Shares of Biohaven Pharmaceutical (NYSE:BHVN) are down 24% at 11:47 a.m. EDT after the biotech said it plans to sell $300 million worth of shares in a secondary offering. The underwriters also have an option to buy an additional $45 million of shares.
Shares often go down in anticipation of a secondary offering since large institutional investors typically want a discount to the current price because the new shares cause dilution with every share now representing a smaller piece of the pie. A 24% decline is a bigger discount than is typical, although there's a pretty wide range and the price can even go up after a secondary if it's oversubscribed.
While it's a large drop, Biohaven Pharmaceutical's price change today is understandable considering that shares were up 55% in 2019 through yesterday, due in large part to rumors that the company was attracting interest from potential bidders. If a sale announcement was imminent, there would be no reason for Biohaven to raise capital, so today's drop is a combination of the typical dilution plus investors giving up on the idea of a quick sale.
While it doesn't look like Biohaven Pharmaceutical is likely to be sold anytime soon, it's possible negotiations are ongoing and management is raising the cash as a bargaining chip. With cash on hand, Biohaven will be in a position to launch its migraine treatment, rimegepant, on its own after the Food and Drug Administration approves the drug toward the end of this year or early next year.
With $217 million in the bank at the end of the first quarter, the biotech likely needed to raise cash at some point soon. The acquisition rumor-fueled increase in share price is a pretty good time to raise the capital even if it has to give up much of the increase to get investors to buy into the secondary.