Shares of pharma specialist Avadel Pharmaceuticals (NASDAQ:AVDL) sank over 13% Wednesday after the company announced a massive debt offering of $125 million in senior notes bearing a 4.5% interest rate and due date in 2023. The company expects net proceeds of about $119.6 million, or up to $137.7 million if additional debt notes are purchased, from the offering.
Avadel Pharmaceuticals has a market cap of just $360 million following the move, so it's easy to see that Mr. Market isn't thrilled with the company taking on about one-third of its valuation in debt. Plus, it will go along with an existing $60 million in long-term debt.
As of 2:03 p.m. EST, the stock had settled to an 11.2% loss.
The debt offering comes as Avadel Pharmaceuticals is retooling its business to focus on urology, sleep, and hospital-focused products. Just days ago the company announced it was selling its pediatric segment to Cerecor and entering into an agreement with the buyer to continue developing certain products. That helps put things in perspective as the extra cash will no doubt be put to use developing products and expanding its presence in those core markets.
It's also worth noting that Avadel Pharmaceuticals has a relatively robust business. In the first nine months of 2017 it generated $138 million in revenue, which marked a 29% increase from the year-ago period. The business produced $76 million in net income during that span, compared to a net loss of $46 million in the prior-year period -- although both totals were dramatically influenced by non-cash charges related to the fair value of certain assets.
Wednesday's massive senior debt offering isn't an ideal development. However, the Irish pharma is no slouch. The company appears capable of putting the low interest rate cash to good use and, more importantly, repaying it on time. The stock's recent volatility isn't something investors should take lightly, but prices near 52-week lows could signal an opportunity for long-term investors.