Enveric Biosciences (NASDAQ: ENVB) stock was up 136% yesterday on the back of a patent decision. “...the company said it will get a U.S. patent decisionpatent related to its psilocin prodrug EB-373 being developed to treat anxiety disorder.” Which is great, obviously. It's a real stage on that path to having something useful - natural compounds may or may not gain a patent.
The background here is that the world has become more relaxed about people investigating the varied psychedelics for their possible pharmaceutical uses. We all know that magic mushrooms have interesting effects on the psyche. That's usually ascribed to the psilocybin in them. Perhaps that close relative and fellow content, psilocin can be observed to have more controlled effects? Such as, say, alleviating anxiety? Well, could happen, yes, which is what the research is all about. As we say, in general the rules about doing this sort of work have relaxed in recent years so there are several companies having a look.
We should also note that gaining a patent is something that tends to happen at the beginning of the drug testing process. On the logical grounds that there's little point in spending the money on testing something if you don't have exclusivity having done the testing. This does mean that this is the beginning of the process. Often up to a decade after patent grant is when a drug - if it has passed all the tests - finally hits the market.
Enveric Biosciences stock price from NASDAQWe should also notice that this is when matters start to become expensive. Drug research is cheap in comparison to drug testing. So this is again more like the start of the process than the end.
We should also expect a stock issue soon enough. Enveric appears to have some $12 million in cash and expenses of around $5 million a quarter. Rough numbers you understand. So, they can run 6 months or so before needing more capital. All expenses at this point will be paid for out of shareholder capital - before authorisation of a drug there's no asset that can be borrowed against. It's also entirely normal that any capital raise only takes the company from one valuation point to the next. Say, from patent grant to Phase I trials, or to Phase II or something. No one does raise money to run all the way through the years long process.
On the grounds that as each stage is passed then the corporate value rises - as here, 136% up on the patent news. So, new capital is raised after the announcement of success at each stage when it is less dilutive to raise new capital.
Therefore we should expect a new stock issue at Enveric Biosciences real soon now. Not because of anything wrong, or they're taking advantage - but because that's just the way that pharma research is financed. Hit a target, see the stock price rise, issue more stock.
