What happened

Shares of KemPharm (KMPH 0.22%) were sinking 12.6% as of 3:33 p.m. EDT on Friday. The big drop came after the drugmaker announced the exercise of existing warrants and the issuance of new warrants.

So what

A warrant gives the right to buy a stock at a set price and set date. In KemPharm's latest transaction, holders with warrants that could have been exercised for nearly 6.2 million shares received a new deal. They received cash in exchange for a commitment from the company to issue new warrants.

These new warrants will allow the purchase of up to 1,529,379 KemPharm shares. They will give the holders the right to buy the stock at $16.50 per share. The warrants expire on Dec. 31, 2026.

Red line with an arrow trending down in front of a $100 bill.

Image source: Getty Images.

Investors didn't react favorably because the transaction means more dilution is on the way. However, the deal will generate close to $39.1 million in gross proceeds for KemPharm.

Now what

KemPharm expects to launch Azstarys in treating attention deficit hyperactivity disorder (ADHD) within the next few months. The drug won Food and Drug Administration approval in March. Its stock is scheduled to be added to the Russell 2000 and Russell 3000 indexes effective June 28. These milestones could serve as positive catalysts for the biotech stock.