What happened

Shares of the commercial-stage biotech Clovis Oncology (NASDAQ:CLVS) dropped by as much as 18% in pre-market trading Tuesday morning. The stock tanked in response to a $250 million mixed shelf offering announced after the closing bell Monday.

So what

Per the S-3 registration statement filed with the SEC, the company said that the net proceeds raised from the sale of any securities under this offering will be used for general corporate purposes, debt obligations, Rubraca's promotional expenses, ongoing clinical programs, milestone payments related to licensing agreements, and/or the acquisition of additional product candidates.

A female patient, wearing a blue headscarf, lying in bed while consulting with her doctor.

Image source: Getty Images.

While that's certainly a mouthful, the long and short of it is that Clovis is basically boosting its financial flexibility with this shelf offering. Moreover, this strategic financial move shouldn't come as a total surprise to shareholders. Clovis' shares, after all, have more than doubled in value over the past three months. The glaring problem with this prospectus, though, is its sheer size. A $250 million shelf offering is quite a hefty capital raise for a company with a current market cap of only $664 million. 

Now what

The good news is that Clovis may not have to tap the whole of this enormous shelf offering. The biotech's flagship ovarian cancer drug Rubraca has started to show signs of life after an initially sluggish start, and its commercial trajectory could pick up even more steam in the years ahead if the Food and Drug Administration grants a key label expansion for prostate cancer in late 2020. Put simply, shareholders probably shouldn't fret too much over this sizable capital raise.   

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.