MindMed (MNMD) stock plunges 33% on new shares auction

• MindMed offers to sell more than 7 million shares and 7 million warrants.
• The proposed offering price is $4.25.
• MNMD stock dropped 33% in Wednesday's premarket.

While MindMed (MNMD) stock advanced 6.4% on Tuesday, shares immediately plunged after-hours when the company filed with the Securities & Exchange Commission (SEC) to sell another round of equity. MNMD is currently down 33% at $4.10 at the time of writing after closing at $6.12 on Tuesday.

MindMed stock news

According to the filing, MindMed's share sale is expected to be completed by Friday and entails selling 7,053,823 common shares for $4.25 each. This would raise about $30 million for the firm, minus underwriting costs for the offering being carried out by RBC Capital Markets, Cantor and Oppenheimer. 

In addition to each share, however, buyers receive a warrant that can be exercised anytime in the next five years. This warrant can also be used to purchase another share at $4.25. Before the offering, MNMD stock had about 28.5 million common shares. This means that the new offering will add about 50% more MNMD shares to the market, meaning that existing shareholders are diluted by about one-third. This is why MNMD dropping by 33% makes perfect sense. By September 2027, there should be at least 42.6 million shares outstanding based on this offering alone. 

MindMed stock is a pre-revenue, clinical-stage biopharmaceutical company that its testing uses for LSD on anxiety disorders and addiction. As such it is burning through capital despite having a small staff. Headquartered in New York City, the firm has just 41 employees at last count. MindMed, short for Mind Medicine, spent $93 million in 2021 but appears to be reducing expenditures in recent quarters. The offering should not have surprised investors all that much since the company already filed notice back in May that another offering was likely.

MindMed stock forecast

With MNMD stock dropping as far as $3.20 in the premarket, it seems that MNMD might be selling off too much. The initial 33% drop was sensible, but a 48% drop is too much. Based on Tuesday's closing price, $4 seems a fair price all things considered. At $3.20, MNMD stock is back in line with the first few weeks following its IPO. MindMed chose an inopportune time to IPO during March 2020 – the start of the Covid-19 pandemic. Even then, the firm found some footing around $3, so that type of support may be what investors are searching for.

Ever since August 8, the MNMD Accumulation/Distribution line has been plunging. It began August closer to -6 million but has now fallen to -32 million. This typically shows that accumulation, especially by whales, has dropped and now retail traders are scooping up the bits and pieces.