Why Dyax Corp. Shares Dipped

Dyax shares dive after the company announced a share offering. Is this dip a perfect opportunity to buy or all the more reason to keep your distance?

Mar 14, 2014 at 1:23PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Dyax (NASDAQ:DYAX), a biopharmaceutical company focused on developing therapies surrounding plasma kallirrein-mediated (PKM) angioedemas, dipped as much as 12% after the company announced a common stock offering after the closing bell last night.

So what: According to Dyax's press release this morning, it has filed to sell 8 million shares of common stock at $9.25 per share, an 8.9% discount to yesterday's closing price. The gross proceeds would total $74 million with the offering expected to close on or before March 19. Dyax notes that it's undertaking this offering in order to further the clinical research of DX-2930 for hereditary angioedema as well as research other PKM angioedema disorders.

Now what: What we're seeing here is possibly the most visible risk factor of investing in the biotech sector: share dilution. Because few companies tend to partner up their lead drugs during development they often have to turn to share offerings to raise the cash necessary to carry out their research. In this case Dyax is boosting its outstanding share count by more than 6%, but had to offer those shares at a nearly 9% discount to yesterday's closing price, likely signifying a lack of demand for these new shares. Because hereditary angioedema is a rare disease, Dyax has a decent shot of making up its research costs through the high costs of its therapies if they're approved by the Food and Drug Administration. But with a valuation north of $1.1 billion, I'd suggest waiting for Dyax's cash flow and product portfolio to expand a bit before considering it a potential buy.

Although Dyax shares have soared over the past year, it's likely that it'll have a difficult time keeping pack with this top stock in 2014
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Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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