3 Reasons Sarepta Shares Rallied Following News Of $225 Million Offering

Typically, one of the worst pieces of news shareholders can get is that one of their stocks is opting for a secondary offering of shares that will dilute their stake in the company. While news of a secondary offering often sends a stock’s share price plummeting, Sarepta Therapeutics Inc SRPT shares are surging 7 percent in Thursday’s session following the company’s announcement of a $225 million stock offering.

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There are a number of possible reasons for this counter-intuitive move. Here are three:

• 1. Sarepta’s positive momentum is simply too strong. Sarepta has already doubled in recent weeks off of the FDA’s decision to grant accelerated approval for the company’s DMD drug eteplirsen. The stock hadn’t peaked prior to the news of the offering, and Thursday’s gain may simply be a case of the good news still outweighing the bad news.
• 2. The market expected an offering. At the very least, taking eteplirsen to market will require a sales team and a marketing initiative, neither of which come cheap. Investors may simply see the offering as a critical part of the process of getting the drug to market.
• 3. Short sellers still have not covered. The FDA’s approval of eteplirsen came as quite a surprise to the market after rival DMD drug applications by PTC Therapeutics, Inc. PTCT and BioMarin Pharmaceutical Inc. BMRN were rejected. The FDA even delayed approval of eteplirsen indefinitely back in April. There were likely a lot of traders betting that eteplirsen would eventually get rejected as well, and those short sellers were hoping that the offering announcement would provide a chance to cover the last of their short positions.

Whatever the reason, Sarepta stock is scorching hot and shows no signs of cooling down, up 99.4 percent in the past week.