Just a few dollars away from rekindling a budding recovery effort, shares of biotechnology outfit CRISPR Therapeutics (CRSP 2.04%) were instead upended today. As of 3:21 p.m. ET Tuesday this stock is down just over 12% on news that the organization is not only taking on new debt, but is doing so in a way that could eventually dilute the value of existing shareholders' stakes.
Fundraising hurts
Biotech start-up CRISPR Therapeutics made the announcement this morning. That is, it intends to sell $350 million worth of convertible notes to raise funds for "general corporate purposes." The notes in question will mature in early 2031, if they're not redeemed, repurchased, or converted into new shares of common stock in the meantime. The accredited buyer(s) also have the option to purchase an additional $52.5 million worth of this convertible debt.
NASDAQ: CRSP
Key Data Points
For perspective, CRISPR's current market cap stands at $5.0 billion, and as of the end of last year the company had $347.6 million in cash and cash-equivalents at its disposal. Its total liabilities were also $343.4 million, however, $149 million of which were current liabilities. The young biotech outfit also burned through $345 million in cash last year funding the continued development of its drug portfolio and pipeline, which is largely based on its gene-editing know-how.
Not much actually changes
There's nothing particularly surprising about the market's bearish response to the news, which measurably hurts the stock's net value by about as much as today's 12% setback implies. But, there's nothing especially unusual about a start-up raising fresh capital either.
And this is very true of young biotech companies, which typically must spend a great deal of money to develop a breakthrough treatment; it can be well worth it in the end. That's likely to be the case for CRISPR Therapeutics anyway, which is one of the few outfits in the biotech business to successfully develop and win an approval for any gene therapy. Even more are in the works as well, with five other clinical trials underway by CRISPR at this time.
More to the point for interested investors, although the setback isn't a reason in and of itself to step into this high-risk/high-reward prospect, if you were mulling a position before today, Tuesday's news doesn't squash the bullish argument. It actually opens the window of opportunity a little wider... for a while anyway.
This might help drive the point home: Prior to today's news, analysts' consensus price target for CRSP was $81.21, which is more than 50% above the stock's present price. Knowing it was likely coming sooner or later, this issuance of new -- and potentially dilutive -- debt isn't apt to change this broad bullish stance. It was probably already factored in.
