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Why Halozyme Therapeutics Inc. Sank 16.5% in May

By Brian Feroldi - Jun 6, 2017 at 9:14AM

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News that a secondary stock offering would be taking place at a discounted price caused shares of the developmental stage biotech to swoon.

What happened

Halozyme Therapeutics (HALO 0.02%), a biotech focused on creating products that help other drugs work better, fell 16.5% in May according to data from S&P Global Market Intelligence

So what

Halozyme released its first quarter earnings results in May, but the report didn't appear to have anything to do with the decline. While revenue of $29.6 million and a net loss of $0.26 per share did come in a bit shy of expectations, the stock didn't move much in the days following the Q1 release.

Instead, investors can blame the drop on the pricing details related to its recently executed secondary stock offering. Halozyme said that it sold 10 million shares of common stock at $12.50 each, and also provided the underwriters of the deal with the option to purchase another 1.5 million shares. In total, up to $143.75 million could be added to the company's bank balance from this deal before subtracting fees. However, that $12.50 price tag was quite a bit below the $14.16 closing price that shares were fetching on the open market on the day prior to the capital raise announcement. The big gap between those two figures suggests that Halozyme had to offer a big discount on its shares in order to entice enough investors to participate.

Given the soft investor demand and dilution, it isn't surprising to see that shares took a step back during the month.

money falling out of businessman pocket

Image Source: Getty Images.

Now what

Halozyme expects to burn through at least $75 million in cash this year as it continues to develop its PEGPH20 product candidate. Given that it ended March with $179 million in cash, it's understandable that the company wanted to raise some capital. 

Halozyme's most important clinical trial is HALO-301, which is studying PEGPH20 in combination with Celgene's Abraxane as a treatment for pancreatic cancer. Thus far, it looks like the product candidate is on track to make it to market, but only time will tell if regulators think it is deserving of the green light. At least bulls can now sleep soundly knowing that the company has enough capital to keep its doors open for a few more years. 

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