Penny stock explodes for 3,300% gain: What investors should know

Key points

• Bright Minds Bio stock rose more than 1,400% on Tuesday alone.

• What factors sparked the rally?

• What investors should know.

This stock went from about $1 per share to almost $40 per share in two days.

The most active stock over the past few days has been Bright Minds Biosciences (NASDAQ: DRUG), which exploded more than 3,400% over the last two full trading days.

Bright Minds went from penny stock territory, trading at $1.11 per share when markets opened on Monday, to a ridiculous $38.49 per share when the market closed on Tuesday — a 3,367% increase.

The stock price rose about 124% on Monday to $2.49 per share. And then on Tuesday it really took off, rising a whopping 1,446% to close at $38.49 per share.

On Wednesday, the stock came back to earth a bit, dropping around 17% back to around $32 per share as of about 2:00 p.m. ET.

What caused this wild ride — and what should investors know about Bright Minds stock?

No news is good news?

Bright Minds is a pharmaceutical company based in Vancouver and New York that is developing a drug, BMB-201, to treat epilepsy, depression, anxiety, and other central nervous system (CNS) disorders.

When its stock price skyrocketing on Tuesday, there had been seemingly no direct company-specific catalyst for the rally, which the company later acknowledged at the request of Canadian regulators.

In a statement, Bright Mind officials said the company “wishes to confirm that the company’s management is unaware of any material changes in the company’s operations that would account for the recent increase in market activity.”

That activity resulted in trading volume that reached more than 100 million shares on Tuesday, when it normally averages trading volume of about 2 million shares. The market cap went from about $15 million on Monday to $125 million by the end of Tuesday.

Acquisition may have sparked the rally

The initial Monday rally was likely sparked by a deal announced Monday in the space as Danish pharmaceutical company Lundbeck A/S said it was buying Calif–based Longboard Pharmaceuticals (NASDAQ: LBPH). Longboard is a rival to Bright Minds in that it is developing drugs for neurological diseases, also targeting 5-HT2C receptors, which are found in the brain.

This deal probably triggered the initial rally, as investors may have viewed the interest in Longboard as a potential opportunity for Bright Minds as well.

But after that, the stock became a feeding frenzy in what was likely a short squeeze that catapulted Bright Minds into the stratosphere on Tuesday.

Today, Wednesday, Bright Minds did release some news, announcing positive results from the preclinical testing of BMB-201 through the National Institute of Health pain screening program.

Specifically, it showed that BMB-201 had similar efficacy to morphine, “demonstrating superior reductions in mechanical allodynia and pain-related behaviors.” Also, in the tests, female rodents experienced “a marked improvement in both pain relief and guarding behavior, with higher doses producing a significant therapeutic effect.”

Further, the results suggest that the treatment may provide better pain relief than traditional opioid treatments, without the risks of dependency and side effects.

“These findings are a significant step forward in our mission to develop safer and more effective treatments for chronic pain,” Jan Torleif Pedersen, chief scientific officer of Bright Minds, said. “The fact that BMB-201 outperforms morphine in preclinical models is a testament to the potential of serotonergic therapies in pain management.”

Next, BMB-201 will advance to clinical trials to further evaluate its safety and efficacy in human subjects. Ultimately, Bright Minds sees the drug as a non-opioid alternative for neuropathic pain relief.

What’s next?

Predictably, Bright Minds stock dropped sharply today, down about 17% to around $32 per share. But it had been down more than 30% at its lowest.

While the preclinical test news would normally be a positive catalyst for the stock, after the meteoric gains of the past two days, the stock price was unsustainably high, thus the selloff.

While the drug could certainly be a game changer, it is still in the trials and testing phase. Plus, the company has little in the way of revenue and earnings, although it has enough funding to get through 2026 and complete these trials.

The stock will probably remain volatile, moving as news comes out about the development of this drug. Investors should know that any investment in this stock leading up to a drug going to market is going to be highly speculative and extremely risky, prone to wild swings both ways like a meme stock, so caution is advised.