What happened

After announcing a capital raise from a common stock offering, PolarityTE (NASDAQ:PTE), a commercial-stage biotech focused on regenerative medicine, dropped as much as 12% in early morning trading on Wednesday. The share price has recovered a bit and is down about 8% as of 10:30 a.m. EDT.

So what

PolarityTE announced on Tuesday afternoon that it was interested in raising capital from a secondary offering. 

Management followed up today with some additional details about the deal:

  • The company will sell about $27.5 million shares of stock. The underwriters of the deal have been granted an option to purchase up to $4.125 million worth of additional shares of its common stock.
  • The deal is expected to close on April 12, 2019.
  • The underwriters are authorized to sell the shares in negotiated transactions or at prevailing at market prices.
  • The proceeds of the deal will be used for "research, development, and manufacturing of its products and product candidates, efforts toward commercialization and required registration or approval of its products and product candidates with applicable regulatory authorities, and for other general corporate purposes."

PolarityTE's market cap is currently hovering at around $200 million, so this deal could dilute current investors by as much as 15%.

Traders are reacting negatively to the terms of the capital raise and the potential dilution.

A paper arrow pointing up and down with a paper question mark above it

Image source: Getty Images.

Now what

2019 has been rough on PolarityTE's investors. The stock has now fallen about 30% since the start of the year in response to poorly received earnings and this capital raise. 

The good news is that the extra money from this common stock offering should help to pad the company's bank account as it works to create demand for its SkinTE product line. If the company is successful with its efforts, then the stock price will likely react accordingly.

Whether the company will be successful with SkinTE is still an unknown. That's why my plan remains to watch this high-risk stock from the safety of the sidelines.