What happened

Shares of MediciNova, Inc. (MNOV -1.48%), a clinical-stage biopharmaceutical company, are down around 13.2% as of 12:11 p.m. EST on Thursday. The company recently pleased investors with positive data for its lead candidate, but investors aren't happy with how the company will go about funding a pivotal trial with ibudilast for the treatment of progressive multiple sclerosis (MS).

So what 

After the bell yesterday, MediciNova, Inc. announced it would offer around 5 million shares for just $9.05 each, which was well below the market price at the time. The stock surged above $11 earlier this month after the company presented data showing ibudilast, the molecule formerly known as MN-166, led to a 26% disability progression reduction for patients with progressive MS.

Person making a frustrated gesture while looking at stock charts.

Image source: Getty Images.

While the data warrants further investment into a larger pivotal trial, the offering will raise MediciNova's outstanding share count about 14% higher. The dilutive effects of the secondary offering will significantly reduce investors' slice of any profits MediciNova might earn down the road, but will only add around $46 million to the company's cash pile.

Now what

MediciNova had just $24.5 million in cash and equivalents on the books when the company last reported. To address concerns that the company's balance sheet is too modest to fund a proper pivotal study the nine-employee company thinks it can satisfy regulators with a relatively small, 700-patient pivotal trial. 

MediciNova wants to use the same disability progression metric ibudilast scored high on during its mid-stage progressive MS study as the primary endpoint for an upcoming pivotal trial. Investors will want to look for signs the FDA is on the same page. Small biotechs have a dangerous tendency to ignore the agency's advice when it doesn't jive with the soothing narratives they present investors.