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Here's Why PolarityTE Dropped as Much as 13.1% Today

By Maxx Chatsko – Apr 12, 2018 at 12:59PM

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The biopharma announced the pricing of a stock offering, but something seems off with this company.

What happened

Shares of tissue engineering company PolarityTE (PTE 1.66%) dropped over 13% Thursday morning after the biopharma company announced the pricing of a stock offering. While the company announced its intention to conduct an offering the day prior, it did not tell investors how many shares it intended to offer at the time.

Now investors know the offering will include a little over 2 million shares of common stock at $16 per share. As is customary with such offerings, PolarityTE will provide the option to purchase an additional 300,000 shares at the same price. Total gross proceeds from the offering are expected to be $37.8 million including the over-allotment options.

Existing shareholders will be diluted by about 14%, but as of 11:32 a.m. EDT, the stock had settled to a 11.2% loss.

Someone holding a red flag against a partly cloudy sky.

Image source: Getty Images.

So what

PolarityTE says it's commercializing a platform of tissue engineering products for regenerative medicine applications. Its first products are aimed at regenerating skin tissues for medical applications including burns and surgical scars. With just over $10 million in cash and cash equivalents at the end of January 2018, the company will need more funding to commercialize its portfolio of products, and the offering appears to provide a bigger cushion.

But investors who dig a little deeper or have any understanding of the technical details involved in biological products or materials science (or both) will come away with the feeling that something is a little off with PolarityTE. The company is listed on the stock market through a reverse merger with Majesco Entertainment, a company that created video games. The biopharma company sold off the video game unit for $100,000 in summer 2017 to focus on tissue engineering.

Furthermore, while the company's presentations may give off the impression that PolarityTE is onto something novel, the company's claims are high on hype and low on substance. The biopharma's platform doesn't stand up well to more reputable regenerative tissue engineering platforms dotting the field of engineered biology. That's evidenced by reporting just $13,000 in revenue in the last quarter, and the company listing a going concern in its most recent quarterly SEC filings.

Now what

PolarityTE shares are down on the stock offering that will dilute existing shareholders by about 14%. That said, the biopharma company will wield a market cap of approximately $290 million after the shares in the offering hit the market. Given its lack of credibility and operating history, investors shouldn't go anywhere near this company.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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