InMed (NASDAQ: INM) stock rose 300% and change yesterday at one point. INM stock then fell back considerably on the announcement of a stock issue. Which is rather how this world of development pharma companies works. They all live on shareholder capital so, when the price rises enough to reduce the dilution of another stock issue then another stock issue happens. That’s just the way of this world. This also gives us something of a clue to this part of the financial world. A nice stock price rise is likely to be met with a capital raise - so, any rise should be viewed as a very temporary thing to be taken advantage of near immediately.
The rise at InMed was because: “InMed Pharmaceuticals Inc. (NASDAQ: INM) ("InMed" or the "Company"), a leader in the pharmaceutical research, development, manufacturing and commercialization of rare cannabinoids and cannabinoid analogs, today announced it has selected a lead Alzheimer's disease drug candidate, named INM-901, following positive results from several proof-of-concept studies in a validated Alzheimer's disease treatment model. InMed will be advancing INM-901, a cannabinoid analog, in its pharmaceutical drug development program.” This is, of course it is, very, very, early days. But the size of the market for anything which treats Alzheimer’s is so huge that even at a very low probability of success this is worth something in a net present value.
As at our pixel time that announcement was 18 hours ago. Then, again as at our pixel time, 8 hours ago we got this: “InMed Pharmaceuticals (NASDAQ:INM) plans to raise $5.2 million through a private placement offering, the company said Tuesday. The company has entered into definitive agreements for the issuance and sale of 3,012,049 of its common shares or pre-funded warrants in lieu thereof and preferred investment options to purchase up to 3,012,049 common shares. The purchase price would be $0.83 per share, or a pre-funded warrant in lieu thereof, and an associated preferred investment option.”
83 cents is a considerable discount to the $1.70 and change the price peaked at but it’s still markedly less dilutive than trying to issue at the original 55 to 60 cents.
InMed stock price from Google Finance
As to why it happens this way this is simply the economic structure of the sector. The development of a new pharma drug or treatment is a decade long process with many possible failure points. It poisons people, it does or doesn’t treat the underlying, it has unacceptable side effects in the wider population (roughly, what Phase I, II and III test check up on). It can fail at any of those points. But until the FDA has approved the drug - after that decade - there’s no asset there. So, everything must be paid for from shareholder capital. No one does fund such a company for a decade.
Instead, funding is to that next possible failure point. If it passes that test then more capital is raised to get to the next valuation point. Having passed one of those potential failure points of course the company is worth more and the stock issuance is less dilutive.
This is just the way it works. Small cap pharma development company announces good results? Stock price rises, there’s a new stock issue. Just as eggs is eggs, this is how the sector works.