What: Shares of CTI BioPharma (NASDAQ:CTIC), a small-cap biotech focused on the development of medicines to treat cancer, tumbled as much as 32% after the company announced a convertible preferred stock offering.

So what: Following a lengthy halt of CTI's stock that was only released by mid-afternoon, the company announced that it was pricing $55 million worth of convertible preferred stock. In total, 55,000 shares of preferred stock is being offered to the public at a convertible price of $1.10 per share. If all shares were converted, it would increase CTI's outstanding share count by 50 million.

The concern with convertible stock offerings is the potential for share dilution. If preferred shareholders convert their shares to common stock, it dilutes the value of shares currently held by investors.

Image source: CTI BioPharma.

Now what: The push to raise cash shouldn't come as a huge surprise to Wall Street or CTI BioPharma's shareholders. CTI BioPharma has an accumulated deficit since inception that's more than $2 billion, and its only approved product, Pixuvri, which is on pharmacy shelves in Europe as a treatment for multiply relapsed aggressive B-cell non-Hodgkin lymphoma, has brought in only $4.8 million in sales year to date.

The way that CTI BioPharma has typically funded its business has been through stock offerings -- many, many stock offerings. Since the end of 2010, CTI's outstanding share count has jumped by 600% -- and it could rise even further now with its convertible offering.

Put plainly, CTI ended the latest quarter with $46.4 million in cash and cash equivalents, and has burned through $69 million in operating cash flow during the trailing 12-month period. This is a move that needed to be done for CTI's sake. But just because CTI now has cash to likely make it through 2016 doesn't necessarily make the company investment worthy.

Pixuvri sales have been dismal, and pacritinib, the company's experimental JAK2 inhibitor, could prove obsolete if Geron's imetelstat continues to dazzle in clinical trials for myelofibrosis, a rare form of bone marrow cancer. I'd suggest keeping your distance from CTI BioPharma.

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