BioWatch: Oncothyreon Punishes Holders in Secondary Offering Discount (ONTY)

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Oncothyreon Inc. (NASDAQ: ONTY) is doing what appears to be a small secondary stock offering to raise capital, but it is one of those offerings where the price comes at a steep discount to the market prices.  The company priced a public secondary stock offering of 10,000,000 shares at $4.00 per share.  The $40 million in gross proceeds will come to roughly $37.4 million.  The problem is that this offering is coming at a steep discount.

The deal was led by Cowen & Co. and the co-manager is Wedbush PacGrow Life Sciences.  If the underwriters exercise the overallotment option, the proceeds would be another $6 million gross.

The company plans to use the proceeds for general corporate purposes and to fund the development of PX-866 and and ONT-10,  Its PX-866 is called a PI-3 Pan-isoform irreversible Kinase inhibitor, and its and ONT-10 is called a proprietary follow-on vaccine to Stimuvax that is already in a Phase III pivotal trial as a vaccine non-small cell lung cancer under partnership with Merck KGaA.

Oncothyreon’s market cap at Thursday’s close, without considering the impact of this secondary offering, was almost $150 million.  Shares closed at $4.94 on Thursday and the 52-week trading range is $2.20 to $5.27. 

The company has decided to use the recent strength of the last five days to bolster its capital.  Shares rose on a Rodman & Renshaw upgrade and early in April it initiated a Phase II trial of its PI-3 Kinase Inhibitor PX-866 in patients with glioblastoma.  At the end of March this was just a $3.87 stock.  The December 31, 2010 balance sheet showed almost $29 million in cash and short-term securities. 

This is one of those cases where it was smart of the company to bolster its books after a big share run and one where the stock has just hit 52-week highs.  The problem is that these offerings of this magnitude tend to drill the newest shareholders in the door, and that irks those holders. 

Shares are taking it right on the chin so far in early Friday trading.   At 8:20 AM EST shares are down about 15% at $4.18.  Average volume is only about 200,000 shares and there has not been a 1 million shares day December 22, 2010 and then since October 2010.  Today is likely to be far more active based upon the discount of the secondary offering and based upon the share count.