What happened
Shares of LumiraDx (LMDX -7.41%) were crashing 19.9% lower as of 11:28 a.m. ET on Thursday. The steep decline came after the point-of-care diagnostics company announced the pricing of a public offering of 43 million shares at $1.75 each.
So what
LumiraDx currently has around 207.5 million outstanding shares. The issuance of 43 million new shares will dilute the value of those existing shares by nearly 21%. The stock fell by only 13% in the two days after the company first announced its public offering on Tuesday.
At that time, LumiraDx indicated that it would only issue 40 million new shares. Also, investors didn't know the share price of the offering would be $1.75. This amount is more than 29% below LumiraDx's share price as of the market close on Monday. It's not surprising that the stock is falling even more today.
The dilution could be even worse, though. LumiraDx is giving underwriters a 30-day option to buy an additional 6.45 million shares at $1.75 per share.
Such stock offerings are often a necessary evil for small companies. While they cause a temporary decline in the stock price, they also provide much-needed cash. In this case, LumiraDx expects to use the proceeds generated from the offering for purposes including research and development, business development, and sales and marketing.
Now what
LumiraDx plans to soon file for a CE mark in Europe for its Ultra test for COVID-19. This test provides high-sensitivity results within five minutes. The potential for another coronavirus surge in the fall and winter could boost the company's sales.