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Arena Announces Prospectus To Sell $150 Million In Stock

Jul. 12, 2017 10:13 AM ETPfizer Inc. (PFE)45 Comments
Spencer Osborne profile picture
Spencer Osborne


  • Company will price $150 million offering.
  • Underwriters can add on another $22.5 million.
  • News comes after positive clinical trial results.

I was about half way through an article that was to discuss debt, dilution, or partnership. The concept behind the article was that I felt Arena Pharmaceuticals (ARNA) would want to garner cash, and that it needed to come from one of those three places. In all honesty, I would have been a fan of adding some debt as a first choice. Instead, the company is choosing a path of dilution.

Arena announced today that it intends to raise $150 million in cash through the sale of stock. The underwriters also have an option to raise that tally by $22.5 million. I am going to call this what it is. Dilution. Existing shareholders will see their stakes diluted by between 18% and 22% depending on what price the company is able to obtain.

As much as dilution frustrates me, it is part of the Wall street way of life with speculative companies. Whether investors like it or not, Arena is a small player in the grand scheme of not only the street, but pharma as well.

If dilution was going to happen, better to see it at a number above $20 per share than one substantially below. My readers know full well that I try to offer realistic opinion and stances. Nothing is ever 100% roses, nor is it 100% manure.

What I Do Not Like

  • It is dilution. I now own a smaller piece of the company than I did before
  • Dilution can put the brakes on any run. It is a short term dynamic, but unfettered runs do allow us to see what is possible.
  • The share count is increasing, and this begins to erase the dynamic of the rarity of shares we experienced after the reverse split.
  • It tells us that the big banks are not yet

This article was written by

Spencer Osborne profile picture
Spencer Osborne assesses equities in a data supported realistic manner that is often missing in analysis that the average retail investor receives. His analysis is what investors NEED to hear rather than what they WANT to hear. He believes that the foundation of an equity price is based on what is probable rather than what is possible, and the trade focuses on possible near term catalysts and news. Smart investing is understanding how the market works and how that market mentality impacts a given equity. Spencer believes that investors should model their expectations and maintain a critical eye on whether those expectations are being met. If an invesor finds herself making excuses for missing the mark, then they are losing objectivity.

Analyst’s Disclosure: I am/we are long ARNA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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