It was roughly 2022 for MindMedicine contributors (MNMD) . Unfortunately, if after-hours price movements continue, it will only get worse.
The Canadian drug developer has announced its intention to conduct a public offering of common shares. The regulatory filing did not say how many shares will be offered, but the markets will likely start pricing in a good amount of the upcoming easing before details emerge.
The news adds to a turbulent extension. Shares are down nearly 75% YTD and 48% YTD to Tuesday’s close. The stock is down 33% in the trading period after the close. Meanwhile, the dust from the 1-for-15 stock split completed two weeks ago has barely settled. The deal was necessary to restore the NASDAQ listing requirements.
Looking at MindMedicine, it predicted its previous cash trajectory would continue into 2024, why does management feel the need to raise capital in current market conditions?
Explanation of cash runways for drug development
Pre-commercial drug developers are synonymous with burning cash. Therefore, even though a company may have a multi-year cash runway, the cash on hand does not necessarily affect the company’s market value. It’s as good as it goes.
As a general rule, drug developer CFOs always try to keep a cash runway for 12 months. We’re entering that funny part of the calendar where 2023 is a few months away and 2024 is just over a year away, not two years away because our brains might be trying to convince us at first.
This means that drug developers with a cash intake through 2024 will soon encounter that 12-month mark. The dilemma is that market conditions could deteriorate between now and the first half of 2023, so CFOs may feel pressure to be proactive in extending the tarmac.
Leave anything to chance
Under pressure or not, MindMedicine’s chief financial officer, Shunde Greenway, has been busy since joining the company in May 2022. The board of directors approved a stock split after his arrival. Meanwhile, the drug development company has raised more than $30 million in cash from a facility on the market since July 2022.
This alone would have added a good cushion to the $105.7 million cash balance reported at the end of June 2022. Once again, the development of the company’s nascent pipeline will become significantly more expensive as the software matures.
MindMedicine now has six unique programs in clinical trials. These include MM-120, a version of LSD intended to treat anxiety disorders, and MM-402, a version of MDMA intended to treat social anxiety in individuals with autism spectrum disorder. The MM-120 is expected to have preliminary results from a significant Phase 2B study by the end of 2023. A successful outcome could create more favorable conditions for fundraising, although the cash runway will be well below the 12-month threshold by then. the time.
MindMedicine leaves nothing to chance. The company intends to conduct a public offering of common shares now, even after a sharp decline in the share price, rather than risking a more difficult liquidity environment in 2023. This will ensure that the drug developer can achieve this during the upcoming economic downturn without any problems. Of course, the cost of removing this uncertainty tomorrow is a sharp round of easing being paid today.
On the other hand, psychedelic medicine remains a promising area for drug development. MindMedicine could be undervalued right now, too. On the other hand, the recent volatility is a good reminder that you are investing in business, not technology. Simply put, the company has not treated shareholders very well in recent years. Importantly, the commercial opportunity for psychedelic drugs remains uncertain.
Investors are awaiting details about the number of shares in the offering and their prices. An after-hours drop of 33% indicates that Wall Street is expecting a significant amount of easing — or at least punishing the company for unexpected acidity.
