It’s been another busy start to the week in biotech, with a number of companies moving double digit percentage points on various fundamental releases. Here are a few of the most notable, and a look at what’s moving the markets for each.
We’ll kick things off with two capital structure driven moves, focusing on Puma Biotechnology Inc (NYSE:PBYI) and Nektar Therapeutics (NASDAQ:NKTR).
At market close on Tuesday, Puma was trading for a little over $52 a share. After hours trading brought the company to open on Wednesday at around $45 a share – a 14% discount overnight. The decline came on the back of the company announcing a secondary stock offering, which will see it offer up to $150 million worth of shares of common stock, with an underwriter option for an extra $22.5 million potentially on the table.
Pretty much exactly the same happened to Nektar.
On Monday, the company announced an underwritten public offering of $175 million worth of common stock, and an additional 30-day option for the underwriters to pick up an extra $26.25 million worth of shares. Before the announcement, Nektar went for just shy of $16 a pop. At time of writing, it’s trading for $13.48 – again, a nearly 14% decline.
By way of a brief introduction as to why this sort of thing can move markets.
The two companies both intend to use the proceeds of these offerings to fund the advancing of development pipelines, so at first glance, an offering is a good thing. Money raised, stronger balance sheet, development expedited.
That’s not the only side of the equation, however. In order to raise the capital, the companies have to issue fresh shares, which adds to the outstanding base. Market capitalization is simply share count multiplied by share price. An increased number of outstanding shares has to mean that the current shares are worth less (on a per share basis), or companies could just issue to raise market cap as and when they like. As such, the current share price adjusts to reflect the smaller piece of the total company pie that each share represents.
The hope is that – longer term – the capital raised will be put to good use, and add value to offset the per-share value lost through the dilutive raise. It doesn’t always happen like that, but that’s the goal.
So, Puma down, Nektar down, on a per share price basis (note that post-issue market cap will likely be similar to the pre decline cap).
Moving on, let’s look at something a little more operationally driven.
PTC Therapeutics, Inc. (NASDAQ:PTCT) is a development stage biotech with a focus on Duchenne’s muscular dystrophy (DMD). It’s lead asset – Translana – is approved in Europeand has been commercially available in Germany since the end of 2014. The FDA has taken a harder stance on the drug than has the EMA, however, and issued a Refusal to File to the company on its application for the drug back in February.
The company appealed the RTF notice, in the hope that by taking the application up a level at the agency it could pick up some headway (in all likelihood, it can’t really afford to pad out the data it needs to swerve the RTF). Unfortunately for the company, the agency just refused the appeal, and PTC is suffering as a result. The company is down nearly 50% on its last week close, and volume looks set to push PTC down further as we head into the second half of the week.
The next step is another appeal, with the company hoping it can get the drug in front of an advisory panel with – and this is an important part – patient advocacy. Basically, it wants patients (or their parents, as is likely in this instance) to attend the review meeting and fight for approval.
This worked for Sarepta Therapeutics Inc (NASDAQ:SRPT) and its now famous DMD asset Eteplirsen, but we’re skeptical with this one, even with patient advocacy. An RTF is very rare, so there must have been some sever deficiencies in the company’s filing to push the FDA to issue one.
Let’s wait and see what happens. Whatever does, it’s going to be an interesting watch.