Are Shelf Registration Filings a Bad Omen for Biotech and Medtech Stocks?

Dec. 2, 2014 3:43 pm

A shelf registration (commonly known as an S-3 filing) is a public offering which allows companies to offer and sell securities without having to file separate prospectuses for each raise. Typically, the maximum amount that can be raised through one of these documents is $100 million. Looking at biotech and medtech stocks that filed an S-3 for the time period 1/1/2014 – 8/1/2014, the price performance has, in most cases, been dismal:

While there can be a lot of variability among biotech and medtech stocks, and other factors may have driven price performance outside of the shelf registration filing, the majority of stocks have had significant short-term price declines. Biotech and medtech companies tend to need to raise capital at greater frequencies relative to companies in other industries, and the filing of an S-3 may worry investors that company management could either raise money for projects/acquisitions that may not lead to a good return on investment, or that current projects may need more capital funding than initially anticipated. Long-term dilution is a big factor in returns for biotech and medtech stocks, and greater uncertainty in this area appears to lead to share price declines, at least over the short-term.

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