The pharmaceutical industry gets a lot of flack for being one of the shadiest outfits in the world…
And it’s not for no reason.
The entire industry is often built on flawed assumptions, economics that favor “diagnose and dispense” instead of wellness, and is well known to be knee-deep in corruption and cronyism.
Remember those drug ads that touted a “chemical imbalance” as the source of depression?
It turns out, The Science™ got that one completely wrong…
Of course, there’s also the recent fiasco with a certain experimental medicine for an infection that shall not be named…
By now we know that particular compound never did and never could do what The Experts® promised us it would.
But for all of its flaws, the drug industry has been a massive boon to humanity overall.
Drugs save lives, soothe pain and suffering, and eliminate diseases…
But the regulatory hurdles and massive costs of bringing a new drug to market make it a very tricky business.
Yesterday, I talked a bit about Summit Therapeutics in my breakdown of companies that are seeing a lot of insider buys.
In fact, the CEO recently dumped $92 million into the stock, increasing his total exposure to $162 million.
And it seems, Wall Street also took notice…
SMMT got a nice pop in yesterday’s trading.
But underneath the surface, a really interesting game of black magic corporate financing is at play.
Back in July, the company ran into a snag with Phase 3 clinical data on a new drug it’s developing…
The FDA wasn’t impressed with their trial and told them to run another one.
Now, here’s where the voodoo comes into play…
See, it takes a LOT of the green stuff to run Phase 3 trials.
And the company already spent most of 2021 burning through about $20 million per quarter.
So they’re a little “cash poor” at the moment.
Just last week, the company did an S-1 to raise capital.
This is where they issue more stock to fill their coffers and keep afloat.
It was a VERY successful raise, bringing in over $100 million in fresh capital.
Most of the financing came from the CEO buying a ton of stock.
This is a MASSIVE risk for the CEO because, if he’s wrong and new trials don’t go well…
He’s going to be upside down many millions of dollars on the trade.
But IF he’s confident that the product is solid and the last Phase 3 snag was just a little speedbump…
He could end up becoming a billionaire off the move.
So, his use of the Dark Side of the Financial Force to conjure more cash signals that he has a lot of faith in his products.
And that is the kind of conviction we like to see.
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