Reviva Pharmaceuticals (NASDAQ: RVPH) stock is up 46%. RVPH stock rose on the release of their results on the schizophrenia drug. These results are positive: “Results of a phase 3 clinical trial evaluating a treatment for adults with schizophrenia reported that its primary endpoint has been met, with a 50 mg dose of the treatment showing a statistically significant reduction of 10.1 points in the Positive and Negative Syndrome Scale (PANSS) total score compared with placebo at week 4. The Phase 3 RECOVER trial evaluated the efficacy, safety, and tolerability of brilaroxazine, a serotonin-dopamine signaling modulator, in the treatment of adults with schizophrenia.” Which is good, obviously.
At which point we’ve got to consider how pharma development companies are financed. Until the FDA announces that something is licensed for sale there is no asset there. So, debt cannot be used to finance - everything is done with shareholder capital. But along the way there are various possible failure points - or, the other way around, valuation points.
It’s possible to fail Phase I testing - essentially, does the drug poison healthy people? Or to pass of course, and passing would be an increase in value. So too with Phase II, does it actually treat something? Phase III, what about side effects in a wider population? There are subsets along the way as well.
Reviva Pharmaceuticals stock price from Google Finance
So, what happens is that sufficient shareholder capital is raised to reach that next potential failure point/valuation point. If it fails then tents are folded and quietly creeping away into the night happens. If it passes then the valuation is higher and a new stock issue can be undertaken. Given that the price has risen - the drug having passed that valuation point makes the company more valuable - the dilution is less by money raising just after experimental results are announced.
At which point the finances of Reviva. From what we see there’s about - maximum - one quarter of runway available without a cash raise. The cash pile is about equal to 3 months of spending that is. So, we’ve encouraging results announced from the drug testing program. The RVPH stock price rises as a result. We would therefore expect a capital raise in 3…2…1….This is not a firm prediction but we would expect to see some stock issuance here. Simply because that’s the way that pharm development does get financed - reach the next validation and valuation point and then raise more capital to continue the process.
