On Monday, biotechnology firm Allakos (NASDAQ:ALLK) announced a public offering that raised gross proceeds of approximately $150 million, sending ALLK stock soaring 25% in the morning session before paring back modestly heading into the early afternoon hours.
Specifically, the company — which focuses on developing lirentelimab (AK002) and AK006 for the treatment of allergic and inflammatory diseases — announced the pricing of an underwritten offering of 29,882,000 shares of its common stock at an offering price of $5.02 per share. Several institutional investors agreed to purchase shares in the offering.
ALLK stock closed at $4.58 on Friday.
Allakos expects the deal to close on or about Sept. 21, 2022, subject to satisfaction of customary closing conditions. Jefferies acts as the lead bookrunning manager. Cowen and LifeSci Capital are providing joint bookrunning services for the offering.
Investors will want to note that per the official press release, Allakos will sell all of the shares involved in the aforementioned deal. Per MarketWatch, the biotech had about 58.4 million shares outstanding before the offering. Management plans to “use proceeds from the offering for preclinical, clinical and other work associated with advancing the development of lirentelimab and AK006.”
Offering Presents Risks for ALLK Stock
While strong institutional demand for ALLK stock may appear very encouraging for the underlying business, the timing of the above offering raises eyebrows. Allakos, which primarily specializes in allergies and inflammation-related diseases, appears to be striking while the iron is hot.
According to Endpoint News reporter Aayushi Pratap, the share distribution deal occurred 10 days “after announcing lukewarm results of its lead drug candidate.” Specifically, the company’s “24-week data from its Phase III trial EoDyssey was investigating its lead drug candidate lirentelimab in patients with confirmed eosinophilic duodenitis — a chronic inflammatory disease characterized by inflammation in the stomach and part of the small intestine.”
According to Pratap, “While the trial met its histologic co-primary endpoint, it did not meet the other, which was patient-reported symptomatic improvement.”
Other studies from December 2021 revealed similar results. “They showed significant reduction in eosinophil levels in the blood, but no relief in patient symptoms.”
In other words, Allakos’ results only offer partial encouragement, yet the company went ahead with the cash raise. Therefore, the implication is that unless the biotech can step up its game in the clinical testing component, ALLK stock may eventually cast a negative light on itself.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.