InMed Pharmaceuticals (INM) shares ripped higher on May 19 as the company announced an all-stock merger with migraine drug developer Mentari Therapeutics.
The combined company will trade on Nasdaq under a new ticker symbol, with INM shareholders expected to own about 1.51% of it once the transaction closes.
Including recent gains, InMed stock is up more than 150% versus its year-to-date low.
Why Mentari Transaction Is Concerning for INM Stock
This small ownership stake for existing INM shareholders has immediately raised concerns about whether the transaction adequately compensates them for their equity.
The transaction is significantly dilutive, with Mentari representing the substantially larger entity and InMed becoming a minor component of the joint entity.
The announcement, therefore, was quickly followed by investigations from multiple shareholder rights law firms.
Halper Sadeh LLC, for example, is investigating whether InMed Pharmaceuticals and its board violated federal securities laws or breached fiduciary duties in connection with the transaction.
The firm is examining whether INM secured the best possible price for shareholders, conducted a fair sales process free of conflicts of interest, and disclosed all material information necessary for shareholders to evaluate the deal.
How to Play InMed shares at Current Levels?
The context surrounding this merger is important for understanding the explosive surge in InMed shares.
The company has previously faced Nasdaq minimum bid price noncompliance issues, underwent a reverse stock split, and has been operating with limited financial resources, as evidenced by ATM offerings and repeated repricing of investment options.
The meteoric run, while dramatic in percentage terms, likely reflects the stock moving from super depressed levels rather than indicating substantial absolute value creation for long-term investors.
All in all, investors must closely monitor the forthcoming proxy materials and any responses from the board to the shareholder investigations before making decisions regarding this transaction.
Wall Street Doesn’t Cover InMed Pharmaceuticals
Investors should also note that INM shares don’t currently receive coverage from Wall Street firms.
This means there’s no institutional research to guide valuation, risk assessment, or price expectations.
On the date of publication, Wajeeh Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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