Pulmatrix Inc. (NASDAQ: PULM) saw its shares take a sharp downturn on Monday morning after the company announced a registered direct offering. Essentially, the company reported that it had entered into a definitive agreement with several investors for a direct offering valued up to roughly $5 million. Keep in mind the company had a market cap of $50 million prior to the stock moving.

Under the terms of the deal, Pulmatrix is selling roughly 2.0 million shares for a total of $2.50 per common share. The offering is expected to close by February 2, 2017.

So far year to date, the stock has gained over 400% to Friday’s close. Most times when companies make massive gains like this, they are looking to do a little profit taking and one way is through a secondary or direct offering. In turn these funds can be further used to grow the company, pay down indebtedness, or even develop a pipeline.

The exclusive placement agent in this offering is Rodman & Renshaw, a unit of H.C. Wainwright.

For some background: Pulmatrix is a clinical stage biopharmaceutical company developing innovative inhaled therapies to address serious pulmonary disease using its patented iSPERSE technology.

The company’s proprietary product pipeline is focused on advancing treatments for lung diseases, including opportunities in major pulmonary diseases through collaborations. PUR0200, a branded generic in clinical development for chronic obstructive pulmonary disease (COPD) and PUR1900, an inhaled antifungal could benefit severe asthmatics and patients with rare diseases like cystic fibrosis.

The company’s product candidates are based on iSPERSE, its proprietary dry powder delivery platform, which seeks to improve therapeutic delivery to the lungs by maximizing local concentrations and reducing systemic side effects to improve patient outcomes.

The company expects to use the net proceeds from this offering to repay its indebtedness, with the remainder going toward general corporate purposes.

Shares of Pulmatrix closed Friday up over 50% at $3.37, with a consensus analyst price target of $15.00 and a 52-week trading range of $0.50 to $3.89. After the offering was announced, the stock was down about 23% at $2.58 in early trading indications Monday.

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