What happened?

On Wednesday morning, Chiasma, Inc. (NASDAQ:CHMA) announced the pricing of a public offering of common stock and pre-funded warrants. Naturally, investors are not thrilled about the company's decision to dilute its existing shareholders, which explains why Chiasma's shares are plunging today. The company's stock is down by 10.4% as of 11:30 a.m. EDT today. 

So what

Chiasma first announced its intention to initiate a public offering of common stock and pre-funded warrants after the market closed on Tuesday. Today, the company said it intends to offer 12.5 million shares of its common stock for $4 per share, and the company will also sell pre-funded warrants to some investors -- which give said investors the right to purchase shares of its common stock at a later date -- for $3.99 per underlying share.

Man standing on a falling arrow, pulling a rope in an attempt to lift up the arrow.

Image source: Getty Images.

Chiasma is also giving underwriters a 30-day option to purchase an additional 2.625 million shares at the public offering price of $4 per share. Note that the company's shares closed at $5.38 apiece during the previous trading session. At writing, the company's shares are worth $4.66 apiece. Chiasma expects the gross proceeds from this public offering of common stock -- which will likely close on July 6 -- to be $70 million.

Now what

Chiasma's decision to raise money through a public offering of common stock is hardly surprising. The company had $79.3 million in cash and cash equivalents as of March 31, but during the first quarter, Chiasma did not report any revenue as it did not have any approved products on the market then. The company also recorded operating expenses of $15.7 million and a net loss of $15.4 million during the first quarter. Since this quarter ended, however, The U.S. Food and Drug Administration approved Chiasma's Mycapssa, a medicine used to treat a hormonal disorder called acromegaly. The healthcare company will use the proceeds from its public offering of common stock to support the launch of Mycapssa on the market.