Shares of ImmunoGen (NASDAQ:IMGN) fell 9.2% on Thursday after the biotech announced yesterday after the bell that it was selling 13.7 million shares for $11 per share. The underwriters have an option to purchase an additional 2.055 million shares, potentially further diluting current shareholders.
On Tuesday, ImmunoGen said it planned to sell only 12 million shares, but it didn't note how much capital it was hoping to raise.
Pessimists could argue that ImmunoGen had to upsize the offering to raise the amount of capital it was shooting for, but considering $11 is just a 4% discount to where shares closed on Tuesday, it's more likely that there was a substantial interest from large institutional investors to buy shares at $11, and management seized the opportunity to raise additional capital.
All told, the secondary offering will gross ImmunoGen $150.7 million -- and perhaps a little more if the underwriters invoke their option to buy additional shares.
Dilution for current shareholders is never fun, but it's a necessary evil of drug development. Technically, ImmunoGen doesn't need to raise capital right now; management has said the $218 million it ended the first quarter with was enough to fund the company into the fourth quarter of 2019.
Arguably, it would be cheaper for ImmunoGen to wait for the readout of its phase 3 Forward I trial testing mirvetuximab soravtansine as a monotherapy in patients with ovarian cancer, which is expected in the first half of next year. If the data is positive, the share price should be higher, and ImmunoGen can raise the same amount of capital by selling fewer shares.
But cutting its capital runway that short is dangerous. If Forward I fails, ImmunoGen still has other shots on goal with mirvetuximab soravtansine combination therapies, which have looked promising so far, as well as its earlier-stage pipeline. Raising capital to fund those projects after a Forward I failure would be costly.
Essentially, this secondary offering is a hedge -- one that will cost investors now, but could save them later in the event that things don't go as planned.