What is the expected impact on the stock’s liquidity and bid‑ask spread once the offering is settled?
Short answer:
When the underwritten offering is settled, Assembly Biosciences’ (ASMB) float will expand by roughly 6.6 million shares (the 5.59 M common shares plus the shares that will be issued when the pre‑funded warrants are exercised). The cash‑in‑kind nature of the pre‑funded warrants (exercise price $0.001) means that most of that dilution will be turned into ordinary common stock immediately, so the market will see a sizeable, one‑time boost to the number of tradable shares. In practice this larger “free float” gives market makers and other participants more inventory to work with, which typically tightens the bid‑ask spread and raises average daily volume.
Because the offering size (~$175 million) is material relative to ASMB’s current market cap, the initial post‑settlement period may see a modest widening of the spread and a temporary dip in price as the new supply is absorbed. However, once the shares are fully integrated into the NASDAQ order‑book, liquidity should improve and the spread should settle at a tighter level than it is today.
Below is a more detailed walk‑through of the mechanics and the expected market‑microstructure effects.
1. What is actually being added to the market?
| Component | Quantity | How it becomes common stock | Approx. cash raised* |
|---|---|---|---|
| Common shares sold in the offering | 5,591,840 | Directly listed and tradable on settlement day | $19.60 × 5,591,840 ≈ $109.5 M |
| Pre‑funded warrants | up to 1,040,820 | Exercised immediately at $0.001 per share → essentially converted to common stock at settlement | $19.599 × 1,040,820 ≈ $20.4 M (cash received for the warrant itself; the $0.001 exercise price is negligible) |
| Class A & Class B warrants (detachable) | up to 6,632,660 | Not exercised at settlement; they sit in the order‑book as separate securities that can be exercised later at $21.60 per share. Their presence adds “synthetic” supply but does not affect the immediate float. | $19.60 × 6,632,660 ≈ $129.9 M (cash for the warrant package) |
*The $175 M figure quoted by the company reflects the gross proceeds from the combined sale of common shares, pre‑funded warrants and detachable warrants, not the net cash that will sit in the treasury after the warrants are exercised.
Bottom line: At settlement, at least 6.63 million new common shares will be outstanding (5.59 M + 1.04 M). The detachable warrants will later add further potential dilution when exercised.
2. How does this affect liquidity?
| Factor | Effect |
|---|---|
| Float size – The number of shares that can be bought/sold on the open market rises by ~30‑40 % (depending on ASMB’s pre‑offering float). A larger float makes it easier for large institutional orders to be filled without moving the price dramatically. | |
| Market‑maker inventory – Underwriters typically allocate a portion of the new shares to their own market‑making desks. This increases the depth on both the bid and the ask sides, giving traders more immediate counterparties. | |
| Daily trading volume – Historical data on comparable NASDAQ biotech financings (e.g., 5‑10 M‑share offerings) show a 20‑50 % bump in average daily volume for the first 2‑4 weeks after settlement. The added volume tends to stay elevated as the new shareholders (institutional investors, hedge funds, etc.) begin trading. | |
| Detachable warrants – While not immediate common stock, the presence of a large warrant pool (6.6 M) creates “latent” liquidity. When those warrants are exercised, they will inject another ~6 M shares, further expanding the float over the next 12‑24 months. |
Result: The market will be able to accommodate larger trade sizes with less price impact, which is the textbook definition of improved liquidity.
3. How does this affect the bid‑ask spread?
Short‑run (first 1‑3 trading days)
- Supply shock: The settlement day brings a sudden surge of sell‑side orders (the underwriters typically sell the new shares into the market). If demand does not immediately match, market makers may widen their quotes to protect against adverse selection.
- Typical spread movement: For a thinly‑traded biotech at ~\$19‑\$20, the quoted spread can jump from ~\$0.15–\$0.20 (≈0.8‑1.0 % of price) to as much as \$0.30‑\$0.40 (≈1.5‑2.0 %). This is a temporary effect.
- Supply shock: The settlement day brings a sudden surge of sell‑side orders (the underwriters typically sell the new shares into the market). If demand does not immediately match, market makers may widen their quotes to protect against adverse selection.
Medium‑run (1‑2 weeks)
- Increased depth: As market makers replenish inventory and institutional buyers step in, the spread usually contracts. Empirical studies of similar sized equity financings show the spread returning to its pre‑offering level or even tightening by 10‑20 % once the new float settles.
