At-the-market (ATM) offerings, a tool early-stage companies have used for years to quickly raise capital, have grown increasingly common among healthcare players, with biotech firms in particular embracing this funding method.
ATM financing provides young, publicly traded companies with a relatively agile, low-key, low-hassle, lower-cost way to sell newly issued shares to finance growth — without the need to stage a road show or even announce the sale. This works well for businesses like biotech firms that need to fund R&D and general operations before their products have received government approval for commercial sale.
Now mainly considered a good corporate housekeeping device, ATM financing allows management to select the right time to issue new shares, taking advantage of higher stock prices rather than setting a particular offering amount.
These sales can benefit companies, whether they’re raising small and large amounts of capital, with some generating as much from ATMs as they do from traditional follow-on offerings. In fact, a Bloomberg Law analysis found that companies issued shares through ATMs at a near-record rate last year, with more than 200 announced offerings totaling a combined $27.82 billion in value.
Two types of broad conditions — a volatile market and one with higher stock prices and volume overall — appear particularly conducive to ATMs, according to Bloomberg, which noted that erratic markets typically preclude regular follow-on offerings.
So how does an ATM work?
First, your company must file a shelf registration statement with the Securities and Exchange Commission (SEC), which gives you two years to make an offering. When you’ve decided the time is right, you instruct your designated broker-dealer to sell new shares into the market at the current price, during regular trading. Your company receives the sale proceeds.
These financings offer several advantages, including:
- Minimal market effect: Companies can raise capital fast by selling new shares into the market’s trading flow, without announcing the sales in advance or potentially moving their stock price. Unclear timing lowers the likelihood that investors will short the stock before the offering. (Issuers do have to disclose ATM financings in their next quarterly financial report.)
- Flexibility and direction: Management enjoys control over the sale timing, size, and price, including the limit price and daily trading volume size limit, allowing the company to quickly cash in on surging stock prices following good news. These features afford executives far more flexibility than a standard follow-on offering.
- Lower cost: ATM sales are typically far less expensive than traditional follow-on offerings. Commission may be lower than half that of standard follow-ons.
- Management productivity: ATM offerings don’t require road shows, so management can stay on top of company operations rather than focusing on marketing campaigns.
Among the potential disadvantages, an ATM financing may not offer your company the opportunity to pick up as much new analyst coverage as a standard follow-on, since you’re likely to use only one bank. A follow-on offering may land you a couple of new analysts, while an ATM might attract one more at most.
Other possible disadvantages, risks, or limitations include:
- Pricing: An at-the-market offering might inhibit stock upside, as institutional investors could worry your company will keep issuing new shares, creating selling pressure.
- Timing: Earnings announcements and the filing of quarterly and annual financial reports will limit the timing of an ATM sale, as they would restrict the schedule of any registered offering. If you know you’re on track to miss earnings, you might want to avoid issuing new shares.
- Marketing: Companies also must exercise caution in their non-deal marketing activities, given their offering program.
If your company anticipates needing ongoing capital investments, ATM financing may be the right tool for you. Recent market volatility suggests this may be an opportune environment for this type of offering. For more insight on whether ATMs make sense for your company, or to talk through other funding possibilities, Westwicke can help. Contact us to start the conversation.