Summit Corp (LON:SUMM) rose 14% in early trade as the group launched a £4.5mln placing at a significant premium to last night’s closing share price.
The company also gave existing private holders of the stock the opportunity to follow their investment with an open offer, which could bring in a further £1mln.
However, it is the institutional support for the issue that will hearten followers of the drug discovery group, which is developing a breakthrough treatment for the muscle wasting disease, Duchenne Muscular Dystrophy (DMD), and a new antibiotic to tackle C.difficile.
“The placing was done at a fairly significant premium to the price,” chief executive Glyn Edwards told Proactive Investors.
“That just shows that while the retail investors are all pretty down about AIM and biotech, the healthcare specialists see our programmes as huge opportunities and really wanted to get a piece of them.”
The demand for stock came from institutions focused on the sector that can see the disconnect between Summit’s valuation (US$26mln) and comparable NASDAQ-listed biopharma companies, such as PTC Therapeutics (worth US$380mln) and Serapta (market cap US$1.2bn).
“The guys who have come are really the main healthcare specialists,” said Edwards.
“What they have seen is our competitor companies on NASDAQ are all valued at a significant premium to us.”
Management is also taking part in the cash call, with the biggest contribution coming from non-executive director Jim Mellon, already a significant investor, who is acquiring 20mln shares.
“Jim is a big investor in the sector and he is excited by this opportunity. He came in on the last placing and then joined the board and he has been really very active,” Edwards said.
Those taking part in the fundraising are being offered stock at 5p, an 18% premium to last night’s closing share price.
The cash injection will be used to fund the development of Summit’s DMD drug.
Having successfully negotiated a phase I trial on healthy volunteers, the group will carry out safety and dose finding clinical study in DMD patients.
The new money will also allow the group to carry out “other activities that will enable a more extensive phase II patient trial to be undertaken”.
Development of Summit’s other lead drug candidate, an antibiotic to tackle C. difficile, is being largely funded by the Wellcome Trust medical charity.
At 11am, the stock was changing hands for 4.86p, for a rise of 0.61p.
“The raise strengthens the group’s financial position, providing it with sufficient cash for at least the next 12 months,” broker N+1 Singer said.
“The group’s development progression remains on track and we remain positive on its future prospects.”