Last Friday, psychedelic drug company Compass Pathways (NASDAQ: CMPS) began trading on the Nasdaq Global Select Market. Its shares surged 70.6% and closed at $29.00. This lifted the market cap to almost $1 billion. The launch comes after Compass Pathways reportedly upsized pricing for its IPO. The company is backed by Peter Thiel, PayPal cofounder and billionaire investor.
Compass Pathways is a London-based company that is studying hallucinogenic mushrooms as a therapeutic. The company’s IPO was $17 per share, which was an increase from the initial $14-$16 expectation that had been announced earlier in the week. This put the valuation at roughly $544 million.
In the offering, Compass Pathways stated that they sold 7.5 million American Depositary Shares for $127.5 million.
The psychedelic drugs industry has been the focus of many, with more people and investors alike funneling their money into startups promising a range of alternative treatments for mental ailments. This has many concerned that there might be a repeat of the boom and bust that the marijuana industry experienced.
Additionally, most drugs in the industry, like MDMA, LSD and psilocybin, are not yet patentable or even legal. Recently though, the FDA approved Spravato, a Johnson & Johnson drug which uses a ketamine derivative to help manage treatment-resistant depression. This summer, the FDA also approved Spravato for individuals who are suicidal.
Ketamine, which is commonly known as a party drug, is legally used as an anesthetic and also in psychedelic-assisted psychotherapy by therapists.
In 2018, the FDA gave breakthrough status to COMP360; which is Compass’ therapy regimen. COMP360 is a crystalline form of psilocybin and Compass Pathways plans on using it jointly with therapy to help manage treatment-resistant depression. COMP360 is patented in the U.S. If the therapy is approved by regulators, Compass plans to market it to healthcare providers and clinics in both Europe and in the U.S.
In its IPO paperwork, Compass noted that it faced significant competition from not for profit organizations and academic researchers as well as big pharmaceutical companies. Most not for profits may significantly undermine the potential market for the company’s product, COMP360, as they may provide psilocybin-based products for little to no cost.
So, in order for psychedelic drug makers to be profitable, they may have to develop new drug compounds as well as drug delivery methods, just like big pharma. That has always been the way capitalism affects all things.
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