The shares of biotech firm Cancer Genetics (NASDAQ:CGIX) surged more than 160% in pre-market trading on Wednesday morning. Earlier this week, the New Jersey provider of preclinical services filed an SEC form S-4 indicating its board approved the proposed merger with StemoniX. CGIX stock more than doubled on news of the deal announced on Aug. 24.
CGIX stock holders will be asked to vote on the merger on March 24. The holders will also be asked to approve a reverse stock split proposal. That proposal would give the company’s board the discretion to effect a reverse split in the range from one share for two shares, to one share for 10.
A reverse stock split is typically undertaken by companies seeking to consolidate existing shares into fewer, proportionally more valuable, shares, usually boosting the stock’s price as a result.
The filing follows Cancer Genetics’ closing on Feb. 1 of a private placement of about $10 million. This was done by issuing about 2.76 million common shares and warrants to purchase a similar amount at a combined purchase price of $3.625 per share.
CGIX Merger Seeks to Speed Drug Development
The proposed merger is an attempt to reduce the time and labor required to bring new drugs to market, Jay Roberts, CEO of Cancer Genetics, said in August. “We are at unique time in the drug discovery industry as the convergence of technological innovations in both biology and software will transform conventional workflows in time and accuracy,” he said in a statement then.
Effectively a preclinical services company, CGIX operates its vivoPharm subsidiary supporting clinical diagnostic offerings at early stages to pharmaceutical industry, biotechnology companies and academic research centers.
With the merger, both companies can now collaborate on drug discovery and development for two major areas: advanced animal models and relevant human high-throughput organoid platforms.
Due Diligence Even More Critical
Biotech names like CGIX stock are typically volatile and subject to significant price swings. Add to that the fact that the merger with StemoniX has caught the attention of several investor rights law firms which suspect the Cancer Genetics board may have acted improperly in the merger negotiation.
Together, those factors suggest prospective investors be especially diligent in their research before making a move into the shares.
On the date of publication, Robert Lakin did not have (either directly or indirectly) any positions in the securities mentioned in this article.
InvestorPlace contributor Robert Lakin is a veteran financial writer and editor, following fintech, agtech and property tech startups.