What happened

Shares of Athersys (NASDAQ:ATHX) tumbled nearly 28% today after the company announced the pricing of a public offering of common stock. The development-stage drug company will offer up to 25.6 million shares of common stock at $2.25 per share. If all shares are purchased, then the business will raise $57.5 million in gross proceeds. 

Management is wisely taking advantage of a soaring stock price, which had more than tripled from the beginning of the year through the end of March. That allowed Athersys to raise money and limit dilution, although the offering could increase the outstanding share count by roughly 17%.

As of 11:57 a.m. EDT on Thursday, the small-cap stock had settled to a 23.5% loss.

A steadily ascending chart that shows a sudden decline.

Image source: Getty Images.

So what

Athersys has been developing stem cell therapies for over a decade. While it hasn't successfully commercialized any of its drug candidates, the company has pounced on the needs created by the coronavirus pandemic.

One of the company's clinical trials is in acute respiratory distress syndrome (ARDS), which is the main health burden caused by COVID-19. Specifically, Athersys is evaluating whether its stem cell product, MultiStem, can help ARDS patients to avoid being put on a ventilator, reduce the number of days on a ventilator, and improve health outcomes over 28 days and one year post-treatment. 

The program was underway before the coronavirus pandemic struck, but there's a new sense of urgency to advance it. Athersys received permission from the Food and Drug Administration to move the program into a pivotal phase 2/3 study during the second quarter of 2020 and enroll COVID-19 patients with ARDS. 

Now what

Investors need to be very cautious. Athersys has never commercialized a pipeline asset. And although there's potential to treat ARDS, including in COVID-19 patients, the results for MultiStem published to date were collected from a phase 2a study that wasn't even designed to deliver statistically significant data. The stock offering will help to fund the business for another year or so and speed up the program in ARDS, but investors shouldn't get too carried away with this unproven company.