Paradigm Biopharmaceuticals Ltd (ASX: PAR) shares are starting the week deep in the red.
In morning trade, the ASX healthcare stock is down 26% to 43 cents.
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Why is this ASX healthcare stock crashing deep into the red?
The catalyst for today's selling has been news that the biopharmaceuticals company has received firm commitments to raise $16 million through a placement to institutional and sophisticated investors.
The placement received strong interest from new and existing institutional and sophisticated investors both domestically and internationally.
According to the release, the company will issue 40 million shares at a sizeable 31% discount of 40 cents per new share.
The company also plans to issue shareholders one loyalty option for every four shares held at the record date. These will be exercisable at 65 cents per share within 12 months from the record date. If successful, these options could raise up to an additional ~$63 million by early 2026, which it believes enhances shareholder value.
For now, the ASX healthcare stock will have approximately $26.9 million following the capital raising, which it believes provides it with a runway into the second half of next year.
Management notes that the funds raised will primarily be used to support its global phase 3 trials for osteoarthritis (OA) treatment with iPPS. These trials begin in Australia the first quarter of 2025 and then expand to key U.S. sites in the second quarter of 2025.
Management commentary
The ASX healthcare stock's managing director, Paul Rennie, was pleased with the capital raising. He said:
The capital raise, priced at $0.40, represents a 3% premium to the 30 VWAP. The size of the raise of $16M provides Paradigm with sufficient cash reserves to commence the start-up of the Phase 3 clinical trial and working capital into 2H CY2025. We received support from our current and new investors which highlights the strength of our clinical programs and positions Paradigm to immediately advance our global phase 3 clinical trial setup and deliver on critical milestones.
We chose to reward all shareholders with a loyalty option with the record date likely to be mid – late January 2025. 2024 has been an important year of dealing with regulatory agencies and now we are looking forward to the execution of our phase 3 clinical trials to move ever closer to bringing iPPS to those suffering seriously debilitating pain and dysfunction. We are grateful for the continued support and enthusiasm of our shareholders.
