After the company announced a convertible debt offering, shares of Alder Biopharmaceuticals (NASDAQ: ALDR), a clinical-stage biopharma focused on migraines, fell as much as 12% in afternoon trading on Monday. As of 3:20 p.m. EST, shares were down by 8%.
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Alder announced its intentions to sell up to $200 million of convertible notes due in 2025. The underwriters of the deal will also be granted an option to purchase an additional $30 million worth of convertible debt to cover overallotments. The purchasers of the debt will have the option to convert the notes into shares of common stock if they choose.
The terms of the debt are not yet finalized, and will be released once they are available.
Alder's management team stated that the capital will be used to fund the development of eptinezumab -- the company's lead compound, designed to prevent migraines -- and support commercialization should it win approval.
Traders appear to be less than thrilled with the news that yet another capital raise is necessary. After all, this company just reported that it held more than $340 million in cash as of the end of September.
Alder set fire to $234 million in capital in the first nine months of 2017 alone, so it isn't all that shocking to see that the company is looking to pad its bank account yet again. What's more, the company's spending rates will likely remain elevated as it prepares for eptinezumab's eventual commercialization. There's still some waiting to do on that front, though, because the drug isn't expected to be sent off for approval until the second half of 2018.
If eptinezumab finds its way to market, the company will also have other expenses to look forward to. Alder recently resolved a long-standing dispute with Teva Pharmaceuticals (NYSE: TEVA) surrounding the drug. The deal called for Alder to make a $25 million payment to Teva in January; another $25 million will be owed should eptinezumab win approval from the Food and Drug Administration. Another $75 million (each time) would later be payable if eptinezumab's annual sales eclipsed $1 billion or $2 billion. The company is also on the hook for royalties worth 5% to 7% of net sales.
In sum, investors should expect money to continue pouring out of Alder's bank account for the foreseeable future. That might be an acceptable outcome if eptinezumab wins approval and goes on to become a blockbuster, but that's still an unknown at this point.
Overall, eptinezumab could be a promising drug, but I'm not a big fan of Alder's huge spending levels or its financial connection to Teva. Since I think there are far better biotech stocks on the market to buy, I'll pass on today's opportunity to pick up Alder's shares at a discount.
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