Why Dyne Therapeutics Stock Tanked on Tuesday

It isn't unusual for a biotech to raise capital after it posts positive results from a clinical trial. In the case of a new fundraising effort by Dyne Therapeutics (NASDAQ: DYN), however, investors aren't happy that the biotech is going to the well. Following the announcement of a significant secondary stock issue, market players traded out of Dyne on Tuesday, leaving its shares with a nearly 17% loss.

300 million reasons for concern

Just after market close on Monday, Dyne announced that it has launched an underwritten public offering of $300 million worth of its common stock. The underwriters of the issue, which include Morgan Stanley and Jefferies, have been granted a 30-day option to collectively purchase up to an additional $45 million.

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In its offering prospectus, Dyne stated that it intends to use its share of the proceeds to advance its development programs. This comes on the heels of its successful phase 1/2 clinical trial for Duchenne muscular dystrophy (DMD) treatment zeleciment rostudirsen.

It also aims to build manufacturing assets for drugs it may win approval for in the future. It will also spend the funds on "working capital and other general corporate purposes."

The dilution problem

That $300 million to $345 million in new capital is going to be dilutive, given that Dyne's current market cap is a shade over $2.6 billion. Investors dislike share dilution, and they become quite uncomfortable when it reaches double-digit percentages.

While Tuesday's market reaction was understandable, then, Dyne has some good momentum with zeleciment rostudirsen, and the drug has much promise if it can eventually earn regulatory approval. If I were a Dyne shareholder, I'd stay the course with the stock and not be overly concerned with dilution.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Jefferies Financial Group. The Motley Fool has a disclosure policy.