There were not just one, but two press releases from scPharmaceuticals (NASDAQ:SCPH) this morning. Apparently, the U.S. Food and Drug Administration (FDA) approved Furoscix. Furthermore, scPharmaceuticals has agreed to receive hundreds of millions of dollars in financing, which can be used to help commercialize Furoscix. Overall, however, today’s traders responded negatively, pushing SCPH stock 20% lower this morning.
Massachusetts-based scPharmaceuticals is a small pharmaceutical company. Usually, when a tiny pharma business gets the green light from the FDA, this puts investors in a good mood. Yet, this story is more complex than just a simple regulatory approval.
It is true that the FDA recently approved furosemide formulation Furoscix to treat congestion due to fluid overload in adults with certain types of chronic heart failure. Note, however, that Furoscix isn’t intended for use in emergency situations or in patients with acute pulmonary edema.
Still, this is a regulatory win for scPharmaceuticals. Was it enough to keep SCPH stock afloat, though?
What’s Happening With SCPH Stock?
The answer is definitely no, as scPharmaceuticals shares lost 20% of their value during the first hour of trading. What could possibly have prompted this steep selloff?
Along with the FDA-approval announcement, scPharmaceuticals also issued a press release stating that the company agreed to receive $100 million in financing from Oaktree Capital Management, L.P. That’s good news, right?
Not so fast. Sure, that $100 million can help scPharmaceuticals “drive a very robust commercial launch in the near term,” as CEO John Tucker put it. However, this isn’t free money. Take a glance at these loan terms: “The debt facility is expected to carry an interest rate equal to the three month secured overnight financing rate (SOFR) plus 8.75%, with the interest rate capped at 11.75% per annum.”
Even with the 11.75% cap, scPharmaceuticals could end up with a growing debt load due to interest-payment requirements. Most likely, this is what today’s SCPH stock traders had in mind when many of them sold their shares and didn’t think twice about it.
On the date of publication, David Moadel 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.