When a publicly traded company decides to raise money through a secondary offering, it should give you pause. Not all secondary offerings raise red flags in biotech and pharmaceutical stocks. Some companies need capital to operate like any other business. However, when a company goes back to the well time after time with secondary offerings, you may want to shy away from the stock.
Secondary offerings are the issuance of new shares of stock after a company has conducted its initial public offering (IPO). Companies generally conduct secondary offerings to raise capital. If a biotech or pharmaceutical company has a history of multiple secondary offerings, it may mean that its research and development for some treatments have failed. The company was burning cash for clinical trials, which may have been the reason for multiple secondary offerings. The extra shares dilute the stock, which can be detrimental to shareholder value.
If a company has some treatments currently being marketed because it could use earnings generated from those treatments to fund clinical trials. Therefore, if it’s conducting secondary offerings, that could be a red flag.
To see whether a company is issuing a secondary offering, analyze its SEC Form S-3 filing. Check out a snippet of InsmpireMD’s (NSPR) SEC Form S-3 filing.
Secondary offerings could indicate the company is diluting the stock. That’s always dangerous to an investor. If you examine the company’s SEC filings and notice multiple secondary offerings, consider whether they change your opinion on the stock. It’s possible that you might want to wait until after any offering has passed before you consider playing it.
Kyle Dennis runs Kyle Dennis’ Biotech Breakouts (biotechbreakouts.com). He is an event-based trader, who prefers low-priced and small-cap biotech stocks.
Bull or Bear Market….It Doesn’t Matter
Kyle Dennis’ new, 5 min strategy is poised to double account sizes weekly! “I got out of GE trade at 379% $0.16-$0.77, thanks Kyle!” Said client Lance P. Check out the free training that started it all. (View Free Training)
SuperNova Service Leading Clients to 5-Figure Profits Consistently
“BOOM!!! Booked another $13,985 in profits on my long position $VMNGF. Great report came out premarket. Thanks Jeff at SuperNova for teaching me to make $$$ in the market.” Said Todd V. Jeff Williams is helping transform small accounts daily. Don’t miss his free walkthrough. (Watch Now)
Jeff Bishop, RagingBull.com Co-Founder, “Trading My Strategy Takes A Few Minutes a Day!”
“Jeff, I have to say I was a little gun shy, but I bought the lifetime service (to Bullseye Trades) Friday night. First trade with your service…in LULU, 205 Calls at $4.70. (I) was going to be away from all internet connections for the next 3 days. It hit my sell price at $6.25 ;)” said James W. (Read More)