Clearmind Medicine (NASDAQ: CMND) stock is up 60% this morning. This does not make up for the 58% fall a couple of weeks back, that's not how percentages work. But the CMND stock price is, at least, back up over the price at which that new equity was offered. Which is something, long term stockholders might still be out of pocket but the new ones aren't.
We can and should use this as a lesson in how this part of capitalism is financed - with capital. Clearmind is developing antialcohol treatments and until something is actually passed by the FDA anything in pharma development has no great value. Anything and everything in development is merely a money sink. It's also true that few to none will lend into such a process. It all has to be funded by stockholder capital. Therefore companies in this field regularly raise more capital by issuing more stock. This is just how the sector works.
Clearmind Medicine stock price from NASDAQ
CMND being a good example of how this goes. So, they announced on Match 16th that they'd submitted an alcohol abuse therapy to the FDA for approval. Obviously, no one knows how that is going to go. But submission is indeed a valuation event. This did make the stock bump up a bit, by about a dollar, or 25%, or so.
Aha! So, now's the time to ask the stockholders for more money, right? Which is indeed what did happen - on April 4th there was the issue of more stocks and warrants at 78 cents. A very significant discount to the then prevailing price. At which point, of course, CMND stock fell 58%. The rise we're now seeing only just brings the price back up above that issuance price.
The lesson we should take from this. So, development stage pharma. There will be continual calls for more capital. And, obviously enough, those calls are likely to come soon after any good news that pops the stock price up. Precisely because of the constant need for more capital we tend not to see long runs up in pharma development stocks. Not until, or unless, they gain full FDA approval - at which point debt finance is usually available and the calls on shareholders cease or at least mitigate.