In sharp contrast to a diving S&P 500 index, Mind Medicine (MNMD -2.43%) stock rose on Thursday. Shares of the psychedelic-medicine developer reversed course from Wednesday, increasing by more than 6%, as a major investor strongly pushed back against a large planned secondary-stock issue.
That investor is a firm called FCM MM Holdings, which says it owns just over 6% of MindMed's outstanding common shares. In a letter to MindMed's board of directors dated Wednesday, FCM formally requested that the company immediately cancel its planned share-and-warrant offering.
MindMed is to issue just over 7.05 million shares. Each will have an accompanying warrant allowing the holder to buy an additional share. The price of this package is $4.25 apiece.
FCM wrote in its rather scathing letter that "MindMed has not presented a convincing need for additional equity financing at this time, particularly at such a depressed valuation."
The disgruntled investor went on to write that it's revealing that MindMed was skimpy on details of how it would utilize the proceeds of the issue. It said the offering will be a "massive destruction of stockholder value."
While certain points being made by FCM are a bit overstated, there's truth in its core assertions. The issue is extremely dilutive, as it could increase MindMed's total outstanding share count by nearly 50% if all warrants were exercised.
MindMed, as a biotech operating in the exciting new realm of therapies based on psychedelic compounds, is surely a company to watch. Given this suddenly quite nasty stockholder dispute, it might not, however, be an ideal business in which to invest -- at least not now.