What happened?

Shares of Athira Pharma (NASDAQ:ATHA) dropped sharply on Thursday and ended the trading session down by 16.7%. The catalyst for that plunge was the company's announcement on Wednesday evening of the pricing of a new stock offering. Investors were not thrilled with the clinical-stage biopharmaceutical company's decision to dilute existing shareholders. 

So what

Athira Pharma will sell 4 million shares of its common stock for $22.50 per share. It had closed Wednesday's trading session at $24.32. By the end of Thursday's session, they were changing hands for $20.27. The healthcare company expects to collect $90 million in gross proceeds from the sale. Athira Pharma is also granting the underwriters a 30-day option to purchase up to an additional 600,000 shares, still for $22.50 per share. The public offering should close on Jan. 25, according to the company.

five downward-bound arrows on a blackboard.

Image source: Getty Images.

Now what 

Athira Pharma currently has no products on the market and does not generate any revenue. As such, it is not surprising to see the company resorting to dilutive forms of financing. Investors shouldn't focus on Thursday's sell-off either. Instead, it may be worth looking at Athira Pharma's prospects to see if this price drop represents a buying opportunity. The healthcare company is currently looking to develop medicines for Alzheimer's disease. 

In October, Athira Pharma reported that it had started a phase 2/3 clinical trial of its candidate ATH-1017 for the treatment of mild to moderate Alzheimer's disease. There is a dire need for a drug that can effectively treat the cognitive decline associated with this illness, which affects more than 5 million people in the U.S. Several companies are currently working toward that goal, but if Athira Pharma is successful, it could reap substantial financial benefits. In other words, it is worth keeping an eye on Athira Pharma.