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Casi Pharma, How Does An 800% Price Rise Become A 20% Stock Loss?

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Updated 2 Jun 2022

Key points:

  • Casi Pharma is up, nominally, 800% today
  • That's a real fall of 20% in the CASI stock price
  • A reverse stock split, a consolidation, can have this effect

Casi Pharma (NASDAQ: CASI) stock is up 800% premarket this morning. This is also a 20% loss in the CASI stock price which is a bit of a blow, It's also something that needs explaining – how can an 800% rise be a loss? The answer is, of course a reverse stock split – a consolidation as the Brits call it.

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Casi is also a little object lesson in how not to react to such a reverse stock split for the price started to move before the change became official, but long after it had been announced. That's just throwing money away trading like that.

Leave aside what CASI actually does (it's a small-cap, even microcap, pharma development company which isn't really germane to this story) and concentrate just upon the past couple of days of stock movements.

Also Read: Five Best Pharmaceutical Stocks To Watch In 2022

So, there's a fashion out there. Brits tend to think that serious share prices should be in the £1 to £10 range. Below that it's a penny stock and that's not for serious companies. So much so that Horizonte Minerals just did a consolidation purely to be thought of as a more serious stock, it had graduated from being a junior mining play to being a serious miner. The same range in the US is $10 to $100. That's just where serious company stock prices should be – and we can tell it's fashion because the ranges are different in the two countries. This is also why an ADR is usually 10 units of a London listed stock – to be in that right range in both places.

The US markets really, really, don't like stock prices below $1. That's way too far out of the polite range. So much so that if the stock price stays in that pennies range then the company can lose the NASDAQ quote and listing. So, things called reverse stock splits (those Brti consolidations) exist. Swap 10 old stock for one shiny new one, get the price back up into the fashionable range or keep the NASDAQ quote.

Which is what Casi Pharma has just done. 1 for 10 reverse stock split to get the price up to NASDAQ minimum bid requirement. So, this should produce a 1,000% rise in the stock price. We've had 800%, therefore this is in fact a 20% decline.

However, here at Casi we've one more stage. The reverse stock split was announced May 26, so we know it was coming, It took effect at 5 pm last night, 1 June. But the stock price started moving yesterday before the consolidation – it was up 41% at one point. But now think about it. Anyone who bought yesterday during normal trading hours was buying the old, 10 pieces, stock. Which switched into the new, 1 piece, at 5 pm. In the new price they were buying at $4 to $4.60 and yet today the price is back down to $3.30.

It is possible to suffer from the money illusion – to get confused between real and nominal prices. That might what be happened here. The lesson for us going forward should therefore be obvious. Always, but always, think properly about stock splits and consolidations. That the nominal price is going to change is interesting, but what actually matters is the real price – the nominal price times the number of shares.