Why Tetraphase Pharmaceuticals Fell 11.7% Today

What happened

After reporting positive trial results for its lead product candidate on July 25, Tetraphase Pharmaceuticals (NASDAQ: TTPH) announced a $60 million share offering today that will dilute investors, and that caused shares to tumble 11.7%.

So what

Perhaps, one of the few certainties in clinical-stage biopharma is that when share prices spike due to positive trial results, it will lead to management selling shares to raise more money.

That's precisely what's happening at Tetraphase Pharmaceuticals.

Earlier this week, shares soared after management reported that its IV eravacycline was as effective as meropenem in patients with complicated intra-abdominal infections during phase 3 trials. The news clears the way for an application for EU approval this quarter and an application for U.S. approval in early 2018.

Unsurprisingly, management followed up that good news with word after the closing bell yesterday that it's going to sell $60 million of stock to firm up its balance sheet. It also plans to offer an additional $9 million in stock as part of an overallotment program.

Now what

Doctors want new antibiotics they can use interchangeably with existing antibiotics to reduce the emergence of resistant bacteria. Given the big unmet need for these new choices, I think there's a good shot Tetraphase Pharmaceuticals gets across the regulatory goal line.

Management hasn't said how it will spend the new windfall, but usually offerings like this provide financing that supports hiring ahead of potential commercialization. Exiting March, Tetraphase Technology's had $128 million in cash, or enough to operate into the second half of 2018, according to management. Assuming this new offering goes off without a hitch, then the company will be in an even better position to execute on its strategy, including pre-commercialization efforts in complicated abdominal infections and ongoing phase 3 studies in complicated urinary tract infections.

It remains to be seen how much money an approval of this antibiotic could generate in sales per year for Tetraphase Pharmaceuticals, but Allergan's Avycaz won approval in these indications in 2015, and in the first quarter of 2017, its sales were $11.3 million, up 34% year over year.

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Todd Campbell has no position in any stocks mentioned. His clients may have positions in the companies mentioned.  The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.