IPO Launch: COMPASS Pathways Proposes Terms For $100 Million IPO

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COMPASS Pathways (CMPS) intends to raise $100 million in an IPO of its ADSs representing underlying ordinary shares, according to an F-1 registration statement.

The firm is developing a drug treatment for treatment-resistant depression [TRD].

CMPS is asking IPO investors to pay an above-the-range price for the IPO while likely needing significant additional capital with no major catalyst until late 2021.

Cheshire, UK-based COMPASS was founded to develop a psilocybin-based (hallucinogenic mushrooms) drug treatment for TRD symptoms.

Management is headed by co-founder, CEO and Chairman Mr. George Goldsmith, who has been with the firm since June 2017 and was previously co-founder CEO at Tapestry Networks and a Senior Advisor to McKinsey & Company from 1997 to 2000.

Below is a brief overview video of treatment resistant depression:

Source: Psych Hub Education

The firm's sole program is COMP360, a psilocybin therapy that has received breakthrough therapy designation from the FDA for the treatment of TRD.

Investors in the firm have invested at least $116 million and include ATA Life Sciences AG, George Goldsmith, Ekaterina Malievskaia, Peter Thiel entities, McQuade Center for Strategic Research and Development.

According to a 2019 market research report by Credence Research, the global market for treatment resistant depression was an estimated $1 billion in 2018 and is expected to reach $1.4 billion by 2027.

This represents a forecast CAGR (Compound Annual Growth Rate) of 3.6% from 2019 to 2027.

Key elements driving this expected growth are a continued high prevalence rate among women and continued new drugs under various stages of development.

Also, the US FDA recently approved Esketamine nasal sprays for the treatment of TRD.

Major competitive vendors that provide or are developing treatments include:

  • Janssen (JNJ) - Esketamine
  • Olanzapine/Fluoxetine - generic
  • Sage Therapeutics
  • Axsome Therapeutics

COMPASS’s recent financial results are typical of a development stage biopharma; they feature no revenue and substantial R&D and G&A expenses associated with its program of research.

Below are the company’s financial results for the past two and ½ years:

compasspl

Source: Company registration statement

As of June 30, 2020, the company had $67.6 million in cash and $5.4 million in total liabilities. (Unaudited, interim)

COMPASS intends to raise $100 million in gross proceeds from an IPO of 6.7 million of its ADSs representing underlying ordinary shares offered at a proposed midpoint price of $15.00 per ADS.

No existing shareholders have indicated an interest to purchase shares at the IPO price.

At the proposed ADS price, the company would have an enterprise value of $559 million at IPO.

Management says it will use the net proceeds from the IPO as follows:

to fund clinical trials, therapist training and other activities to support the development of our investigational COMP360 psilocybin therapy through completion of all ongoing trials through the end of Phase II meetings with the FDA;

to fund research and clinical development activities related to our investigational COMP360 psilocybin therapy to support the progression of COMP360 as a therapy for other neuropsychiatric indications and further our mechanistic understanding of psilocybin;

to fund our general business development activities, including strategic investments which may aid us in developing digital technologies to complement and augment our therapies, as well as potentially providing access to other novel drug candidates for development in neuropsychiatric and related indications; and

the remainder to fund general and administrative expenses, working capital and other general corporate purposes.

Management’s presentation of the company roadshow is available here.

Listed bookrunners of the IPO are Cowen, Evercore ISI, Berenberg, Canaccord Genuity and H.C. Wainwright & Co.

Commentary

COMPASS is seeking U.S. public investment to advance its psilocybin-based treatment candidate.

The firm’s lead candidate is currently in Phase 2b trials in 216 patients with TRD in sites in North America and Europe. The trial ‘is investigating the safety and efficacy of COMP360 combined with psychological support, for the treatment of TRD, and aims to determine the optimal dose of COMP360, with three doses (1mg, 10mg, 25mg) being explored.’

Management expects to report the results from the trial by late 2021.

The market opportunity for treatment of TRD is a moderate size with a relatively slow growth rate expected in the near term.

Management has disclosed no research or commercial collaborations as of the current filing.

Cowen is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 51.3% since their IPO. This is a top-tier performance for all major underwriters during the period.

While the market for treating TRD is over $1 billion, CMPS appears to need significant new capital to pursue treatment approval, which will likely require several years and significant additional capital.

Given also that management is seeking an above-range valuation at IPO, my opinion on the IPO is NEUTRAL.

Expected IPO Pricing Date: September 17, 2020.

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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