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Why SQZ Biotechnologies Sank on Friday

By Eric Volkman - Feb 12, 2021 at 7:16PM

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The cell-squeezing specialist priced a new stock issue.

What happened

SQZ Biotechnologies (SQZ 5.94%) fell by nearly 16% on Friday following the company's announcement of a new funding round.

So what

SQZ (pronounced "squeeze") is issuing 3 million new shares of common stock in an underwritten public offering that was priced Friday at $20 per share. This is below the company's $22 per share closing price on Thursday.

As is customary in secondary stock flotations, SQZ's underwriters have been granted a 30-day option to purchase extra stock. In this case, they can buy up to 450,000 shares.

Two people working in a medical laboratory.

Image source: Getty Images.

The issue is rather dilutive. At the moment, according to data compiled by Yahoo! Finance, small biotech SQZ has just over 24.7 million shares outstanding, so the new issue will increase that count by as much as 3.45 million, for dilution of almost 14%. No shareholder likes when dilution creeps into the double-digit range.

In its prospectus on the stock issue, SQZ wrote that it will use its net proceeds, in combination with existing financial resources, to bolster the development of pipeline drugs connected to its proprietary microfluidic cell-modification chip.

Now what

SQZ is an intriguing and unique biotech company. Its chip allows it to squeeze a cell in order to open holes in its membrane. This allows the company to infuse it with material such as antigens to help fight disease. This is certainly technology to keep an eye on, and believers in its potential shouldn't be dissuaded by the new stock issue's dilution.

 

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