Neoleukin Therapeutics (NASDAQ: NLTX) stock should have risen 500%. NLTX actually rose 7%. This is, of course, playing games with the difference between nominal and real prices. But those are games we should play because the difference between the two sets of prices is absolutely vital. We’re going to get horribly misled if we don’t grasp the difference.
The business at Neoleukin: “Neoleukin Therapeutics, Inc., a biopharmaceutical company, develops immunotherapies for cancer, inflammation, and autoimmunity disorders using protein design technology. The company’s lead product candidate is NL-201, a de novo protein designed to mimic the therapeutic activity of the cytokines interleukin (IL)-2/IL-15 for the treatment of various types of cancer, including renal cell carcinoma and melanoma.” All good things to be trying no doubt. But as the stock price chart shows, not successful as yet and that’s the problem here.
Neoleukin Therapeutics stock price from Google Finance
The problem is that penny stocks are simply not the right thing on the main American markets. It’s not that every penny stock is run by charlatans, it’s that if frauds are going to occur in stocks then the tend to happen in penny stocks. Therefore the main markets - Nasdaq, NYSE - insist upon a $1 minimum bid price. After enough months (usually 18) as a penny stock it’s off the main markets. The OTC is a horrible place to try to raise capital, and one of the things a pharma development company is likely to need to do is raise capital. So, that Nasdaq quotation needs to be saved.
The solution is simply to declare that 5 old shares are now one new one - a one for 5 reverse stock split: “Neoleukin Therapeutics, Inc. (NLTX) will effect a one-for-five (1-5) reverse split of its Common Stock. The reverse stock split will become effective on Monday, September 25, 2023.” That then saves the main market listing.
This doesn’t- not directly - change the value of the company itself. It just changes the number of shares that make it up. So, the stock price reacts mechanically, rising 500% or 5x. Sometimes this works exactly as advertised as well. More often there’s a secondary effect. As here. That saving of the Nasdaq listing is clearly seen as increasing the value of the company itself. So, we’ve the 500% nominal price rise from that purely mechanical change plus the 7% on top of that change in the overall market capitalisation of the company.
Nominal and real price changes are different and we need to be clear about which are which. Neoleukin does have other problems as well.