Why relay therapy is down nearly 14% today

Relay therapy (RLAY -13.83%)one of a group of biotech companies developing treatments in the broad and potentially lucrative oncology field, did not have a good day in the stock market on Wednesday. This followed the latest news about the biotech company’s upcoming secondary share issue, which many investors consider to be unacceptably dilutive. On the news, Relay shares ended the day nearly 14% lower, in contrast to the 1%-plus gain of S&P 500 index that day.

A $200 million move

Relay initially announced on Monday that it wanted to raise $200 million in gross proceeds from a new offering of its common stock. After market hours the next day, it provided more details, stating that the issue would be almost 28.6 million shares. They were priced at $7 per share, which is down considerably from recent highs.

Underwriters of the show, which is run by Goldman SachsTD Cowen, Stifeland Bank of America The securities were granted a 30-day option to collectively purchase nearly 4.3 million additional shares.

In total, Relay expects the net proceeds from the flotation to total approximately $189.5 million. He did not specify how he would use the funds. The issue should end on Thursday, September 12th.

Singing the dilution blues

Before the issue, Relay had just under 134 million shares outstanding, according to data compiled by Yahoo! Finance. That means the new issue is at least 21% dilutive to existing shareholders, which is a relatively high figure even for the chronically cash-strapped biotech sector. No wonder investors reacted quite negatively to news of this issue.