Why 89bio Stock Lagged the Market Today

89bio (NASDAQ: ETNB) couldn't quite keep pace with the broader stock market on Tuesday. Investors were hesitant to buy shares of the clinical-stage biotech, following news that it was floating a new stock issue. The company traded sideways during the session, on a day when the S&P 500 index rose by nearly 1%.

A nearly $300 million move

Just after market close on Monday, 89bio divulged that it intends to raise as much as $287.5 million from a secondary stock issue. It will do so in an underwritten public offering of $250 million worth of its common stock, plus it aims to grant those underwriters a 30-day option to collectively purchase an additional $37.5 million.

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The underwriting syndicate is led by Goldman Sachs, Bank of America Securities, and Leerink Partners.

89bio added that "certain investors that so choose," will be able to opt for pre-funded warrants to purchase shares in the future. It did not specify who these investors might be.

In its press release on the issue, the biotech said that it intends to use its proceeds for the funding of clinical activities and the continued development of liver and cardiometablic disease-fighting drug pegozafermin, and manufacturing-related expenses. Other monies will be directed to "general corporate purposes," among which are working capital and operating costs.

Standard operating procedure

As with any secondary share flotation that's relatively sizable, 89bio's has raised fears of existing shareholder dilution, especially since its market cap stands at less than $1.06 billion. Yet funding is always an issue for clinical-stage biotechs, and many investors accept that sooner or later, such companies will go the stock sale route to replenish their cash piles. I don't feel believers in 89bio's future should get discouraged by this move.

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Bank of America is an advertising partner of Motley Fool Money. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and Goldman Sachs Group. The Motley Fool has a disclosure policy.