Dermata Therapeutics Inc (NASDAQ: DRMA) stock hasn’t done well for holders since the arrival on Nasdaq back in August 2021. That initial price was $5 and change and it plunged to $2.42 in December and then wobbled up and down to $1.50 after that. A recent recovery in the price up above $2.20 again was then met by a stock issuance.
This is the sort of thing that will put a cap on a stock price whatever it is that the company actually does. Dismal performance and with any price strength being met by further dilution? Why bid up the stock price at Dermata if it will just be met by such dilution? Especially since at last reported results, Dermata reported still having $12 million in cash.
The issuance was announced early this week and the Dermata stock price is bouncing now as the market tries to digest what it actually means. Thus that 20% and change price drop yesterday, followed by a 40% jump premarket today. The volatility is that the market hasn’t come to a settled view of the merits of the company, the fundraising and the application of the new funds.
Nor is there, as yet, clear evidence that the new stock has been securely placed rather than being available to flood the market in the face of any price improvement.
Dermata says that the funds raised will be used to complete FDA-required studies on the DMT310 acne program, also initiate DMT310 Phase 2 psoriasis trial, complete DMT310 Phase 2 rosacea trial and so on. Which is one reason why the Dermata stock dropped so much on the announcement of the stock issue. For the IPO was only those 7 months ago and it’s usual – OK, perhaps just thought good practice – to fund the company for a reasonable period of time at that point. Rather than returning to market for more capital after only 7 months. Capital required to complete tests that were known about 7 months back. FDA requirements are not, after all, a surprise. Or at least they shouldn’t be.
This will likely create medium-term headwinds for the Dermata Therapeutics stock price. Because there always is a certain management of stock market expectations, umm, expected from corporate management. Coming back for a second bite of capital only 7 months after the IPO doesn’t meet those expected standards if we’re to be honest about it.
In the short term, the Dermata stock price is going to be determined by views on how well that new stock is now placed. There could be considerable price changes as views here change. The more it is thought that there’s an overhang of loose stock the lower the price might be. The more long-term investors are thought to have bought in, the higher.
In the long term of course it will be the success or not of Dermata’s research and development program. But the short term is likely to be around those technical issues of how much stock is in speculative hands, how much in investing.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.