Compass Pathways: Zero Revenue, Shares May Head South

COMPASS Pathways (CMPS) is a mental health care company that accelerates patient access to evidence-based innovation in mental health. The company looks to find better ways of helping people suffering from mental health challenges. Some people do not benefit from existing therapies. CMPS is developing a new model of psilocybin therapy, in which psilocybin is administered in conjunction with psychological support.

Its focus is on treatment-resistant depression, or TRD, a subset of depressive disorder, or MDD, comprising patients who are poorly served by most treatments. CMPS has developed a proprietary, high-purity polymorphic crystalline formulation of psilocybin, COMP360. COMPASS Pathways was incorporated in 2020 and is based in Cheshire, the United Kingdom.

I am bearish on CMPS stock. The main reason is that COMP360, a psilocybin formulation is in Phase IIb clinical trial, meaning it is not yet approved and commercialized, so the company has zero revenue, and as expected, accumulates net losses. It has underperformed the Nasdaq in 2021, and already has losses of over 16% in 2022.

COMPASS Pathways Business News

COMPASS Pathways announced on December 17, 2021, that it was selected to be added to the Nasdaq Biotechnology Index (NBI), effective from market open on December 20, 2021.

George Goldsmith, CEO and Co-founder of COMPASS Pathways, said, “Our inclusion in the index will enable us to potentially reach new audiences as we continue to deliver our clinical development program of COMP360 psilocybin therapy with the goal of helping patients suffering with the most challenging issues in mental health.”

On December 13, 2021, the firm announced a “positive outcome of 25mg COMP360 psilocybin therapy as adjunct to SSRI antidepressants in open-label treatment-resistant depression study.”

In November 2021, COMPASS Pathways reported that it was granted its fifth U.S. patent for crystalline psilocybin.0

Psilocybin Therapy: What Is It?

The company has information on its psilocybin therapy for the treatment of mental health. Psilocybin is an active ingredient in certain species of mushrooms, often referred to as ‘magic mushrooms.’

Psilocybin focuses mostly on depression, but it could also have other applications for the treatment of anxiety or other mental health issues.

The Future of the Psychedelic Drugs Market

COMPASS Pathways is trying to get the approval of its medicine targeting the psychedelic drugs market. The good news is that this market is expected to grow at a CAGR of 16.3% over the next eight years, reaching a size of $6.85 billion by 2027.

The bad news is that competition is already present and fierce by other pharmaceutical companies. In addition, COMPASS Pathways will have to compete with large and established companies like Johnson & Johnson (JNJ), which developed the first psychedelic drug, a nasal spray named SPRAVATO, that got FDA approval for the treatment of major depression symptoms.

Fundamentals

Having no revenue yet and a short period of business operations, it is no surprise that the company is losing money. Key factors to monitor are announcements on clinical trials and the trend of operating and research and development expenses. 

CMPS stock earnings will remain negative until the company manages to commercialize its medicine, and even then, it may not be able to reach profitability depending on the scalability of business operations.

The stock should also continue to be volatile, especially upon news releases related to clinical trials.

Also, shareholders have been diluted in the past year, with total shares outstanding growing by 16.1%. Further stock dilution to fund the business is very likely.

Wall Street’s Take

Turning to Wall Street COMPASS Pathways has a Strong Buy consensus based on eight Buy ratings assigned in the past three months. The average COMPASS Pathways price target of $84.75 represents 373.5% upside potential. 

Conclusion

COMPASS Pathways does not generate revenue yet. It targets the psychedelic drugs market, which is expected to grow fast. It is a very risky healthcare stock based on high hopes.

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