Though clinical-stage biopharmaceutical firm Soleno Therapeutics (NASDAQ:SLNO) encountered more than its fair share of setbacks this year, it blitzed rival enterprises on Monday. Earlier this morning, management disclosed a securities purchase agreement with Nantahala Capital Management, Abingworth and Vivo Capital. The deal represents a financial commitment for up to $60 million. SLNO stock jumped 45% in the early hours before more than doubling in the afternoon session.
According to MarketWatch, the aforementioned investors “have committed to pay $10 million in exchange for warrants to buy stock upon the company’s announcement of enrollment completion in the randomized withdrawal period of a study for Diazoxide Choline.” Per a study published by the U.S. National Library of Medicine, diazoxide choline refers to an experimental treatment for Prader-Willi syndrome, a rare disease that triggers feelings of insatiable hunger. Further, MarketWatch notes that the warrants will consist of two tranches:
“Tranche A warrants to buy up to 8.6 million shares at $1.75 apiece for a total of $15 million are required to be exercised within 30 days of announcement of positive top-line data from the randomized withdrawal period of a study for Diazoxide Cholin.”
For Tranche B warrants — which allow for the purchase of up to 14 million shares at $2.50 a share for a total of $35 million — they will expire upon the earlier of three-and-a-half years from the date of issuance or 30 days following receipt of U.S. Food and Drug Administration (FDA) approval of diazoxide choline.
A Long Road Still Awaits SLNO Stock
Naturally, news of the financial commitment bolstered SLNO stock. The deal “strengthens our balance sheet both near and longer term and supports continued preparation for our planned New Drug Application submission, as well as the acceleration of commercial readiness activities,” stated Soleno Therapeutics CEO Anish Bhatnagar, M.D.
Although a positive development, it’s fair to point out that SLNO stock presented many challenges to stakeholders this year. Since the January opener, shares slipped around 65%, even with today’s remarkable ascent. In the trailing-year period, Soleno declined by approximately 71%.
Further, SLNO stock currently lacks analyst coverage, according to TipRanks. Without such coverage, it may be difficult for Soleno to entice prospective investors to the underlying opportunity.
On a fundamental note, the focus on rare diseases imposes distinct dangers for SLNO stock. To be fair, Grand View Research notes that this segment globally reached a valuation of $119.6 million in 2021. By 2030, it projects that sector revenue will hit $335.84 billion. Still, researchers warn:
“[M]arket growth could be hampered by the high cost associated with the research and development of pipeline candidates used for the treatment of rare diseases, which, in turn, contributes to the rise in drug prices. This can be attributed to factors such as the increased capital for conducting clinical trials through contract research organizations (CROs) and the risk of drug failure during the clinical trials.”
Undoubtedly, a more-than-doubling single-day performance will attract almost any passersby. However, those just learning about SLNO stock should exercise caution before making a final decision.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.