Why bluebird bio Inc. Stock Faltered

Bluebird shares fall from the sky after the company announces a common stock offering. Find out what this means for existing shareholders.

Jul 8, 2014 at 2:17PM

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 bluebird bio (NASDAQ:BLUE), a clinical-stage biopharmaceutical company developing gene-based therapies to treat orphan diseases and other genetic disorders, stumbled as much as 10% after announcing its intention to offer common stock after the closing bell last night.

So what: According to the company's after-hours press release on Monday, bluebird bio intends to offer $100 million in common stock with its underwriters having the option to purchase up to an additional 15% of the number of shares to be issued. The offering follows a shelf registration statement filed with the Securities and Exchange Commission that essentially states it will from time to time issue shares in order to raise capital to fund its clinical research projects.

Now what: This is one of the common downsides of investing in clinical-stage biotech companies: share dilution. Because clinical-stage companies often have no revenue (or have inconsistent revenue through collaborations), they're forced to seek out capital by a number of different means, including stock offerings. Shares of bluebird bio have more than doubled over just the past two months, so I can hardly blame its board of directors for wanting to take this step now. Given that the share issuance will dilute existing shareholders by a little more than 10% I'd consider today's move lower justified.

Bluebird is certainly an intriguing company to watch given the early success of LentiGlobin as a treatment for beta-thalassemia major, but until we have a larger patient pool (i.e., more than just four people) to base our opinions off of it's probably best if you observe bluebird safely from the sidelines.

Bluebird bio may offer plenty of potential, but keeping pace with this stock that Warren Buffett recently purchased could prove impossible! 
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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

Don't be one of them.

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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