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Why Arena Pharmaceuticals Stock Is Getting Hammered Today

What happened

Shares of Arena Pharmaceuticals (NASDAQ: ARNA  ) , a small cap biotech, are down by more than 16% right Tuesday morning as the result of a $69 million public offering that was announced prior to the opening bell. According to the press release, the company also granted the underwriters a 30‑day option to purchase another 9 million shares of common stock.

A prescription bottle on top of some medical documents.

Image source: Getty Images.

So what

While it's never a great idea to tap the public markets for funds when your share price is dangerously close to the Nasdaq minimum bid of $1 per share, Arena didn't have much choice in this case. The company, after all, is facing a likely spike in its quarterly burn rate after deciding to pivot toward its clinical pipeline of early- to mid-stage candidates and move on from its first commercial product, Belviq. Compounding matters, Arena only had about $90 million in cash remaining, according to its last stated cash position.

Now what

Arena's strategy is to try to advance its experimental pulmonary arterial hypertension (PAH) drug, ralinepag, into a late-stage trial in an expedited manner. To do so, the drug needs to hit the mark in its ongoing mid-stage trial that's scheduled to produce a top-line data readout by mid-year. That said, ralinepag's value proposition ultimately revolves around it becoming a so-called "best-in-class" medicine within a rapidly maturing PAH market.

As that's a particularly tall order, especially for a company with rather limited resources like Arena, and investors may want to be extra cautious with this highly volatile biotech stock. That's not to say ralinepag -- or any of the biotech's other clinical candidates -- won't eventually strike gold in their clinical programs, but Arena doesn't have much room left for error at this point. 

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4/28/2017 4:00 PM
ARNA $1.34 Down -0.04 -2.90%
Arena Pharmaceutic… CAPS Rating: **

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