Key points:
- MindMed had a reverse stock split only a month ago
- MNMD has fallen 50% since then and another 33% today
- The point of the stock split was to be able to raise capital – which they've just done
MindMed (NASDAQ: MNMD) stock has fallen 50% or so in this past month and is now down another 33% premarket this morning. That's not a good look it has to be said. The interesting question is why this is happening? The answer to that is that MNMD has just issued more stock to provide working capital. That's the explanation for today's fall that is. But the explanation for the fall over the past month? More likely than not that's the expectation that just such a capital raising exercise will be undertaken. Which is a much more interesting point for us to be aware of.
As to what MindMed does as we've explained before it looks at the clinical and medical effects of varied psychoactives. This looks like a sensible thing to be doing. We know that these drugs have interesting effects upon human beings so let's see if there are any positive medical effects over and above the pure fun that people take them for. This does rather depend upon governments allowing such experimentation but the Feds in the US have become markedly better at that just recently.
We do also need to note though that it still takes years of experimentation to discover anything useful – rather than just fun – and then proof up to approval takes years more. This swallows capital and the uncertainty means that banks and large companies aren't going to do that funding. The risk is going to have to be carried by speculative equity funding from the public markets. Which is where we gain our little lesson here from MindMed.
Also Read: Five Best Pharmaceutical Stocks to Watch in 2022
As we can see from that MNMD stock price chart there was a huge leap a month back. That was the MindMed reverse stock split. That was simply the declaration that what had previously been 15 pieces of stock was now going to be one. The reason for that was to get that MNMD stock price back over the NASDAQ $1 minimum offer price. Be a penny stock and eventually you lose the NSDAQ listing. So, something must be done.
The reason to maintain the NASDAQ listing is that it's a liquid market that it's possible to raise capital upon. So, a company which needs to raise capital will make sure that it retains the NASDAQ listing. Fair enough – but then that allows us to go one step further. A development pharma company, reliant upon eating capital to do the development, when it does a reverse stock split to maintain the NASDAQ listing – what might we think comes next? That's right, a capital raise, that's the point of the consolidation after all.
So, we get the reverse stock split, the NASDAQ quote is maintained, but then there's that feeling that a capital raise could be in the works. As has in fact just happened and as has driven the MNMD stock price.
