When Brentwood biotech firm CytRx Corp. announced last week that it would seek to raise about $25 million in a public offering, the news took a big bite out of the company’s market cap. Especially when it revealed the pricing: $2.75 a share, a steep discount for a stock that’s traded above $3.50 for the last three months.
Shares fell 4.3 percent July 20, the day the offering was announced, then sank 20 percent the following day when the pricing was revealed. Overall, the stock fell 30 percent for the week, closing at $2.83 and making it the biggest loser on the LABJ Stock Index. (See page 38.)
Beyond the lower-than-market price for the new stock, such a tumble can happen for a number of reasons, according to an analyst who declined to be identified because he does not cover the company. Shareholders could be upset that their stake will be diluted or they might think the company is raising money for something with more risk than they are willing to bear.
But ultimately it comes down to a company’s management, the analyst added, and whether their behavior meets investor expectations. Though it’s common for biotech firms to require fundraising, companies must convince investors they’re generating value.
CytRx, which specializes in the development of oncology therapies, said it plans to use proceeds from the offering for drug discovery; general corporate purposes; and to fund clinical trials of drug candidate aldoxorubicin, which binds to popular chemotherapy drug doxorubicin, aiming to improve that therapy while minimizing its side effects.
The firm has raised capital through public offerings every year since 2011 and they haven’t always happened in the best conditions.
In October 2013, CytRx completed a $25.9 million public offering, issuing 11.5 million shares of stock at $2.25 a share in the midst of one of the biotech industry’s biggest sell-offs in years, spurred by spooked investors watching an unfolding government shutdown.
Aldoxorubicin’s fortunes, too, have taken CytRx on a bit of a roller coaster over the past year. In November, the Food and Drug Administration placed a hold on enrolling patients in trials for the drug after the death of a late-stage cancer patient who had not qualified for clinical trials but ultimately received aldoxorubicin under the firm’s compassionate-use program.
The hold was lifted in January, and the company also reported positive results from both a study of the drug for a form of brain cancer and a separate study for HIV-related skin cancer.
Last year, the firm brought in just $100,000 in licensing revenue and took a net loss of $30.1 million, mostly due to research and development expenses. CytRx representatives did not immediately return requests for comment, but indicated earlier this week they’d declined to be interviewed until after the offering closes, which was expected July 24.
