Keryx Biopharmaceuticals (NASDAQ:KERX) shares are tumbling nearly 12% in early trading, following an impending supply interruption for key pipeline drug, Auryxia, a drug created to treat patients on dialysis suffering from chronic kidney disease. Brean Capital analyst Jonathan Aschoff is not happy confronting the aftermath. As such, until Keryx can manage its supply/demand production issues, Aschoff downgrades the stock from Buy to Hold, without suggesting a price target.

In its second quarter, the biotech firm came in strong with revenue of $9.3 million- ahead of the Street’s expectation of $8.6 million. This is largely thanks to Auryxia’s sales performance in the United States, which accounted for $8.3 million of the total revenue, as a 44% increase to 13,150 prescriptions led to this upsurge. Unfortunately, Aschoff finds that Keryx is about to lose this positive momentum now on the heels of production issues converting API into the final product.

Keryx understands the gravity of its Auryxia predicament and intends to hire a second Chief Marketing Officer, pending approval from the FDA expected mid-November. Meanwhile, the company’s current CMO is already on task to address this production detriment. Though Keryx is facing an exhaustion of product stock for its crucial driver of revenue, the company hopes to have this fixed by fourth quarter of this year.

Until then, Aschoff expresses his disappointment, “We are downgrading Keryx to Hold from Buy for what we believe will amount to an increasingly difficult time marketing Auryxia during this interruption, and a lack of clarity whether the US sales momentum can resume after the supply issue is resolved. We expect Auryxia sales to drop significantly during 3Q16 and continue to be weak in 4Q16, as supply confidence may need time to recover from this break.”

Currently, Keryx is relying on a $155.8 million cash balance and already is facing debt in the ball park of $125 million. On the heels of this halt in Auryxia production, the company was forced to withdraw its guidance for 2016. From Aschoff’s perspective, this does not look favorable for Keryx or for investors, so he remains bearishly neutral until Keryx can get Auryxia back on track.

As usual, we recommend taking analyst notes with a grain of salt. According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Jonathan Aschoff has a yearly average loss of 11% in his yearly returns and holds a 37% success rate. The analyst has a 9% average loss when recommending KERX and is ranked #3,988 out of 4,038 analysts.

TipRanks analytics demonstrate KERX is a Hold. All 4 analysts polled in the last 3 months rate a Hold on Keryx Biopharmaceuticals shares. The stock’s consensus target price stands at $7.00, marking a close to 63% upside from where the stock is currently trading.

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