Three otherwise innocuous words -- reverse stock split -- can cause much disappointment and even sow panic in an investor community. Shareholders of clinical-stage biotech Agenus(NASDAQ: AGEN) experienced this vividly on Thursday when their company announced its intention to start going down that road. The stock's price fell sharply, by almost 30%, contrasting with the 0.6% gain of the benchmark S&P 500 index.
Twenty shares will become one
In a regulatory filing and a letter to its shareholders, both published Thursday, Agenus revealed that it is seeking a reverse stock split. The proposed ratio is one share of the biotech company's common stock for each 20 currently held. The move is subject to an investor vote, which is to take place at a special shareholder meeting set for April 3.
As is usual in such situations, the key impetus behind Agenus' proposal is the desire to push the company's market price over $1 per share. This is the minimum mandated by the Nasdaq, the exchange on which the stock is currently traded.
The sharply negative reaction to the news makes this more urgent; Agenus's share price now stands at barely over $0.65 per share.
Investors were skeptical
With the move, Agenus hopes to buy sufficient time to make notable progress in its operations.
In the shareholder letter, the company wrote that its intentions are achieving "key near term milestones, including submitting our first Biologics License Application (BLA) for metastatic colorectal cancer, prioritizing other clinical programs with the potential for rapid approval, and prudently allocating resources as we seek to achieve our goals."
A reverse stock split is quite the lever to pull, however. Many investors consider such a move to be a desperation play aimed at keeping a failing business above water. Agenus will have to labor hard to convince the market of its post-reverse share split viability.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
