Sienna Biopharmaceuticals (SNNA) Stock Pops On Bankruptcy News

Sienna Biopharmaceuticals Inc (NASDAQ: SNNA) is making a run for the top in the market this morning, trading on gains of well over 40% early on. The gains come after the comapny announced that it would be moving forward with voluntary bankruptcy proceedings. Here’s what’s happening:

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SNNA Stock Pops On Bankruptcy Filing

In a press release issued early this morning, Sienna Biopharmaceuticals said that it will be moving forward with the filing of a voluntary petition to allow restructuring under Chapter 11 of the Bankruptcy Code.

In the release, SNNA said that it intends to continue to manage and operate its business under the jurisdiction of the Bankruptcy Court for the District of Delaware. To move forward with the bankruptcy, the company has hired Latham & Watkins as legal counsel as well as Cowen and Company as its investment bank for a review of financial and strategic alternatives.

In a statement, Frederick C. Beddingfield III, M.D., Ph.D., President and CEO at SNNA, had the following to offer:

We believe this decision is in the best interests of Sienna and its stakeholders. The protections afforded by Chapter 11 provide for an orderly restructuring process as well as additional time to pursue financial and strategic alternatives. Through this process, we expect to be able to maintain ongoing business activities while we continue to focus our resources on locating a purchaser or strategic partner to maximize the value of the Company.

Why Investors Are So Excited

For many, the more than 40% move in Sienna Biopharmaceuticals’ stock today can be mind boggling. After all, isn’t bankruptcy a bad thing?

The truth of the matter is that there are several good reasons that investors are excited today. Here’s why:

Reason #1: Putting Debt On Hold

SNNA didn’t just come out of the blue and say that it’s filing bankruptcy. There’s quite a bit that led to this. Of course, bankruptcy is generally the result of a tough financial position. Unfortunately for SNNA, that’s exactly the case here.

At the end of the day, the company has amassed a pile of debt in an attempt to make it through development and to potential commercialization of treatments within its pipeline. Unfortunately, this debt has become overwhelming.

As it stands, due to the large amount of debt and large payments that come along with it, the company is quickly running out of money, and as it stands, would not be able to survive as it stands.

The bankruptcy will put any action that lenders would take on hold, giving the company time to breathe and think strategically about coming up with a solution.

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