Shares are Kadmon (NYSE:KDMN) are up 15.8% at 11:42 a.m. EDT Tuesday after the company announced late yesterday that it was selling a little over 30 million shares for $3.30 per share.
More often than not, secondary offerings like this cause shares to retreat -- rather than jump higher, as is the case for Kadmon today -- since the offering causes dilution of current shareholders, resulting in each share representing a smaller fraction of the entire company and therefore worth less. Shares also typically drop because secondary buyers usually want a substantial discount to the current price.
The latter doesn't seem to be much of an issue here with the secondary pricing just 1.5% lower than where Kadmon closed yesterday. And considering there was less than a four-hour window between when Kadmon announced the offering and the pricing, it seems there were plenty of large institutional investors looking to buy the secondary, which is likely giving retail investors the confidence to hit the buy button today.
The secondary offering will gross Kadmon about $100 million, with the potential for another $13 million or so if the underwriters use their option to buy an additional 4 million shares, which seems likely if the share price stays well above $3.30.
Kadmon ended the first quarter with $49 million in the bank, so this is much-needed capital that will help fund the biotech's upcoming pivotal trial testing KD025 in patients with chronic graft-versus-host disease, in which transplanted immune cells start attacking the patient's body.
Unfortunately, it'll be awhile before data from that trial reads out, so Kadmon is most appropriate for long-term investors willing to set it and forget it.