When most major equities recorded notable losses, the share price of biotech company Bright Minds Biosciences (NASDAQ: DRUG) experienced a meteoric rise, with minimal fundamental factors supporting this momentum.
At the end of the October 15 trading session, DRUG, which has mainly traded as a penny stock, was valued at $38, reflecting a rise of 1,445% for the day. On the weekly chart, the stock surged by a staggering 3,950%, with the market capitalization rising from just $4 million to almost $172 million.
However, ahead of trading on October 16, the stock is exhibiting weakness in the pre-market, dropping almost 17%.
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Why DRUG share price skyrocketed
At the moment, the stock has rallied without any specific news explaining this trend. With questions regarding the catalyst for the rally, Bright Minds had to release a press statement noting that it is “unaware of any material changes in the company’s operations that would account for the recent increase in market activity.”
Indeed, the spike caught the attention of regulators, with the company stating that the press statement was in response to an inquiry from the Canadian Investment Regulatory Organization.
In an attempt to put the price movement into perspective, observations made by an X user, Richard Head, on October 15 showed that DRUG’s borrow availability was zero, with the borrow fee rate surging to 175.86%. This steep fee indicates significant demand for shares to short, and an intensifying short squeeze may be driving the stock’s explosive price action.
The borrow fee, now approaching 176%, is extraordinarily high, reflecting extreme pressure on short-sellers, much like the GameStop (NYSE: GME) short squeeze of 2021. Back then, the borrowing availability for GME also hit zero, sparking a massive short-covering rally as traders were forced to buy back shares at skyrocketing prices.
On the other hand, portfolio manager Ted Zhang observed in an X post on October 16 that DRUG’s dramatic rally caught short sellers off guard and triggered a significant short squeeze. Traders witnessed explosive price action, with shorts “blown out of the water” as the equity rally gained momentum.
On the technical side, he noted that day traders highlighted several perfect Volatility Contraction Patterns (VCPs) forming on the FIVE-minute chart—key signals that often suggest consolidation before a sharp move.
Bright Minds fundamentals
From a fundamental perspective, Bright Minds Biosciences focuses its research and development efforts on treatments targeting serotonin-mediated diseases. The company is leveraging its expertise in this area to develop innovative therapies.
Notably, Bright Minds has initiated a Phase 2 clinical trial for a drug aimed at treating a group of drug-resistant epilepsy disorders. However, the company has not yet generated any revenue.
In summary, it remains to be seen if DRUG’s share price will sustain its momentum and whether the actual driving factor behind the stock will be revealed.
