Nuvalent(NASDAQ: NUVL) is making hay while the sun shines, but investors are feeling a bit of a sunburn. The clinical-stage biotech announced a relatively large secondary share issue Monday night, and the market reacted by trading down the stock sharply Tuesday. It fell by over 8%, on a day when the S&P 500 index was more or less stagnant.
Nuvalent is about to float more than 5 million new shares
All told, Nuvalent will float just over 5.3 million shares of its Class A common stock in an underwritten public offering. The shares are priced at $56.
The cancer-focused biotech said that the underwriting syndicate, which is led by companies including Wedbush Securities, BMO Capital Markets, and Piper Sandler, has been granted a 30-day option to purchase more stock. Collectively, those companies will be able to buy another 803,571 shares.
In the prospectus accompanying the announcement, Nuvalent said it will use its share of the proceeds "primarily for general corporate purposes." Among other things, the company said that these might include acquisitions, the funding of clinical trials, and research and development.
The offering is slated to close this Thursday, Oct. 19.
A dilution solution
In any secondary share issue, investors are typically concerned about dilution: The more stock a company has on the market, the lower the per-share profitability.
Dilution is relatively high for Nuvalent's issue, as according to Yahoo! Finance, the company has slightly under 51.6 million shares outstanding. Assuming the underwriters exercise their option in full, the stock would be diluted by roughly 12% following the issue.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
