What happened

Shares of AcelRx Pharmaceuticals (NASDAQ:ACRX) were trading down by 16% as of 11:40 a.m. EST on Wednesday after the company announced the pricing of a public stock offering. AcelRx plans to sell 14.5 million new shares in a transaction expected to generate gross proceeds of around $27.5 million.

So what

Secondary stock offerings cause stocks to fall for one simple reason: They dilute the value of existing shares. In addition, in AcelRx's case, the biotech company intends to sell its new shares at a 19% discount to its closing price on Tuesday. It's not surprising, therefore, that its share price has fallen to close to that level.

$1 bill folded into an arrow pointing down

Image source: Getty Images.

There's a silver lining with the transaction, though. AcelRx will raise additional cash that it needs. Management said it plans to use those funds for "working capital and general corporate purposes, including commercialization activities, general and administrative expenses, research and development expenses, capital expenditures, and for making scheduled payments under its debt facility." That pretty much covers all of the spending areas for the biotech company.

The share price slides driven by secondary stock offerings are often only temporary if investors have reasons to be optimistic about the future of the company in question. AcelRx thinks that its progress in commercializing its sublingual opioid painkiller, Dsuvia, could provide such reasons for confidence.

Now what

The main thing for investors to watch now with AcelRx will be its fourth-quarter update, which is expected in February. AcelRX has already begun to receive initial stocking orders for Dsuvia from the U.S. Department of Defense. These should boost the company's sales over the coming quarters.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.