Investors in Idera Pharmaceuticals (NASDAQ:IDRA) are having another rough day. Shares are down by more than 10% as of 11:45 a.m. EDT on Friday after the company announced the pricing of its secondary share offering.
The clinical stage biopharma said that it is selling 25 million shares of common stock for $2.00 each. In addition, the company also granted the underwriters of the deal the option to purchase an additional 3.75 million shares if they choose. In total, this transaction could dilute current shareholders by nearly 24%.
Since shares were trading for over $3 as little as two weeks ago there is no doubt that some investors are upset with this pricing news. In fact, shares closed on Thursday at $2.18, which suggests that Idera had to discount its pricing in order to attract enough buyers.
Given the news, it's no wonder why the stock is tanking again.
As of the end of the second quarter, Idera's cash balance stood at $64 million. However, its quarterly burn rate is roughly $13 million, which hints that its current cash balance is somewhere in the neighborhood of $51 million. That suggests that after this common stock offering that Idera will have just over $100 million in cash on its balance sheet, which at current spending levels should be enough to sustain the company for about two years.
However, the company's spending on research and development could rise substantially over the next few years if it continues to advance its two product candidates down the regulatory approval pathway. Thus, Idera could once again be tapping shareholders for fresh capital in the not-too-distant future. For that reason, I plan on keeping far away from this stock.
Brian Feroldi has no position in any stocks mentioned. Like this article? Follow him on Twitter where he goes by the handle @Longtermmindset or connect with him on LinkedIn to see more articles like this.
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