What happened

Shares of the clinical-stage biopharma Cassava Sciences (NASDAQ:SAVA) dropped by a whopping 18.5% in after-hours trading Thursday. The drugmaker's stock hit the skids yesterday following the announcement of an underwritten public offering.

While the details of the offering have yet to be released, Cassava said that the funds would be used to fund a late-stage trial of its Alzheimer's disease drug candidate sumifilam, along with general corporate purposes. A preliminary prospectus supplement laying out the all-important details should be available soon. 

Image of a nerve cell.

Image source: Getty Images.

So what

Shareholders rarely take kindly to public offerings. In this case, however, Cassava may be doing shareholders a real solid. The long and short of it is the company simply didn't have the funds to advance sumifilam into a late-stage trial. In the most recent quarter, after all, Cassava revealed that it was down to a paltry $24.1 million in cash and cash equivalents. A pivotal stage-trial for an Alzheimer's disease drug, by contrast, can easily cost hundreds of millions to carry out.

Now what

Shareholders, for their part, were probably hoping for a licensing deal or a straight up buyout in lieu of a capital raise. The reality, though, is that Cassava would have been negotiating from a position of weakness in either case. It wasn't a secret that the biopharma was essentially broke, after all. So, in short, this public offering is a undoubtedly a necessary move on the part of Cassava's management. Shareholders, therefore, arguably shouldn't overreact to this much-needed capital raise.   

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