Shares of bluebird bio (NASDAQ:BLUE) are down 7.7% as of 3:15 p.m. EDT. They were down as much as 10% after the company announced yesterday afternoon that it plans to sell shares worth $400 million, which could be increased by 15% if the underwriters use their 30-day option to purchase additional shares.
Secondary offerings are a fact of life for investors in biotech companies. It's a rare feat for a company to raise enough money through venture capital and its initial public offering to get a drug approved, then generate enough revenue to support the development of the rest of its pipeline. Most companies have to sell additional shares through secondary offerings -- usually multiple times.
The trick is to find biotechs that are able to raise capital at higher and higher valuations. At a higher stock price, the company can sell fewer shares to raise the same amount of cash, thus producing less dilution for shareholders.
It's not clear why Bluebird picked now to raise capital, since its share price didn't exactly have the best first half of the year (although it's recovered some in July). Bluebird ended the first quarter with $1.57 billion in the bank, so it doesn't really need more capital right now.
Investors will have to wait and see where Bluebird is able to price its secondary offering to see how much dilution will take place. Some of today's decline is likely due to Bluebird's investment bankers being unable to get the deal done overnight, suggesting that there isn't a huge appetite from large institutional investors that want to buy Bluebird close to yesterday's closing price.
While dilution is never fun, long-term investors should be focused on Bluebird's pipeline. Data for its gene therapy LentiGlobin and follow-on CAR-T therapy bb21217 will be presented at the American Society of Hematology meeting in December.