Here's Why Momenta Pharmaceuticals Jumped 18% on Friday
What happened
Shares of Momenta Pharmaceuticals (NASDAQ: MNTA) closed up 18% on Friday, following Thursday's announcement after the bell that the biotech is selling about 17.4 million shares at $11.50 per share in a secondary offering.
So what
The offering is below Thursday's closing price of $12.08, which would typically send shares down, not up. The unusual activity is likely because Momenta Pharmaceuticals had originally planned to raise $150 million but actually ended up selling enough shares to raise $200 million, suggesting there's interest in the biotech from large funds that tend to buy secondary offerings. Some of them might have even been buying today if they weren't allotted as many shares as they were hoping for.
Momenta could raise another $30 million if the underwriter exercises its 30-day option to purchase additional shares, which would be a shoo-in if shares remain this high. All told, the capital will almost double the $281.6 million that Momenta had in the bank at the end of the third quarter.
Image source: Getty Images.
Now what
A few years ago, raising this much additional capital wasn't in the cards. Momenta's generic version of Teva Pharmaceutical's three-times-weekly Copaxone was supposed to fund the company's clinical pipeline. But Mylan (NASDAQ: MYL) beat Momenta to market, which resulted in a lower drug price once Momenta was approved, as well as a decreased market share.
Management licked its wounds and decided to cut its workforce by 50%, focusing on its pipeline of drugs to treat immune-mediated disorders. The added capital will help the company get those drugs closer to market.
The cash also puts Momenta in a better bargaining position as it looks for a partner for M923, its biosimilar of AbbVie's Humira. Without an immediate need for cash, Momenta doesn't need to accept a low-ball offer since the drug can't be launched in the U.S. until 2023 due to a settlement with AbbVie.
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Brian Orelli has no position in any of the stocks mentioned. The Motley Fool recommends Momenta Pharmaceuticals and Mylan. The Motley Fool has a disclosure policy.
