Summary
- Compass is a newly founded British company that is moving to commercialize the long-studied therapeutic impact of psilocybin.
- Both market acceptance issues and bad trip potential are risks of its psilocybin-based therapy.
- Compass has limited liquidity and will need significant additional financing to get to market with its lead therapy.
This is my first look at Compass Pathways (CMPS) an interesting company that is moving ahead with pivotal trials to treat important psychiatric conditions. This article evaluates investment merits for Compass.
Compass is teeing up a pair of pivotal trials to test the impact of psilocybin on MDD.
Having been at university during the 1960's when psychoactive substances were all the buzz , efforts to commercialize psychedelics for therapies seems way past due. One factor that has likely delayed development of psychedelics such as psilocybin is the Controlled Substances Act.
Psilocybin and like drugs are listed on Schedule I of the Act. It qualifies such drugs as having a high potential for abuse , and not currently accepted for medical treatment in the United States. Of course in running its COMP360 psilocybin through its clinical trial paces, Compass is attempting to show that it does indeed have use as an important therapy.
Publicizing its trial results in top journals such as the New England Journal of Medicine is also important in terms of publicizing its legitimacy. Relevant to Compass' recently completed phase 2 trial ( NCT03775200 ) the Journal concluded that in:
... participants with treatment-resistant depression, psilocybin at a single dose of 25 mg, but not 10 mg, reduced depression scores significantly more than a 1-mg dose over a period of 3 weeks but was associated with adverse effects. Larger and longer trials, including comparison with existing treatments, are required to determine the efficacy and safety of psilocybin for this disorder.
A 2016 Johns Hopkins study found that psilocybin, under psychologically supported conditions, significantly relieved anxiety and depression in people with a life-threatening cancer diagnosis. A subsequent Hopkins study found that the affect was much broader and more impactful. It concluded both:
- The magnitude of the effect we saw was about four times larger than what clinical trials have shown for traditional antidepressants on the market; and
- most of our study participants found the psilocybin treatment to be effective, despite typical variations in depressive symptoms.
On its website Compass has posted a 29 slide presentation dated 01/2023, titled "Transforming Mental Health Care" (the " Presentation "). The Presentation includes slide 4 describing the three components that make up COMP360 psilocybin therapy. They are:
- COMP360 psilocybin - Our synthetic, high-purity polymorphic crystalline formulation of psilocybin, a psychoactive compound;
- Psychological support - Psychological support from registered and trained mental health professionals;
- Digital tools - A patient app, therapist portal and AI-driven analytics platform enhancing patient experience and outcomes.
Presentation slide 5 below outlines key aspects of the most advanced target indication for its therapy, treatment resistant depression [TRD]:
The two key takeaways from this slide are the prevalence, 100 million and the cost of treatment $17-25 thousand. However it is important to realize that the prevalence is a worldwide figure and the cost is based on US estimates. Accordingly the slide is an imperfect barometer of the actual market.
There is no need to fret over this. A recent independent estimate in the Journal of Clinical Psychiatry pegs the presence of TRD in the US as depressingly high at 2.8 million. The medication treated burden of these patients is ~$44 billion. Clearly this is a market of significance both financially and societally.
Now that it has completed its phase 2 trial discussed above it is setting up its pivotal program described in Presentation slide 9 below:
The slide fails to include a timeline for these trials. They are discussed at length during the Call which advises that top line data from COMP 005 was expected by the end of 2024, and from COMP 006 by mid 2025.
Psilocybin is not to be trifled with.
Bad trip risk
An excellent 05/2016 article in Scientific American, titled "Psychedelic Therapy and Bad Trips" describes the peculiarities inherent in the therapeutic use of psychedelics such as psilocybin. Such substances have a potential negative impact variously described as "melancholic" or "diabolical" visions.
The article also explains how researchers have gotten permission from federal authorities to pursue their study. This bad trip risk explains why Compass' research has three elements as described above its drug, psychological support and its digital tools.
The psychological support and the digital tools are designed to minimize the bad trip risk.
Market acceptance risk
Compass' Q3, 2022 10-Q highlights the market acceptance risks associated with its psilocybin therapy calling out the following:
- COMP360 contains controlled substances, the use of which may generate public controversy. Adverse publicity or public perception regarding COMP360, in particular, and psilocybin-based therapies, in general, or our current or future investigational therapies using psilocybin may negatively influence the success of these therapies;
- the future commercial success of our investigational COMP360 psilocybin therapy or any future therapeutic candidates will depend on the degree of market access and acceptance of our potential therapies among healthcare professionals, patients, healthcare payors, health technology assessment bodies and the medical community at large;
- enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our investigational COMP360 psilocybin therapy or any future therapeutic candidates and could have a material adverse effect on our business.
In our politically fraught world it does not take long for a considered controversy based on honestly held and reasonably developed points of view to degenerate. Certainly a psychodelic therapy such as COMP360 psilocybin therapy is subject to a potential debilitating risk of adverse demagoguery.
While such a risk is inherent in this powerful mind altering drug, Compass is going to great lengths to minimize it. It is setting up a cadre of therapists which it is training in the safe use of its drug. Its trials, and presumably its label if approved, will call for ongoing personal professional attention.
Compass is a pre-commercial biotech with lots of expenses and little income.
To this point in its life the Compass story is all about expenses. It generates a modicum of income from investing its cash balances and not much else. In terms of expenses its Q3, 2022 financial results and business highlights release sets them out as follows:
It is running a current annual expense profile of ~$100 million. Its seemingly comfortable Q3, 2022 balance of ~$173 million balance of cash and equivalents as shown by slide 15 of the Presumption is really <$150 million as I write in 2023.
Assuming a steady state of expense which is likely optimistic, its ready liquidity will be all gone by mid 2024, six months before we get a readout on COMP 005. At that point Compass will be at the mercy of the market as it raises additional funds.
Of course it will be working to finance itself long before any cash crunch develops. In doing so it will likely issue additional shares thereby diluting current shares.
Conclusion
As I write on 01/25/2023 Compass is the lead dog in its pivotal psilocybin therapy trial. Bulls who are convinced that psilocybin's record as an effective TRD therapeutic makes it a slam dunk for approval should rein in their horses. The FDA is going to look at data from Compass' trials. Compass' tripartite treatment regime is an unproven idiom.
The presence of therapists interacting with trial subjects raises novel considerations. I expect that trained individuals will know or strongly suspect the dose administered to the patient they are counseling. This potentially raises questions in interpreting results.
Compass is entering a brave new world. It is doing so with limited resources. If all goes well it will be heralded as genius. If it stumbles it has little backup to cover its flank.
For further details see:
Compass Pathways Takes On Psychedelics