CytRx Corporation (NASDAQ: CYTR) saw its shares get punished on Friday for a secondary offering. Frankly, the pricing of the deal was such that it punished every single shareholder who was buying into the strength seen in recent days.

After closing at $7.98 on Thursday, and hitting a 52-week high of $8.35 on the same day, CytRx decided to announce that it was raising capital. This was what is called a spot secondary offering, where companies surprise the markets with a capital raise. The news hit on Thursday night and the pricing came on Friday morning.

The recent gains were on the heels of receiving FDA approval on January 21 to extend Aldoxorubicin dosing cycles until disease progression in its upcoming pivotal global phase 3 trial for soft tissue sarcomas. Then on January 23 the company announced that it was starting Phase 2 clinical trials with Aldoxorubicin as a first-line treatment of AIDS-related Kaposi’s Sarcoma, which is a cancer difficult to treat and without any effective treatment options.

Where things got dicey was that the 11.5 million shares sold down all the way at $6.50 after having closed at $7.98. Pricing so low wiped out all of the gains from the good news this week and took the stock to a low not seen since January 7.

It is obvious that CytRx needed the money for ongoing studies. After all, it had only about $23 million in cash at the end of September and the cash burn rate is running close to $5 million per quarter on average. Our issue is that the pricing went off at nearly a 20% discount, and the company just buried new shareholders who were buying into good news.

Jefferies was the sole book-runner, and Oppenheimer, Aegis Capital and H.C. Wainwright were co-managers. CytRX may have just bought some favorable analyst coverage, even if analysts at firms are not supposed to take the underwriting and investment banking business into consideration.

CytRx is at least using the capital ($75 million gross, before fees) to fund its R&D efforts. The company is focused on the clinical development of aldoxorubicin (INNO-206), what is called an improved version of the widely used chemotherapeutic agent doxorubicin. Yahoo! Finance listed the market cap at $291 million as of Friday’s closing bell.

Shares closed down 13% at $6.94 on Friday and the stock traded 10.4 million shares for about 3-times normal trading volume.

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