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Here's Why Biohaven Pharmaceutical Plummeted Today

By Brian Orelli, PhD – Jun 18, 2019 at 12:40PM

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Dilution is coming for shareholders, while an acquisition doesn't seem as likely.

What happened

Shares of Biohaven Pharmaceutical (BHVN -0.24%) 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.

So what

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.

Magnifying glass and pen on a balance sheet

Image source: Getty Images.

Now what

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.

Brian Orelli and The Motley Fool have no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Biohaven Pharmaceutical Holding Company Ltd. Stock Quote
Biohaven Pharmaceutical Holding Company Ltd.
BHVN
$151.17 (-0.24%) $0.36

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