Shares of Aurinia Pharmaceuticals Inc (NASDAQ:AUPH) fell nearly 5% in after-hours trading Thursday after it notified the SEC and shareholders that it would be able to sell up to $250 million in newly issued common stock as needed over a specified amount of time. This new “shelf registration,” as it’s called, replaced the previous registration that spanned the prior 25 months.
Why shares are falling? Investors never like to hear that a company could take actions that result in possible dilution. That’s especially true for a company of Aurinia’s size and operational fitness: It has a relatively small $450 million market cap and doesn’t generate any revenue. If all shares under the new shelf registration are sold, it would result in significant dilution — 60%.
Actually, Aurinia issued new shares during the first quarter of 2017 that resulted in substantial dilution. Without any commercial products to speak of, investors may need to get used to dilutive funding for the foreseeable future.
These types of filings aren’t uncommon for preclinical pharma companies. The ability to fund operations with share offerings is actually one of the main reasons to become a publicly traded company in the first place. The silver lining, if there is one, is that Aurinia does appear to be making headway within its pipeline. But today’s move serves as a reminder that obtaining the necessary capital to fund development won’t always be done in a shareholder-friendly manner.
On the ratings front, Aurinia has been the subject of a number of recent research reports. In a report issued on November 17, Canaccord analyst Neil Maruoka maintained a Buy rating on AUPH, with a price target of $10.50, which represents a potential upside of 100% from where the stock is currently trading. On November 15, H.C. Wainwright’s Ed Arce assigned a Buy rating to the stock and has a price target of $12.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Neil Maruoka and Ed Arce have a yearly average return of 14.6% and 26.1% respectively. Maruoka has a success rate of 36% and is ranked #534 out of 4750 analysts, while Arce has a success rate of 50% and is ranked #155.
Aurinia Pharmaceuticals operates as a clinical stage pharmaceutical company, which engages in the development of a therapeutic drug to treat autoimmune diseases particularly lupus nephritis.