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Why Pacific Biosciences of California Shares Are Soaring Today

By Keith Speights – Aug 12, 2020 at 12:51PM

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Investors liked the pricing of the company's secondary stock offering.

What happened

Shares of Pacific Biosciences of California (PACB 3.54%) were soaring 25.6% as of 11:54 a.m. EDT on Wednesday. The big gain came after the gene-sequencing systems maker announced a public stock offering of more than 19.4 million shares on Tuesday.

So what

Ordinarily, secondary stock offerings cause a company's shares to fall. That makes sense, considering that more shares on the market dilute the value of existing shares. So why did PacBio's shares soar instead of sink?

Image of a DNA double helix over an outstretched palm

Image source: Getty Images.

The main reason is that PacBio priced its stock offering at $4.47 per share. That's the exact level where the healthcare stock closed on Tuesday. Usually, stock offerings are priced significantly below the current trading price of shares. PacBio's offering price underscores the company's confidence that investors will want to scoop up shares despite the dilution caused by the secondary offering.

PacBio expects to generate gross proceeds of around $86.9 million from the offering. The additional money raised will be used for product launches, research and development, commercial infrastructure expansion, and other general corporate purposes. In addition, the company stated that it could use some of the net proceeds to make acquisitions.

Now what

The company's stock offering is expected to close soon -- on or around Aug. 14, 2020. Investors are also looking forward to Sept. 30, 2020. That's when all contingency clauses are expected to lapse related to the $98 million cash that PacBio received from Illumina as a reverse termination fee with the failed merger between the companies. After that point, PacBio can record the amount as income instead of a short-term liability.

With additional cash in its coffers plus a new CEO (board member Christian Henry), PacBio just might be on course for yet another big deal in the near future.

Keith Speights owns shares of Illumina. The Motley Fool owns shares of and recommends Illumina. The Motley Fool has a disclosure policy.

Stocks Mentioned

Pacific Biosciences of California Stock Quote
Pacific Biosciences of California
$11.13 (3.54%) $0.38
Illumina Stock Quote
$219.94 (0.85%) $1.86

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