Scynexis Inc (NASDAQ:SCYX) Sinks a Bit Following a Dilution-Inducing Move

The stock of Scynexis Inc (NASDAQ:SCYX) ranked among the top losers yesterday as the developer of novel anti-infectives for unmet therapeutic needs went down 15.85% after announcing a secondary public offering.

Even though history has shown far greater percentage losses on the stock market, SCYX‘s 16% slump brought its stock price down to $2.23 per share, a new 52-week low. With over 600 thousand shares of common stock changing hands, SCYX marked its second highest turnover after shifting more than 1.1 million on Jun. 9 when the company presented an update on its Phase 1 studies.

Expecting to rake in a total of $22.5 million, Scynexis has set out to sell as many as 9.375 million shares of common stock, as well as warrants to purchase an additional 4.2 million common shares, at a price of $2.40 per share/warrant. A 30-day option to purchase an additional 1.4 million of common shares and warrants for about 600 thousand more shares has also been granted by the company. So do current shareholders have a grounding to feel upset by this development?

Of course they do have every right to be dissatisfied. Thanks to the new offering, both insiders and institutional investors will suffer a 50% dilution. Prior to announcing the new offering, SCYX‘s total number of outstanding shares amounted to 13.9 million. Upon full completion of the offering and full conversion of all warrants, the company’s authorized stock will increase by 15.575 million, or 52%. Sure, the company will get fresh capital, yet this will occur at the expense of current stakeholders, whose earnings per share will be cut by half. What’s even worse is that there has been no such thing as net earnings for Scynexis for quite a while, if the company’s net results for the last six quarters on record are anything to go by.

Although the new stock offering will inevitably dilute insiders, the latter purchased a tad less than 30 thousand shares of common SCYX stock over seven transactions taking place just a month ago, so there are at least one director and one officer with an optimistic outlook on the stock – an outlook shared by a couple of Wall Street analysts grading the stock as a Buy and a Strong Buy, respectively. Looking at the positive net working capital and shareholders’ equity in most recent 10-Q report, we see where their positive bias might be stemming from. Yet, one cannot help but wonder why SCYX had to resort to such huge dilution even though it appears to be financially stable at this point. Maybe it needs the money to move forward with its clinical studies, yet it would not have hurt to give it a mention in the press release, would it?

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