What happened
Shares of Mind Medicine (MNMD -0.95%), also known as MindMed, had crashed by 49.3% as of 12:08 p.m. ET Wednesday. The steep decline came after the clinical-stage biopharmaceutical company announced the pricing of its latest public offering.
MindMed plans to sell 7,058,823 common shares along with warrants to purchase 7,058,823 common shares. The company set a combined offering price of $4.25 for one share and one accompanying warrant.
So what
The main problem with MindMed's secondary offering is that it dilutes the value of the company's existing shares. Investors understandably reacted negatively to the news.
MindMed currently only has around 28.5 million outstanding shares. This offering has the potential -- assuming all the warrants are exercised -- to increase that figure by nearly half. It's not surprising whatsoever that the stock price fell by nearly that same amount.
However, there is an upside to MindMed's offering. The company expects to generate around $30 million in gross proceeds. Even after commissions, offering expenses, and underwriting discounts are subtracted from the total, MindMed will boost its cash stockpile significantly. That will give the drugmaker more money to fund its clinical development and other operations.
Now what
With MindMed's shares taking such a beating, some investors could be tempted to swoop in. The psychedelic drugs it has in development are promising.
MindMed recently dosed the first patient in the phase 2b study of MM-120 as a treatment for generalized anxiety disorder. CEO Robert Barrow called the study "the largest well-controlled clinical trial of LSD ever conducted."
But while MindMed's pipeline has potential, the stock remains a high-risk proposition. Only the most aggressive investors will want to even consider buying it now, despite Wednesday's sell-off.
