Shares of LumiraDx (LMDX -19.91%) were collapsing 19.9% at 11:28 a.m. ET Thursday. The sharp drop came after the point-of-care diagnostics company announced the price of a public offering of 43 million shares at $1.75 each.
LumiraDx currently has approximately 207.5 million shares outstanding. The issuance of 43 million new shares will dilute the value of these existing shares by almost 21%. The stock fell just 13% in the two days after the company announced its public offering on Tuesday.
At that time, LumiraDx had indicated that it would only issue 40 million new shares. Additionally, investors were unaware that the offer’s share price would be $1.75. That amount is more than 29% lower than LumiraDx’s stock price at Monday’s market close. It’s no surprise that the stock has fallen even further today.
The dilution could be even worse, however. LumiraDx is offering underwriters a 30-day option to purchase an additional 6.45 million shares at $1.75 per share.
These stock offerings are often a necessary evil for small businesses. Although they cause a temporary drop in the stock price, they also provide much-needed liquidity. In this case, LumiraDx expects to use the proceeds generated from the offering for purposes such as research and development, business development, sales and marketing.
LumiraDx plans to file for CE Mark in Europe soon for its Ultra test for COVID-19. This test provides high sensitivity results in five minutes. The possibility of a new coronavirus outbreak in the fall and winter could boost the company’s sales.
Keith Speights has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.