Precipio (NASDAQ: PRPO) stock should jump 2,000% at the open. The 20x rise in PRPO stick should not be taken as a sign that they’ve suddenly discovered how to cure blood cancer, Rather, this is a purely technical - and only nominal - stock price change designed to solve the one, specific, problem. As with all pharma development the work is done with shareholder capital. Which means that continuing to have access to more such capital is built into the basic business model. This is the base point that this change is meant to deal with - preserving access to capital.
The business line at Precipio: “Precipio, Inc., a healthcare solutions company, provides diagnostic products, reagents, and services in the United States. It provides diagnostic blood cancer testing services. The company offers IV-Cell, a proprietary cell culture media that enables simultaneous culturing of four hematopoietic cell lineages; HemeScreen, a suite of robust genetic diagnostic panels;” and so on. Not a bad line of work but they’ve not managed to make it successful yet. Revenues are running around $3 million a quarter, losses on that at $2 million and the cash position seems to be a little over $2 million after a recent stock issue. Yes, they need to preserve access to further capital raises, don’t they?
Precipio stock price from Google Finance
The problem here is that the main US markets do not like penny stocks. Not that all penny stocks involve fraud, far from it, but when there is fraud it tends to involve penny stocks. Therefore you cannot remain on Nasdaq as a penny stock - true, it takes up to 18 months to be kicked off but it does, eventually, happen. But Nasdaq is where you can raise new capital if that’s necessary - the OTC is not a good place to try to gain new cash.
Therefore something must be done and that something is to declare that 20 old shares now become one new one, a one for 20 reverse stock split: “Precipio, Inc. (PRPO) will effect a one-for-twenty (1-20) reverse split of its Common Stock. The reverse stock split will become effective on Friday, September 22, 2023.” This does not change the market capitalisation of the company, not directly, just the number of shares that make it up. Therefore the Precipio stock price should react mechanically, rising 2,000% or 20x. But note that this is a purely nominal price move, not a real one.
Given that the aim of this is to preserve the ability to raise new capital we’ve a strong suspicion that there will be a capital raise soon enough. But then that’s not an exactly novel observation here.