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Why ImmunoGen, Inc. Dropped Today

By Brian Orelli, PhD - Oct 5, 2017 at 3:58PM

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A secondary offering dilutes shareholders.

What happened

Shares of ImmunoGen (IMGN 3.21%) are down 11% at 3:29 p.m. EDT after announcing yesterday that it plans to sell 13 million shares through a secondary offering. Investors could be further diluted if the underwriters exercise their option to sell almost 2 million additional shares. The company has about 112 million shares outstanding, so this certainly isn't a minor dilution, but it isn't horrible, either.

So what

The secondary offering will allow ImmunoGen to raise about $100 million of much-needed cash. At the end of the second quarter, the biotech said it had enough cash to fund operations into the second half of 2018, which isn't that long of a runway.

ImmunoGen has made some moves to generate cash, partnering assets and renegotiating previous deals to trade future royalties for upfront cash. Those deals don't dilute shareholders, but they also haven't brought in as much cash as this secondary can.

Pen and magnifying glass on a paper with a copy of a balance sheet on it.

Image source: Getty Images.

The problem with dilution is that investors own a smaller piece of the pie since there are more shares outstanding. The hope is that the pie will be larger after ImmunoGen releases results from its phase 3 trial called FORWARD I that's testing mirvetuximab soravtansine in patients with ovarian cancer. Dilution is a minor issue compared to ImmunoGen not having enough cash to finish the trial.

Now what

Part of today's decline likely is because the price of the secondary hasn't been announced. If a biotech is a value, investment bankers don't have much problem lining up investors overnight and a company can announce plans to raise capital after the market closes and announce the price of the secondary at, or close to, the previous closing price, before the market opens. Since that didn't happen this morning, investors are likely worried that investment bankers are discounting the secondary to get investors to buy shares.

While the price of the secondary will affect the share price in the short term, it won't have too big of an effect on the long-term valuation of ImmunoGen, which will be determined by the results of FORWARD I and whether mirvetuximab soravtansine eventually can get approved by regulators.

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