What happened
Shares of Abeona Therapeutics (ABEO 0.20%) dropped nearly 44% today after the company announced the pricing of a public offering of common stock and pre-funded warrants. The gene therapy developer is offering up to 32.4 million shares at $2.50 apiece and 9 million pre-funded warrants at roughly the same price. Pre-funded warrants provide the right to purchase shares of common stock in the future.
Abeona Therapeutics expects to raise up to $103.5 million in gross proceeds from the offerings, which will be needed to fund late-stage clinical programs aimed at rare diseases. But investors are more concerned over the amount of dilution that will result from the offerings.
As of 11:36 a.m. EST, the pharma stock had settled to a 33.2% loss.
Image source: Getty Images.
So what
The small-cap biopharma ended September with only $47.9 million in cash, so another fundraising round was inevitable. However, there are currently just 51 million shares of common stock outstanding. That means the public offerings will increase the share count by 81% -- a staggering amount of dilution.
Management didn't really have other options. The business needed more cash to fund operations and pulling the trigger now takes advantage of a recent surge in the stock price. Shares of Abeona Therapeutics dipped below $2 apiece at the end of August, but had climbed back toward $5 as of last week.
Now what
After the shock of today's plunge wears off, investors will be able to turn their attention to the company's lead drug candidate, EB-101. The U.S. Food and Drug Administration (FDA) recently removed a clinical hold on the gene therapy (related to transporting the drug candidate to clinical trial sites), which paves the way for Abeona Therapeutics to begin a phase 3 study in recessive dystrophic epidermolysis bullosa (RDEB) in early 2020. The results of that study will ultimately determine the fate of this stock.
