ContraFect (NASDAQ: CFRX) stock is caught in an unfortunate bind. It's not wholly unusual among research stage pharma stocks and there's also no clear way out of the problem. The background here is that until there's actually something with an FDA approval for sale a research company doesn't really have any assets. Certainly nothing that anyone will lend against. So, debt just isn't a viable financing source - it all has to be capital from stockholders. Well, OK, the system is called capitalism.
It's also true that no one finances a project all the way through in the one shot. It's always finance enough to get to the next stage of validation, see what the results are, then finance again to the next stage and so on. But this does mean that a pharma company can have entirely useful results but also face imminently running out of money. And when you really, really, need money well, that's a really, really, bad time to be trying to raise money. Which is where we think ContraFect is.
ContraFext stock price from NASDAQ
As we pointed out before about ContraFect it's pretty much bust. Not enough cash to do very much - but also at a stage in the testing process where it needs to be able to spend. We got that boost in the stock price we can see above - but then perhaps reality hit. For it's obvious - to us at least - that any great strength in the CFRX stock price is going to be met by a stock issue, a cash call. So, as people realise this this tempers the rise from any good news. Also, our reading of the accounts - which we agree may not be perfect - is that a stock issue at anything like current levels is going to be hugely dilutive.
So, we get the news that a patient is being doped with Exebacase. Excellent, the clinical work is ongoing, that's great! Then the reality of the financial position hits home and the stock gives up its gains.
As we say there's no really cute or obvious way out of this. ContraFect simply needs more money. At anything like current prices a cash call will be terribly dilutive. Therefore, whatever the clinical news, any substantial rise in the stock price is going to face that downward pressure again.
