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Today, Keryx announced that it has entered into an agreement with funds managed by Baupost Group, L.L.C, to raise $125 million through the private placement of Convertible Senior Notes, due 2020.
Keryx Biopharmaceuticals is focused on bringing innovative therapies to market for people with renal disease. Baupost has held a position in the company since May 2014.
And Klarman has been steadily increasing his position in Keryx since the second quarter of last year. After buying an initial stake of 9.15 million shares, at the end of Q2 2015, Klarman had boosted his stake to 25.8 million shares, roughly 24.6% of the company's outstanding shares. Today's transaction will significantly increase Klarman's exposure to Keryx.
The zero-coupon notes will mature in October 2020 unless converted in accordance with their terms prior to such date. The conversion price of the notes has been set at $3.74, the closing price of Keryx's on 10/14/2015, the day before the deal closed.
As part of the deal, Keryx will increase the number of directors on its Board to eight, as Baupost will have the right to appoint a director to Keryx’s Board by the end of 2015. Baupost will also appoint an observer to Keryx’s board.
Keryx Biopharmaceuticals: Funds for restructuring
Keryx plans to use the funds raised from this convertible offering for working capital and efforts to expand the utilization of the company's flagship drug, Auryxia™ in the US.
Keryx Biopharmaceuticals is looking to increase its field-based sales force by approximately 50% to drive increased revenue from Auryxia and advance label expansion efforts. What's more, after completing a comprehensive review of the company, Keryx's management has decided to implement a cost reduction plan and plan to re-align the company's operating expense structure.
The plan is expected to significantly decrease the company’s cash operating expenses, excluding cost of goods sold, in 2016 to between $87 million and $92 million.
Commenting on the company's plans and fundraising, Scott Holmes, chief financial officer said:
"We are pleased to enter this financing agreement that, we believe, provides all of the capital required to support our efforts to position Auryxia as a market leader. This transaction is a validation of the potential of Auryxia and reflects continuing support by Baupost. Taken together with our plan to re-align our expense structure, we are now well positioned to achieve our commercial and development objectives for Auryxia.”
Keryx Biopharmaceuticals: Slow progress
Baupost is one of Keryx Biopharmaceuticals' only friends.
Short sellers have pounced on the company this year as sales of Auryxia have failed to meet expectations. The drug racked up sales of just $1.8 million in the second quarter since its launch, making up most of the company’s $2.5 million in revenue for the three-month period. Wall Street was calling for sales of $2.9 million for the quarter. One analyst in particular was predicting sales of $4 million per month for Auryxia. Just 3,700 prescriptions were written for Auryxia in the second quarter.
However, many believe that Auryxia still has the potential to become a blockbuster. Keryx had a pro-forma cash position of approximately $225 million as of September 30, 2015 after, including Baupost convertible note infusion.
Auryxia is currently the only drug Keryx Biopharmaceuticals has on the market. The company is seeking approval to market Auryxia in Europe and expects a ruling from the Union’s regulatory authorities sometime in mid-2015. The company is conducting additional clinical trials to expand the reach of the drug to anemia patients with stages III to V chronic kidney disease, who have previously not responded to oral iron therapy.
More on Keryx Biopharmaceuticals:
- A Battle is Brewing Between Keryx (KERX)'s Largest Backer and Short Investors
- Keryx revenue falls short despite support of analysts, Baupost
The post Keryx Biopharmaceuticals (KERX) Soars On Baupost Deal appeared first on ValueWalk.
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