Bright Minds Biosciences Inc (NASDAQ: DRUG) stock flew on Friday after the drug developer revealed that it had received a US$35-million-dollar private placement. It has shot up by over 230 per cent since the market closed on Thursday.
But it gets more interesting than that. Within the past five days the New York-based company went from barely meeting the Nasdaq’s US$1.00 minimum to having a stock valued at over US$71.00.
Some analysts have speculated that the sharp spike could be partly attributable to what’s known as a “short squeeze.” This essentially refers to when “short sellers” borrow shares of a company from a broker that is holding them for other clients. They then sell those shares predicting that their price will drop, thereby enabling them to buy them back and keep the difference as profit.
If the share price rises instead they may rush to buy the shares back in order to limit their losses. When multiple short sellers start rapidly buying back stock it can drive the share price up even more, resulting in the so-called squeeze.
A managing director from the investment management firm AdvisorShares compared the rapid rise to when a short squeeze caused GameStop Corp (NYSE: GME) to briefly skyrocket in early 2021. “It’s a GameStop type of thing,” Dan Ahrens told The Dales Report in an interview.
In response to the recent movement on the Nasdaq, Bright Minds issued a press release on Oct. 15 to “confirm that the company’s management is unaware of any material changes in its operations that would account for the recent increase in market activity.”
This is weird.
A random biotech stock, $DRUG, was trading as a penny stock this morning.
It ran +1500% randomly today on no news.
Bright Minds Biosciences stock went from $2 to $38.35 today.
The market cap went from $4 million to $172 million.
It is up 14% in AH too. pic.twitter.com/CmRRlGKgTW
— unusual_whales (@unusual_whales) October 15, 2024
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Multiple developments led to the spike
Other factors leading to the company’s rally include successful phase I trial results with one of its top drug candidates: BMB-101.
“BMB-101 offers a differentiated treatment option for patients with refractory epilepsy, where current therapies often fall short,” Bright Minds said in a news release announcing the initiation of phase II research, “and could provide a new standard of care for a much wider population of epilepsy sufferers.”
A US$2.6-billion-dollar acquisition of a major drug company with a similar therapeutic this week, Longboard Pharmaceuticals Inc (NASDAQ: LBPH), also contributed by bringing increased attention to Bright Minds.
Longboard’s top drug, LP352, has similar characteristics to the BMB-101 epilepsy treatment Bright Minds has developed. Another drug developed by Bright Minds that has drawn attention, BMB-201, “demonstrated similar efficacy to morphine in preclinical pain models” in rodent studies, according to a press release on Wednesday.
“BMB-201’s efficacy suggests that it may provide better pain relief than traditional opioid treatments, without the associated risks of dependency and side effects,” the company specified.
One of Bright Minds’ shareholders increased its stake significantly this week too, buying another US$3.2 million worth of stock. Cormorant Asset Management, LP’s investment is yet another factor.
Founded in 2017, Bright Minds is currently in the pre-revenue stage. The drug developer is completing clinical studies on handful of different therapies and trying to pull investors. It appears to be having success in that regard.
Indications these drugs are used for include different forms of epilepsy, treatment-resistant depression and obesity.
rowan@mugglehead.com