Shares of Alder Biopharmaceuticals (NASDAQ:ALDR), a clinical-stage biopharma, fell by 14% as of 10:45 a.m. EDT on Wednesday after the company announced a secondary common-stock offering.
On Tuesday evening, Alder let investors know that it intends to sell 12.5 million shares of its common stock to the public. In addition, the company has granted the underwriters of the deal an option to purchase up to 1.875 million additional shares. As of the end of March, Alder's diluted share count was 50.3 million, so this announcement could dilute current shareholders by more than 28%.
Management stated that the proceeds of the deal will be used to fund development of its lead compound eptinezumab, which includes submitting the drug to the Food and Drug Administration (FDA) for approval.
While you can't blame shareholders for being unhappy with the dilution, Alder's cash balance at quarter-end was only $289 million. That might sound like a lot, but Alder lost more than $100 million in the first three months of the year alone. Given the high levels of spending, it shouldn't be too much of a surprise to see that the company is looking to pad its bank account.
This capital raise is coming at a tough time. Just a few weeks ago, Alder announced mixed results from a phase 3 trial using eptinezumab as a hopeful preventative treatment for migraines. The results have dashed investor's hopes that the drug will be able to meaningfully differentiate itself from competing drugs, such Eli Lilly's galcanezumab.
In response to the disappointing results, Alder's shares have fallen more than 60% since the start of the year. Thus, this capital raise looks to be ill-timed by management.
Given Alder's huge levels of spending, the upcoming dilution of its shares, and the competitive landscape for eptinezumab, I see no reason to view today's drop in Alder's shares as a buying opportunity.