What happened
For the second day in a row, investors in Nabriva Therapeutics (NBRV) are enjoying double-digit gains. Shares of the clinical-stage biotech are up 15% as of 11:30 a.m. EDT on Tuesday. The gains can be credited to the news that it is raising capital through a secondary common stock offering and from some bullish Wall Street commentary.
So what
Nabriva stated that it is seeking to raise $80 million through a public stock offering. The underwriters of the deal are also being granted an option to purchase an additional $12.0 million of shares. In total, this capital raise could add up to $92 million in cash to the company's balance sheet before subtracting fees.
Image source: Getty Images.
While the pricing details of the deal are still unknown, Nabriva's market cap is currently hovering around $240 million. This means that current shareholders should expect to be diluted by up to 42%.
Raising capital right now makes a great deal of sense since the company's stock spike yesterday in response the upbeat news from its LEAP 1 trial. What's more, Nabriva only held around $53 million in cash on its balance sheet at the end of June. That's not a huge number when compared to the company's net loss of $30 million from just the first six months of the year. Those figures suggest that a capital raise was inevitable, so striking while the iron is hot is likely to be a smart move.
To add fuel to the fire, a number of analysts also recently upgraded Nabriva's stock. Analysts at SunTrust Banks, Cantor Fitzgerald, and HC Wainwright all recently reiterated their buy rating on the shares and issued price targets ranging from $16 to $24. Those are bullish numbers when compared to yesterday's closing price of $8.87.
Between the news of a capital raise and bullish commentary from Wall Street, it is easy to understand why the stock is rising again today.
Now what
The next step from here is for the company to complete its LEAP 2 trial, which is its second phase 3 study that is evaluating its lead compound lefamulin as a hopeful treatment for community-acquired bacterial pneumonia (CABP). Management had previously communicated that data from the trial is expected to be released in early 2018.
While there are reasons for investors to be bullish on lefamulin, it is worth remembering that upbeat phase 3 data doesn't always translate into regulatory success. Last year, shares of Cempra (MLNT) were obliterated after the Food and Drug Administration rejected its CABP drug candidate solithromycin due to issues with liver toxicity and manufacturing. That was surprising to many since solithromycin also produced encouraging news in the clinic. For that reason, I think it still makes sense to approach Nabriva's stock with caution.
