Botanix (ASX:BOT) Down 40% on a $45m Raise, Dilution Shock Hits Hard

A Steep Discount, A Big Dilution, A New Valuation Anchor

Botanix started the session with a sharp sell off, falling as much as 40% and printing its lowest level in roughly three years, sliding back to around 6.9c.

The key driver was the company’s announcement that it is targeting a A$45m capital raising.

The raise is led by a A$40m placement to institutional and sophisticated investors, being completed in two tranches at A$0.06 per share. That pricing represents a roughly 45% discount to the last traded price before the trading halt, which is the type of discount that can immediately reset market expectations when the stock reopens.

The second component is an up to A$5m share purchase plan (SPP). This is open to existing eligible shareholders, with applications allowed at the same A$0.06 issue price and with oversubscriptions possible (subject to the terms and scale back).

issuing new shares at 6.0c adds fresh supply to the market and creates a new reference point for valuation. When a raising is priced at a large discount like this, the market will often reprice the stock down on reopen to reflect dilution and the new “anchor” price, even if nothing has changed operationally in the business overnight.

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New Shares Flood In, Can the Business Grow Into the Raise?

For investors, this raise is a bit of a double edged sword.

On one hand, existing holders can participate through the SPP, which gives you a chance to defend your position if you believe in the story and think the capital will be deployed in a way that drives a re rate. We will walk through that investment case in this article.

On the other hand, it is hard to ignore the downside. The placement was meaningfully dilutive, and the size of the discount has left a lot of existing shareholders feeling hurt, particularly those who cannot or choose not to participate.

So where is the money actually going?

Management’s message is that a large portion of the proceeds will be directed toward working capital, specifically to purchase critical input inventory (API), and to reduce single supplier risk. At the same time, the company plans to support growth through additional sales and marketing investment.

If you are not familiar with the term, API stands for active pharmaceutical ingredient. It is the core input used to manufacture Sofdra. In simple terms, if you cannot secure enough API, you can have demand, sales reps, and prescriptions, but still end up capped by supply.

Botanix has said its current inventory position can support increased prescriptions through to Q3 FY26. Beyond that, it needs to purchase additional API under its existing supply contract. That is why a meaningful share of the funds raised is expected to go toward immediate and future API purchases, to ensure supply keeps up with what the company sees as growing demand for Sofdra.

The supply chain derisking path

One of the clearest messages from Botanix is that it wants to derisk its supply chain. Right now, the company is heavily reliant on a single supplier, which creates both cost risk and execution risk.

In the near term, management is negotiating to pay for API and other inputs in instalments. The practical goal here is to spread cash outflows over time, free up working capital, and reduce how heavy the cash burn feels quarter to quarter.

At the same time, Botanix is in discussions to establish a second supplier relationship. The strategic payoff they are highlighting is meaningful. Management frames this as a potential 25% to 40% reduction in COGS, which would directly lift gross margin if achieved.

The catch is that this is not an overnight fix. The company has indicated onboarding a second supplier is expected to be completed in 2028, and it may target a supplier location such as North America or Europe. That timing matters, because it implies the cost and cash flow benefits may not show up for a while.

Urgent Capital, Urgent Questions, Will More Raises Follow?

So the investor takeaway is pretty straightforward.

This raising looked urgent. Issuing 666,666,667 new shares at a steep discount is a large dilution event, and existing holders wear that dilution unless they can participate meaningfully through the SPP.

Botanix also notes that directors and the CEO are committing around A$500,000 in aggregate. That participation sits in Tranche 2 and is subject to shareholder approval, so it helps alignment, but it does not change the dilution maths.

And with the supply chain improvement pathway not expected to fully land until later in 2028, cash burn is likely to remain closer to historical levels in the meantime. That naturally raises the question investors will be asking now.

Will additional capital raises be required before the company gets the benefit of improved supply terms and a second supplier coming online?