Singapore Markets closed

Why Gritstone Oncology Stock Is Sinking Today

Keith Speights, The Motley Fool

What happened

Shares of Gritstone Oncology (NASDAQ: GRTS) were sinking by 12.9% as of 11:04 a.m. EDT on Thursday. The clinical-stage biotech announced yesterday the pricing of a public offering of 6.5 million shares of its stock at $11.50 per share.

So what

There were two reasons why Gritstone's secondary stock offering weighed on its share price today.

Gloved hands holding lab glassware with other test tubes and droppers in view.

Image source: Getty Images.

First, the price tag of that offering was 6.5% lower than the stock's closing price on Wednesday. Anytime a company announces that it's going to sell shares at a lower price than the current market price, you can count on the share price dropping.

Second, there's the dilution in the value of existing shares caused by Gritstone's stock offering. The biotech will soon have 6.5 million more shares in circulation. That's roughly 22% of Gritstone's total current outstanding shares.

The good news from the transaction, though, is that Gritstone will raise $74.8 million in additional capital before expenses are deducted. Gritstone reported cash, cash equivalents, and marketable securities totaling $153.1 million as of Dec. 31, 2018. With the biotech burning through around $18 million each quarter and its operating expenses rising, it made sense that Gritstone would seek an opportunity to boost its cash stockpile.

Now what

With more cash on hand, Gritstone Oncology should be well positioned to continue advancing the experimental immunotherapies in its pipeline. The company expects to begin a phase 1 clinical study evaluating SLATE-001, an "off-the-shelf" immunotherapy, in the second half of this year. Gritstone also anticipates reporting preliminary data from the phase 1a part of its clinical trial of GRANITE-001 personalized immunotherapy in the fourth quarter of 2019.

More From The Motley Fool

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.