What happened

Shares of Magenta Therapeutics (NASDAQ:MGTA) are down by 16.6% as of 11:39 a.m. EDT on Thursday after the company announced the pricing of a public offering of common stock on Wednesday evening. Magenta's decision to issue new shares will dilute existing shareholders, which explains why the company's stock is sliding today. 

So what

Magenta will sell 7,500,000 shares of its common stock at a price of $8 per share in this underwritten public offering. The company is also giving underwriters a 30-day option to buy an additional 1,125,000 shares. Magenta expects to collect gross proceeds of $60 million through this common stock offering. Note that the company's shares closed at $9.67 on Wednesday, but as of this writing, Magenta's shares are worth $7.99 apiece. Magenta said it intends to use the proceeds from this public offering of common stock to advance the development of various pipeline candidates and for research and development and working capital purposes.

Five downward pointing arrows on a blackboard.

Image source: Getty Images.

Now what

Magenta Therapeutics, like many other clinical-stage biotech companies, does not generate any revenue. During the first quarter, the company recorded operating expenses of $21.2 million and a net loss of about $20 million. Also, Magenta had a cash and cash equivalents balance of approximately $130.4 million as of March 31. The biotech company previously referred to its cash position as "strong" and said it had enough capital to fund its operations until the first quarter of 2022. So the company's decision to raise additional capital by selling new shares may come as a bit of surprise. However, this may present a good entry point for interested investors, since Magenta's shares are down by more than 40% year to date following today's sell-off.