The biotech sector has long been a great hunting ground for stocks that hold explosive growth potential. According to barchart, four of the five best performing stocks over the last 10 years have been biotechs. If you were smart (or lucky) enough to purchase any one of those winners 10 years ago and held until today you would be up at least 4,500%!

Of course, finding these stocks before they become huge winners and having the temperament to hold them through think-and-thin is extremely difficult. One small cap stock that certainly appears to have explosive growth potential is Keryx Biopharmaceuticals (NASDAQ:KERX), a biotech stock with a focus on renal disease in the United States. Here are 5 reasons why Keryx could become a huge winner from here. 

1. Big U.S. opportunity
Keryx is currently a one-drug company, having received FDA approval in December, 2014 for renal drug Auryxia, which treats patients with chronic kidney disease who require dialysis.

End-stage renal disease, or ESRD, is the most severe form of chronic kidney disease. Patients with ESRD have an increased risk for heart and bone disease, and ESRD can even lead to death. These patients require constant treatment to keep their metabolic readings at acceptable levels in order to maintain their health.

Auryxia offers these patients an oral solution for controlling serum phosphorous levels. Auryxia effectively reduces serum phosphorus levels and increased ferritin, iron and transferrin saturation, which is a claim that is unique to Auryxia.

The National Kidney Foundation estimates that nearly 450,000 Americans have ERSD that requires dialysis, giving Auryxia a huge opportunity. Peak sales estimates for the drug are currently running around $1 billion in the U.S. alone. 

2. Label expansion potential
While Auryxia is currently only approved to treat patients with ESRD on dialysis, there is a potentially a much bigger market opportunity for the drug. Chronic kidney disease is very common, and the vast majority of patients do not require dialysis. The disease is classified into 5 different stages depending on kidney function, and as the disease progresses many patients develop iron deficiency anemia, or IDA, despite taking medication. An estimated 1.5 million patients in the U.S. fit this description.

Keryx has initiated a phase 3 study to see if Auryxia can help these patients better control their iron levels, and the study is on track for completing by the end of the year. If Auryxia is able to help these patients better control their iron levels, then we could see a significant expansion of the market opportunity for Auryxia.  

3. Geographic expansion
Auryxia is already approved for sale in Japan, where it is currently being marketed under the brand name Riona by marketing partner Torii Pharmaceutical, which is a subsidiary of Japan Tobacco. Keryx receives royalty payments based on net sales of Riona and could also receive $55 million in additional milestones payments if sales go well. With an estimated 280,000 patients in Japan on dialysis, the market opportunity looks huge.

Auryxia is also currently under regulatory review in Europe, under the brand name Fexeric, with an approval decision expected later this year. Keryx recently announced that the Committee for Medicinal Products for Human Use of the European Medicines Agency has adopted a positive opinion for the marketing authorization of Auryxia, which is certainly a good sign for the chances of gaining European approval by the end of the year. 

4. High inside ownership and smart backing
With more than 17 million shares currently held by insiders, which accounts for more than 17% of the shares outstanding, insiders appear to have a significant equity stake in the business. With that much money on the line, you can be sure they are laser focused on making Auryxia a success.

It's also worth nothing that famed money manager Seth Klarman, founder of the wildly successful hedge fund The Baupost Group, currently owns more than 22 million shares, giving his fund a 21% stake in the firm. Seth Klarman is an extremely accomplished value investor with a terrific long term track record, so it's certainly worth noting that he finds currently sees value in the shares.

5. Strong balance sheet
After completing a share offering earlier this year, the company holds $168 million on the balance sheet and currently has no debt. While the company is still losing money, it appears to have enough capital to ramp up spending as it launches Auryxia. In addition, analysts are predicting sales around $100 million in 2016, which should help the company slow the rate of capital burn considerably, especially if sales estimates prove to be conservative.

Is Keryx a buy?
When you put these factors together, it makes Keryx look very interesting right now. The stock has been hit hard over the past year as Auryxia have been slower out of the gate than many investors were hoping for. Management believes that is mostly attributable to the current restrictive access to the drug, and they are working to correct the problem with payers, but Wall Street has soured on Keryx stock on the news. 

Clinically, Auryxia looks like it could be a winner, and if the company can successfully commercialize the drug around the world then Keryx's stock could become a multi-bagger. While the opportunity looks huge, as a potential investor, I want to see a little bit more commercial success for Auryxia before I could call the stock a buy today. We won't have to wait long for an answer, as the company reports earnings tomorrow, August 5. You can bet I won't be the only one listening closely.

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