Novavax (NVAX) Feels the Heat of Share Dilution

Shares of Novavax (NASDAQ:NVAX), a clinical-stage biotechnology company committed to delivering novel products to prevent infectious diseases, tumbled nearly 17% during Thursday’s pre-market trading. The culprit? Look no further than the announcement of a registered direct share offering.

The company’s shares are responding negatively to a planned public offering of 30.3 shares of common stock for a purchase price of $1.65 a share. Additionally, Novavax has granted the underwriters a 30-day option to purchase up to an additional 4,545,457 shares of its common stock. If the underwriters exercise this option in full, Novavax will have sold 34,848,507 shares of its common stock.

The main reason Novavax’s shares are tanking is because the offering comes at a 21% discount relative to the stock’s closing price yesterday. In other words, the company probably had to price the offering at a substantial discount simply to entice investors.

In addition, added to its current 323.23 million shares outstanding, this offering promises to dilute existing shareholders by at least 9%.

That said, the cash raise will give the company about 50 million in cash on its balance sheet (before deducting the underwriting discounts and offering expenses), which should be enough capital to fund its “working capital, capital expenditures, research and development expenditures related to its clinical and preclinical vaccine candidates, clinical trial expenditures, as well as acquisitions and other strategic purposes.”

The offering is expected to close on or about April 16, 2018, subject to the satisfaction of customary closing conditions.

If we turn to the Street in general, we can see that Novavax stock has a Buy analyst consensus rating. In the last three months, NVAX has received 4 buy, 3 hold and 1 sell ratings. These analysts have an average price target on the stock of $4.42, which suggests a potential upside of 112.5% from yesterday’s closing price. 

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