Shares of the psychedelic medicine company Mind Medicine (MindMed) (MNMD 2.87%) tumbled by a heftly 23% through the first three and half days of trading this week, according to data from S&P Global Market Intelligence. The good news is that the novel healthcare company's stock didn't lose ground in response to a negative clinical catalyst or regulatory development.
Instead, shareholders simply appear to be reacting to MindMed's recent 1-for-15 reverse stock split, which took effect on Aug. 29. The company enacted this reverse stock split in order to maintain compliance with Nasdaq's $1 minimum bid requirement.
Over the prior 12 months, MindMed's shares had lost 71% of their value, putting its stock at risk of being delisted by the Nasdaq exchange. Mr. Market slashed the company's valuation over this period in response to rising interest rates, geopolitical unrest, and a growing aversion to risk by investors in general.
What's important to understand is that MindMed is a particularly risky stock, given that some of its clinical assets are derived from psychedelic compounds that are currently banned by the federal government. That's not a knock against this pioneering brain-health company, but it is a unique risk factor that probably didn't play well with investors during a bear market.
Is MindMed's stock worth buying on this pullback? It all depends on your comfort with risk. The company might have a truly novel platform in the realm of brain health disorders. But it will take several more years for any of its drug candidates to reach the market. Meanwhile, market sentiment toward deep value clinical-stage biotechs like MindMed is likely to remain negative for the time being. That doesn't mean that MindMed stock isn't worth owning, but investors will definitely need to be patient with this name.