What happened

Shares of Ampio Pharmaceuticals (NYSEMKT:AMPE) gained 15% today because, well, that's become the norm lately. The stock is up 85% in the last five trading days and has gained 112% in the last month alone. You may be thinking the company announced a new cryptocurrency, but there's a simpler explanation.

On Dec. 14, Ampio Pharmaceuticals announced that its lead drug candidate, Ampion, met both primary and secondary endpoints in a phase 3 trial for severe osteoarthritis of the knee. Mr. Market surely wasn't expecting that outcome, casting the company aside as just another penny stock. The company had a market cap of just $25 million in mid-August and was valued at roughly $100 million entering this month. 

Today's move is simply an extension of the momentum from that announcement as Mr. Market reconsiders the company's market cap. As of 11:06 a.m. EST Thursday, the stock had settled to an 11.6% gain.

A cartoon of a rocket ship soaring over increasingly taller columns of coins.

Image source: Getty Images.

So what

The phase 3 results appeared to be pretty rosy for Ampion. The drug candidate met its primary endpoint with 71% of treated patients reporting a response based on a rating scale used by physicians. A meaningful treatment for severe osteoarthritis of the knee needs only to achieve 30% in the eyes of doctors. The drug was also well-tolerated, with no reports of treatment-emergent adverse events.

AMPE Market Cap Chart

AMPE Market Cap data by YCharts

The next step involves meeting with the U.S. Food and Drug Administration and submitting a Biologics License Application for Ampion. In the best-case scenario in which the drug is approved, investors will likely have to wait a few more quarters before the product hits the market.

Now what

Investors may want to think twice about jumping on this rocket ship. One reason: It would be very wise for management to take advantage of its good fortune -- and a rising stock price -- to raise funds through a stock offering in the near future. Ampio Pharmaceuticals boasted just $1.8 million in cash at the end of the third quarter of 2017. That's not going to cut it for its multiple ongoing clinical trials and, if Ampion is approved, launching its first product.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.