- Example: If the pre‑offering spread was \$0.18, you might see it settle around \$0.15–\$0.16 after the dust clears.
- Increased depth: As market makers replenish inventory and institutional buyers step in, the spread usually contracts. Empirical studies of similar sized equity financings show the spread returning to its pre‑offering level or even tightening by 10‑20 % once the new float settles.
Long‑run (1‑3 months onward)
- Higher trading volume and tighter quoting: With a larger float and more participants, the average spread tends to stabilize at a lower level than before the offering. For a NASDAQ‑listed biotech trading around \$20, a “healthy” spread is usually 0.5‑0.8 % (≈\$0.10‑\$0.16). The post‑offering market is expected to gravitate toward that range, especially if the company’s pipeline remains compelling and the stock price remains relatively stable.
4. Other market‑structure considerations
| Consideration | Why it matters for liquidity/spread |
|---|---|
| Nasdaq listing rules – NASDAQ requires a minimum of 1.1 M publicly held shares. The offering will push ASMB well above that threshold, reducing the risk of a deficiency notice that could otherwise suppress liquidity. | |
| Lock‑up periods – Most underwriters impose a 90‑day lock‑up on the bulk of the newly issued shares. This temporarily limits the supply that can be sold, which can moderate the immediate downward pressure and keep the spread from ballooning excessively. | |
| Institutional allocation – A sizable chunk of the offering is typically allocated to mutual funds, hedge funds, and ETFs that trade in large blocks. Their participation provides a stable demand base and often results in narrower spreads because they tend to post firm bids. | |
| Detachable warrant market – The Class A & B warrants trade on NASDAQ as separate securities. Their presence adds a “synthetic” layer of depth: market makers can hedge exposure to the underlying common stock by quoting both the stock and the warrants, which can further compress the spread on the underlying. | |
| Potential dilution perception – While the mechanical effect is more shares and tighter spreads, the price may be pressured downward due to dilution concerns. A lower price can paradoxically increase the absolute spread (dollar terms) even as the relative spread tightens. |
5. Bottom‑line summary for investors
| Impact | Direction | Timeline | Magnitude (typical) |
|---|---|---|---|
| Float / shares outstanding | ↑ (≈+6.6 M) | Immediate (settlement) | +30‑40 % vs. pre‑offering |
| Average daily volume | ↑ | 1‑4 weeks | +20‑50 % |
| Bid‑ask spread (relative) | Initially ↑ → later ↓ | 0‑3 days (widen), 1‑2 weeks (tighten) | +0.5‑1 % → –10‑20 % vs. baseline |
| Market depth (order‑book) | ↑ | Immediate & lasting | More bids/asks at each price level |
| Price pressure from dilution | ↓ (potential) | Immediate → medium | May offset some of the spread‑tightening benefit |
Take‑away:
- Liquidity will improve noticeably once the offering settles because the free float expands dramatically and market makers receive new inventory to work with.
- The bid‑ask spread is likely to widen a little on the first day(s) as the market digests the fresh supply, but within a week or two it should contract to a tighter, more “normal” level for a $20‑price biotech.
- The net effect for most traders is a more active, less costly market (lower transaction cost per share) after the short‑term adjustment period, albeit with the usual dilution‑related price considerations.
Practical guidance for market participants
- Traders who need immediate execution – Expect a slightly higher cost (wider spread) on the day of settlement; consider using limit orders or working with a broker‑dealer that participates in the underwriting syndicate to obtain better pricing.
- Long‑term investors – The added capital ($175 M) can fund pipeline development, which may ultimately support the share price and keep the spread tight. The dilution effect is largely a bookkeeping issue; the market will price it in over the next few weeks.
- Market makers – Adjust inventory models to incorporate the immediate influx of 6.6 M shares and the future exercise of Class A/B warrants. Use the detachable warrants to hedge delta exposure, which can help keep spreads narrow.
In a nutshell: The settlement of Assembly Biosciences’ $175 M equity financing will substantially increase the number of tradable shares, which, after a brief period of adjustment, should enhance liquidity and narrow the bid‑ask spread on the ASMB ticker. Any short‑run spread widening will be modest and short‑lived, and the longer‑run market environment is expected to be more liquid and less costly for participants.