A rate secondary offering with no discount gives investors the confidence to hit the buy button.
What happened
Shares of Verastem (NASDAQ:VSTM) are up 16% in late-day trading on Friday after the company announced yesterday after the bell that it was selling 7,166,666 shares at $6 per share, grossing the biotech approximately $43 million.
So what
Share prices typically — though clearly not always — go down after a secondary offering is announced, since current investors are being diluted; with the added shares sold in the offering, each current share now corresponds to a smaller slice of the overall pie. The investors buying the secondary offering also usually want a discount to the current share price, which pushes the following-day opening price down as well.
That’s what happened when Verastem raised capital through a secondary offering just last month.
Oh, what a difference a month makes.
This time, the $6 price of the secondary offering was actually slightly higher than the $5.58 shares closed at yesterday. Investors buying the offering clearly saw value at that price and were willing to pay up for the ability to get a large block of shares. Buyers today seem to have decided that if the price is good enough for the large institutional investors who typically buy secondary offerings, it’s good enough for them.
The higher price and increased confidence, compared to last month’s offering, likely comes from data from crossover patients presented at the American Society of Clinical Oncology (ASCO) meeting. Verastem had already shown that its lead drug duvelisib was better than Novartis’ (NYSE:NVS) Arzerra at treating patients with chronic lymphocytic leukemia or small lymphocytic lymphoma. But new data at ASCO showed that the patients who progressed after receiving Arzerra, and were then treated with duvelisib, had an overall response rate of 73%; that’s not bad, considering only 28% of those patients responded to Arzerra during their initial treatment in the trial.
Now what
Verastem has already submitted a marketing application for duvelisib to the Food and Drug Administration, which has a goal of making a decision by Oct. 5, 2018. Considering the substantial benefit duvelisib provides, it’s certainly possible we’ll see an early decision from the agency.
Whenever an approval happens, all that capital will come in handy paying for the launch.
