Why Sarepta Deserves Praise for Capital Raise Despite Stock Drop

Sarepta announced that it has priced an underwritten public offering of an aggregate of 3.25 million shares of its common stock at a price to the public of $39.00 per share, with an overallotment option for an additional 487,500 shares. The entire offering is valued up to $145.76 million and is expected to close on or about October 9, subject to customary closing conditions.

It appears as though Sarepta may be getting some interesting analyst coverage as well out of the deal. Sarepta’s underwriters for the offering are Credit Suisse, Morgan Stanley, Needham, Oppenheimer, Baird, Roth Capital Partners and William Blair.

The company said in its press release that it intends to use the net proceeds from the offering principally for product and commercial development, manufacturing, any business development activities and for general corporate purposes.

ALSO READ: 3 Biotech Stocks Loved by Portfolio Managers Now

Over the course of 2015, Sarepta has absolutely blown the broad markets out of the water, with its stock up nearly 190% year to date. The stock has a 52-week trading range of $11.33 to $41.97. So basically, in 2015 shares have nearly tripled to a 52-week high.

Just below this price level is where Sarepta is staging its secondary offering. It is worth noting that it is Sarepta offering these shares, not any selling stockholders. Despite diluting shareholder value slightly, this company should be commended for bolstering its finances and only diluting shareholders and increasing the free float after such a monumental move in its share price has taken place.

It is very possible that Sarepta’s capital raise could be a catalyst that could create at least somewhat of a price ceiling for the stock in the near term. After all, it is opportunistic to raise capital, and sometimes capital raises in biotech and other sectors can act to put in a cap. Still, for the long haul, this seems on the surface like a situation in which the benefits outweigh the downside.

Another thought here is that Sarepta might be taking a step back itself and capitalizing on its massive success in 2015. After other companies with biotech exposure have seen their shares gutted over pricing and political risk (on top of valuations), raising some cash after a massive run just seems like a smart move by its management.

Shares of Sarepta were down 9.3% to $37.90 on Tuesday morning. The stock has a consensus analyst price target of $41.00 and a market cap of roughly $1.6 billion.

ALSO READ: 5 Big FDA Decisions Expected in October