Investors in Alder Biopharmaceuticals (ALDR) are having another wild day. Shares of the clinical-stage biopharma rose as much as 15.5% on Thursday after the company released the pricing details of its just announced common-stock offering. As of 12:43 p.m. EDT, the stock was up 13.7%.
Alder stated that it is selling 15 million shares of its common stock for $10 each. In addition, the underwriters of the deal have been granted a 30-day option to purchase up to 2.25 million additional shares at the offering price. The deal is expected to close early next week and could add up to $172.5 million to the company's bank account before subtracting fees.
Investors are likely reacting favorably to this news for two reasons: First, the $10 deal price only represents a tiny discount to yesterday's closing price of $10.13. Second, the original announcement called for the company to sell 12.5 million shares to the public and up to 1.875 million additional shares to the underwriters. The fact that the company was able to sell 15 million shares to the public and up to 2.25 million to the underwriters suggests that there was plenty of demand for the company's stock.
On the flip side, selling more shares to the public means that existing shareholders will face even more dilution. The updated terms of this deal could dilute current shareholders by more than 34% if underwriters fully exercise their option.
Given that Alder lost more than $100 million last quarter, I think it's good news that the company was able to raise more money than initially expected. However, since Alder's stock was trading over $36 earlier this year, I have a hard time getting excited about the $10 offering price.
Regardless of the dilution, the bull case for owning Alder's stock from here still rests upon the success of its lead compound, eptinezumab, as a hopeful treatment for migraines. Given the so-so results from its phase 3 trial, I still have doubts about this drug's ability to compete against Eli Lilly's galcanezumab. For that reason, my personal plan is to keep Alder's stock far away from my portfolio.