What happened

Shares of Menlo Therapeutics (NASDAQ:MNLO) were sinking 10.4% as of 3:20 p.m. EDT on Friday after dropping as much as 14% earlier in the day. The decline came after the company announced the pricing of a stock offering Friday morning. 

So what

Menlo plans to sell 27.05 million shares at $1.85 per share. The number of shares being offered represents nearly 20% of the total number of outstanding shares. The offering price reflects a 16% discount to the Thursday closing price for the biotech

$100 bills, stock chart, computer keyboard,

Image source: Getty Images.

Stocks usually fall on public offerings because the value of existing shares is diluted. It's actually a positive sign for Menlo that its stock fell by a lower percentage than the percent by which its shares are being diluted. That's probably a reflection of investors' optimism about the prospects of FCD105 after Menlo reported positive results earlier this week from a phase 2 study of that acne drug and won Food and Drug Administration approval for rosacea treatment Zilxi last week. It also helped that the overall stock market jumped today on better-than-expected job numbers.

Menlo expects to raise gross proceeds of around $50 million from the stock offering. This additional money should come in handy for the company as it launches Zilxi and advances its pipeline.

Now what

After launching acne drug Amzeeq earlier this year, the FDA's green light for Zilxi gives Menlo two approved products. The main things to watch in the near term are the company's next quarterly update in August and the expected commercial launch of Zilxi in the fourth quarter of this year.