Shares of dermatology biopharma Dermira (NASDAQ: DERM) dropped nearly 19% this morning after the company announced plans to offer $250 million in convertible senior notes. The offering includes a customary overallotment option that could increase the total offering by $37.5 million. The news comes one day after the release of first-quarter 2017 financial results, and it has pushed shares to a new 52-week low.
The proposed offering marks the first time the company has raised debt financing in its history. As of 11:25 am EDT, the stock had settled to a 18.3% loss.
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While tainting a pure balance sheet could be viewed as a step in the wrong direction, investors appear to be grossly overreacting to the news. Sure, Dermira ended March with $415 million in cash and cash equivalents, which represented nearly one-third of its market cap before today's drop. So why raise even more funds?
The pre-revenue biopharma successfully completed phase 3 trials for its two leading drug candidates in recent months: Cimzia for treating moderate-to-severe plaque psoriasis, and glycopyrronium tosylate for the treatment of axillary hyperhidrosis. Marketing applications will be filed for the former in the third quarter of this year by development partner UCB in the United States, Canada, and Europe. Dermira also expects to submit a New Drug Application for the latter in the second half of 2017.
In addition, the company has a third drug candidate in phase 3 trials for treating acne. While the drug pipeline is a little sparse after that -- with no drug candidates outside of early development studies -- the additional funding announced today will go a long way to launching up to two new products and, possibly, expanding the pipeline through acquisitions or expedited development.
Today's announcement of a $250 million debt offering may have caught investors off guard, especially considering the sizable cash holdings at the end of March, but it leaves the company with a formidable war chest. That should serve Dermira and investors well in both the near term and the long term, as it launches new products and bolsters its drug-development pipeline.
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