Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares in Coherus BioSciences (NASDAQ:CHRS) tumbled by as much as 10% today after the company priced a dilutive equity offering at $29 per share.
So What: According to the Tufts Center for the Study of Drug Development, it costs $1.4 billion to develop a new drug, so it's not too surprising to see a clinical stage drug developer like Coherus tap equity markets for funding.
Overall, Coherus is offering 4,137,931 shares of common stock, which should generate gross proceeds of $120 million.
The company has also allotted an additional 620,689 shares to an overallotment program, which could increase the amount of money that Coherus raises in the offering.
If the offering goes off as planned, it will significantly increase the company's cash stockpile. Thanks to its IPO last November, Coherus had $150.4 million on the books exiting December.
Now What: The money will give Coherus additional financial flexibility that it can use to advance its biosimilars research program.
Currently, the company is evaluating a host of biosimilar candidates, including biosimilar alternatives to Amgen's top-selling Neulasta and AbbVie's top-selling Humira. The company's ongoing phase 3 trial of Neulasta could result in an FDA filing for approval either later this year or early next year. Meanwhile, its research into a biosimilar to Humira could lead to an FDA filing in the second half of 2016. Coherus is also evaluating other biosimilar candidates in pre-clinical studies, so this influx of cash could help support moving one or two of them into the clinic too.
As a result, despite this offering diluting existing investors, Coherus is a stock to watch. The FDA approved the first biosimilar earlier this year, and expectations are that many more approvals will follow. That has analysts thinking that the biosimilar market could be worth $20 billion or more in the coming years.
Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.