Here's Why The Idera Pharmaceuticals Inc (NASDAQ:IDRA) Dip Isnt All Bad

Back in February, we published this piece on Idera Pharmaceuticals Inc (NASDAQ:IDRA).At the time, the company was trading for around $1.50 a share and we suggested that this looked undervalued given its then-current operational status.During the subsequent couple of months, Idera ran to more than $2.50 apiece before settling back down and then, once again, running towards highs north of $2.75 at the start of this month.From the time of our initial coverage to the just mentioned highs, that is a run of more than 80%. IDRA Daily ChartAt the end of this week, however, the company has taken a hit. During the session on Thursday, Idera fell more than 27% to trade at current levels in and around $1.47. That's pretty much the entirety of the 2017 to-date gains returned to the market and – overall – represents a more than 45% decline from the early October peak.The driver behind the recent dip is an equity raise (as is so often the case at this end of the biotechnology market) and it's the impact of this raise on the current base of shareholders that's weighing sentiment towards the negative side of the equation.Just as was the case last time we think there might be an opportunity here.Sure, nobody likes dilution and there's some substantial dilution associated with this raise. The company has added more than 25% to its outstanding share base and has done so at a steep discount to its pre-announcement market capitalization. As per the details, the company will issue over 33 million shares at $1.50 apiece and offer up to an additional 5 million shares at the same price point.That's not great. But it's not terminal, either.The thing is, when you are a company at this end of the sector and when you are basically going it alone (as opposed to partnering up with a bigger name), you need lots of capital to advance your pipeline. Add in the fact that the lead asset is an oncology drug in a metastatic melanoma target indication (a very tough cancer to treat) and, further, that the program that underpins development efforts for said asset dictates that it needs to be studied as a combination therapy with an existing blockbuster, and things get very expensive, very quickly.A company like Idera has two choices. It's got strong early-stage data in the melanoma indication, so the company could have pulled in a partner, taken an upfront injection of capital and avoided the dilution that comes on the back of having to fund through to late-stage alone.If had done that, however, Idera would have had to give away a very large portion of the potential revenues it stands to generate if the drug in question (called IMO-2125) gets a green light for commercialization in the US.The second option, then, is to go it alone and retain rights, but have to dilute shareholders ahead of a regulatory submission. It's a riskier approach but if you are confident about your development asset it can be one that really pays off long term.We've seen companies like bluebird bio Inc (NASDAQ:BLUE) and GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH) take this approach over the last few years and it's proven a strong strategy for them.There's also a sort of middle ground approach, which necessitates the completion of the ongoing phase II alone and then using the data to negotiate a stronger deal ahead of a phase III pivotal.The key point here is that this is a route that's not taken too often for companies at this end of the space as management teams focus on maximizing near-term shareholder value and one of the ways to do that is to take a big capital injection from the first company that comes knocking with a partnership offer. That Idera hasn’t done that suggests it is confident in its own asset and that it's taking a longer-term view to maximizing the program's value.Check out our previous coverage of this stock here. We will be updating our subscribers as soon as we know more. For the latest updates on IDRA, sign up below!Image courtesy of Libertas Academica via FlickrDisclosure: We have no position in IDRA and have not been compensated for this article.