Please ensure Javascript is enabled for purposes of website accessibility

Why FibroGen Inc Popped Higher Today

By Brian Orelli, PhD – Apr 6, 2017 at 12:59PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The biotech makes a stock offering at a good price.

What happened

FibroGen (FGEN -1.10%) is up 15.5% at 12:17 p.m. EDT after announcing that it sold 5,228,750 shares at $22.95 per share to raise approximately $120 million.

So what

Secondary offerings are a necessary evil for most development-stage biotechs. They raise necessary cash to fund development, but at the same time dilute current shareholders and often require a lower price to get large investors to buy shares, which results in a lower price after the offering.

Paper with "balance sheet" written on it, with a pen and magnifying glass placed on it

Image source: Getty Images.

But FibroGen was able to close its deal at the price at which shares closed yesterday. If large investors are willing to buy without requiring a discount, they must feel yesterday's closing price was a good deal.

Equally important, the secondary offering puts $120 million into FibroGen's coffers. Sure, with $342 million in the bank at the end of 2016, FibroGen didn't really need the cash right now. But the old adage "raise when you can, not when you have to" is usually a good plan to follow.

Now what

It's back to waiting for investors. But they won't have to wait too long to see potential value-adding data. FibroGen expects to have phase 2 data for pamrevlumab, which treats a lung disease called idiopathic pulmonary fibrosis, in the third quarter.

Fibrogen's lead drug, roxadustat, which treats anemia in people with chronic kidney disease, has met initial target enrollment for three phase 3 trials, putting FibroGen on target to file an application to market the drug in the U.S. next year if the trials are successful. Development of roxadustat in China is further along, having already passed two phase 3 trials there; Fibrogen and its partner AstraZeneca expect to file a marketing application in China in the third quarter.

Brian Orelli has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.