What happened

Lexicon Pharmaceuticals (NASDAQ:LXRX) ended Friday 6% lower than the previous close. A fall seemed inevitable, as the company announced a rather dilutive new secondary common stock issue at a level below the shares' Thursday closing price.

So what

Lexicon, a biotech focused on developing drugs underpinned by extensive gene research, said it will float just over 20.3 million new shares in a registered direct offering to three privately held entities. The price is $3.20 apiece. All told, if successful the gross proceeds of the issue will be $65 million.

A researcher working on a lab sample.

Image source: Getty Images.

The placement agent is Citigroup Global Markets, and the issue is expected to close on or about next Wednesday, Dec. 16.

In its announcement, Lexicon did not specify how it would utilize its share of the proceeds -- perhaps one reason why investors sold off the stock. Another more obvious inducement to sell is the high level of shareholder dilution that will occur with this new issue. At the moment, the company's market capitalization is a shade above $373 million, so swelling that by $65 million is going to have an impact.

Now what

As Lexicon is a biotech with a small clutch of pipeline drugs aimed at treating ailments such as diabetes and heart afflictions, it will surely use the funds to maintain or expand those programs in some way. The company has provided little detail, however, and that uncertainty seems to be adding to negative sentiment on the stock.

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