Why Acorda Therapeutics Inc. Shares Sank

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Acorda Therapeutics , a biopharmaceutical company focused on developing therapies to treat multiple sclerosis, spinal cord injuries, and other central nervous system disorders, tumbled as much as 10% after announcing its intent to offer convertible senior notes after the closing bell last night.

So what: Per Acorda's Monday night press release, the company announced its intention to offer $300 million in convertible senior notes that'll come due in 2021. The underwriters of the deal will also have an option to purchase an additional $45 million in notes. The company plans to use the net proceeds from its debt offering for "general corporate purposes, including the fund possible acquisitions of, or investments in, complementary businesses, products and technologies." Of course, Acorda was also quick to mention that it hasn't entered into any agreement to purchase any complementary businesses or technologies at this time.

Now what: Generally speaking, shareholders don't like when a company takes on debt as there are concerns about the ability of the business in question to pay back its debt obligations. In this case, Acorda has set its offering up in such a way that debt holders can convert their notes into a predetermined number of Acorda shares. While this can defer shareholder dilution, it will likely, at some point by or before 2021, lead to an increase in Acorda's outstanding shares which would dilute existing shareholders.

On the plus side, it sounds like Acorda is going on the offensive to purchase businesses and technologies that could be immediately accretive to its EPS. I've long believed (and incorrectly up to this point, may I add), that Acorda is itself the perfect takeover bait in the biotech realm, with the company profitable and, for the time being, boasting $267 million in net cash. If weakness associated with its convertible note offering gets out of hand I would suggest digging a bit deeper into Acorda, because you might like what you find.