Zosano Pharma Corporation (NASDAQ:ZSAN) was a real end of the week mover in the biotechnology sector last week, with the company sliding close to 45% on the news that it is set to conduct an underwritten public offering.
The public offering will see Zosano issue 10 million shares at an average price of five dollars per share.
So why the decline?
Well, there are a couple of issues at play here.
The first is that this offering is priced well below market for Zosano.
Rumors first started to hit the wire early on Friday morning that the company was about to announce an offering and the company started to dip almost immediately on expectations that the offering would be priced below market rate. When you price an offering below market rate, it essentially suggests that the company is struggling to raise money at its then-current share price and, by proxy, that market sentiment may have misrepresented capitalization as relates to wider investor confidence.
Immediately, then, subsequent to an offering that is priced below market rate, we generally see a reevaluation. And, in line with the rumors, once the offering was announced, concerns were validated. As noted above, the offering will see the shares priced at just five dollars a share, as compares to the nine dollars a share at which the company was trading before the announcement hit press and the close to $20 a share at which this company traded during the end of last month.
That’s the first factor.
The second is more general and relates to the impact of an offering in general, whatever the pricing.
When a company issues shares, it adds extra shares to the current base of outstanding shares, meaning that the existing shares are representatively worth a smaller portion of the overall company after the offering takes place.
This is called dilution and it’s one of the primary risk factors any investor needs to consider when picking up a position in a company at the (in particular) smaller end of the markets.
So, not only will we see Zosano add 10 million shares to its base but we will also see these shares hit the market at a close to 50% discount to the price ahead of the announcement.
Chances are we will see the company continue to depreciate moving into the offering, which is expected to close on or around April 3, 2018, (so, today) subject to the satisfaction of customary closing conditions.
Another big mover at the start of this week was Pfizer Inc. (NYSE:PFE).
The company reported some data from a phase 3 trial at the end of last week and this data has had a profound impact on the valuation of various companies in the biotechnology sector on the back of its implications.
The trial was set up to investigate the safety and efficacy of a drug called tafamidis for the treatment of what’s called transthyretin cardiomyopathy. This is a rare, progressive and universally fatal disease associated with restrictive cardiomyopathy and progressive heart failure, with life expectancy averaging three to five years from diagnosis.
Current treatments are severely limited and, with the asset under investigation as part of the phase 3 trial in question here, Pfizer was trying to provide a much-needed option to this group of patients.
And, on the back of the release, it looks as though the company may be able to do just that.
As per the news, the trial hit its primary endpoint, with the data supportive of both safety and efficacy in the target indication.
Interestingly, the major impact was restricted to other companies in this space, with Akcea Therapeutics, Inc. (NASDAQ:AKCA) shares closing down 13% to $25.61 subsequent to the report, and shares of Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY) falling 9% to $119.10 at the end of last week.
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