MGC Pharmaceuticals (ASX: MXC) (LON: MXC) has long been a definite underperformer. So a turnaround in the share price is nice but also long overdue. The problem with all pharma development companies is that the costs of development have to be carried upfront, before anything is really known about likely or potential revenues. We can only find out how well things are going to go after we've sunk all the money that is.
This makes approval for sale the one grand event in MXC's fiscal timeline. We still don't know how well it will work, for at that point we've got to estimate what the sales will actually be. But we do know that without approval there will be no such sales - so this is an event, yes. Thus the 85% rise in MXC stock today in Australia, presumably to be mirrored on the London quote in a couple of hours.
MGC Pharmaceuticals ASX share price from MarketIndex
The specific trigger for this is that the ArtemiC™ COVID-19 treatment is now listed as an OTC (over the counter) treatment in the US. This has prompted a $2 million order from the US distributor. This is obviously and clearly beneficial. But it would be possible to celebrate too much.
The MXC accounts show why.The company's losing $8 million a half year. It has under $2 million in cash. Yes, there are other assets but not enough to provide a significant runway. This is not the approval of a patented drug, where production costs are minimal, so that $2 million contract, or any other, does not flow through near directly to the bottom line. This is something that has to be sold, with all of the costs that implies.
This approval is obviously beneficial. But it's not one of those Hail Mary passes that solves everything. Any really substantial move upwards in MXC is highly likely to be met by a capital raise. That might well put a cap on any such price move.
As those same accounts tell us MGC Pharma has recently been economising on directors' fees. Yes, we should expect a rights issue soon, that's a cap on that price.
