Baudax Bio (NASDAQ: BXRX) stock is down 48% this morning premarket. That after significant rises just recently on the back of their research result. Or, good research put the price up, asking for more money puts it down again. Given that this is a common pattern in pharma research companies it's one we need to get used to. Rises in the stock price as a result of the company advancing in its goal often do lead to requests for more money. This is just the way the sector works.
Why it works this way should also be understandable. Until there's an actual drug or treatment that can be marketed - with FDA approval that is - there's no actual asset within a research company. So, debt finance just isn't possible. All of the expenses of the research and subsequent testing have to be carried by shareholder capital.
However, no one funds the idea right through the process. There are too many points at which it might fail. So, funding is always just for this next stage - only on a positive result is more funding either required or sought. What this does mean is that every time a pharma company gains a positive result - and the stock price rises - then they come back with a new stock issue asking for more money
There're the gains in BXRX (from NASDAQ) after their neuromuscular drug results announcement.
Today's BXRX prices after the fund raise
Well, we should all know that a results report is going to push up a pharma research stock price. They're just passed another milestone, they are worth more. But also we should expect the fund raise which immediately follows. As here.
What's really killing the BXRX stock price though is that they seem to have been a bit ambitious in pricing that stock offer. $1.15 just seems a bit rich. It's taking perhaps too much advantage of the recent run up in the price. So, that's why the stock is now trading well below that offer price. Strange but true, if they'd offered the new stock at a sightly lower price then the price might well be higher now.
It's normal to have a fund raise after successful research results. But the price it's done at can be damaging.