COMPASS Pathways And The Trillion Dollar Opportunity (NASDAQ:CMPS)

The most challenging-to-treat psychological well being problems, together with PTSD, main depressive problems, addictions to alcohol and medicines, nervousness, and consuming problems, result in the deaths of 1000’s of individuals annually and to untold struggling for the sufferers and their households.

Many sufferers don’t reply to present remedies, and no pharmacological remedy is accessible for a lot of critical psychological diseases.

COMPASS Pathways plc (NASDAQ:CMPS) is a UK-based firm making an attempt to make use of the Psychedelic drug Psilocybin to deal with a number of the most difficult psychological diseases. I’ll current my view that:

• 1. The drug has an unusually excessive likelihood of passing its upcoming section III trial.
• 2. The regulatory infrastructure within the U.S. is prone to approve the drug inside two years.
• 3. If authorized, the drug would be the first entrant right into a multi-trillion greenback complete addressable market (“TAM”).

Getting Approved

To be authorized, a drug should be protected to make use of and efficient. That is the aim of a medical trial.

Psychedelic compounds have been utilized by people for a few years (in some circumstances, centuries), typically as a part of spiritual ceremonies however usually for his or her hallucinogenic properties. Psilocybin is the lively ingredient in Magic Mushrooms, extensively used previously.

As a results of this utilization we already know two essential info:

1. They are nicely tolerated by Humans.
2. They have an effect on the way in which the mind works.

Many firms are attempting to develop remedies utilizing quite a lot of psychedelic compounds. I shall be working by way of them and writing about them within the coming months, searching for extra to spend money on and for these to keep away from. In this text, I shall be concentrating on COMPASS Pathways.

I began my analysis by analyzing what medical trials are happening now and constructed the next desk.

The desk is just not exhaustive; nonetheless, it incorporates the businesses I may discover presently working a trial and the drug examined. (Trials of psychedelics in different areas, e.g., extreme ache, are additionally ongoing put not on the desk.)

The compound with essentially the most trials in place is Psilocybin 9 section two trials six completely different psychological diseases. Those six numerous diseases signify greater than a 350 million affected person inhabitants. CMPS is working three of those trials. Having determined to take a look at CMPS, I investigated proof round its candidate drug COMP360, a proprietary Psilocybin compound.

Does Psilocybin Work?

A search of the National Library of Medicine delivered 22 hits for Meta-Analysis Psilocybin. (meta-analysis is a analysis article a number of trials) The newest was from February 2022 and checked out single or multi-dose trials of Psilocybin. It checked out ten research and reported:-

The current examine demonstrates that single- or two-dose psilocybin administration has speedy and sustained antidepressant results for as much as 6 months, with favorable cardiovascular security and acceptability.

Of the 22 Meta-Analysis, 9 lined despair (three included nervousness), two checked out habit, one behavioral dysfunction, 5 have been normal stories, and the remaining checked out unwanted effects.

All 22 research have been optimistic for Psilocybin, exhibiting only a few vital unwanted effects and sustained and vital enchancment in all affected person populations.

One general analysis thought of 13 trials between 1969 and 2020, concluding that the completely different psychedelic medication have completely different neuropsychological penalties. It additionally mentioned

Psychedelic compounds have proven the flexibility to extend neuroplasticity. They provide an opportunity to change mind exercise, scale back the struggling of victims, and maybe finally a remedy to many psychological diseases for a big share of victims.

My examine of revealed meta-analysis means that Psilocybin has a pronounced and sturdy impact on many psychological diseases and has few extreme unwanted effects. The downside is that the out there research should not of the usual that the FDA might want to authorize these compounds to be used.

CMPS Psilocybin drug trials.

Last month, COMPASS Pathways launched the outcomes of the extremely anticipated section II trial of its Psilocybin assisted remedy.

The FDA granted COMPASS Pathways Breakthrough Therapy Designation (BTD) in October 2018. It was an essential step and means the FDA has been working with CMPS to speed up the drug’s approval course of. The BTD adopted the 2015 Phase I examine when compass dosed 19 sufferers with its Psilcoybin compound and located promising indicators in treatment-resistant despair. A fuller clarification is in this article quoted beneath

The FDA designates a drug as a Breakthrough Therapy if preliminary scientific proof exhibits that it might display substantial enchancment over out there remedy. Breakthrough Therapies are supported by the FDA all through the scientific improvement programme to make sure as environment friendly a course of as doable.

In the Phase 2 trial, designed to work out the right dosage for bigger stage 3 trials, CMPS examined its psilocybin method COMP360 for sufferers with treatment-resistant despair (TRD). TRD sufferers have tried a minimum of two different types of therapy with out profit and are thought of the toughest subset of main depressive sickness sufferers to deal with.

Market response to Phase II outcomes

The market didn’t obtain the trial outcomes nicely, and the stock value fell. It is my view that the market utterly misinterpreted these outcomes. Given that the affected person group had already tried two types of therapy, 25% of them assembly the first endpoint of a sustained response on the (MADRS) scale at 12 weeks is a really optimistic consequence. It did imply that 75% of sufferers didn’t reply, which exhibits the drug is not going to be a panacea for eliminating despair, and we shouldn’t have information on the sturdiness past 12 weeks from this examine. However, the outcomes are higher than every other therapy for this group of sufferers.

Safety, this once more was misinterpreted in my opinion; 5 sufferers reported suicidal ideation or habits and self-injury. Compass CEO mentioned the 5 sufferers have been within the non-responder group; The Pollan effect will be the case right here. Bearing in thoughts the character of the group, this will likely nicely clarify this destructive impression, and COMP360 will not be a trigger in any respect. Patients within the examine could have raised their hopes a lot that they might have change into determined when the drug didn’t assist them.

In April this 12 months, a further study was offered; twelve sufferers who had beforehand tried a minimum of 5 anti-depressant remedies got a single 25mg dose with remedy help. 58% of sufferers confirmed the required MADRS response at 12 weeks and reported no antagonistic occasions or suicidal tendencies.

CMPS expects to start the section III trial in Q3 2022; the protocols have been submitted to the FDA earlier than launching this large-scale multi-center worldwide trial. The outcomes shall be pivotal for CMPS, the FDA will approve the drug, or not, once they obtain the outcomes.

Anorexia Nervosa

The preoccupation with weight and form is among the most difficult problems to deal with and presently has no pharmacological therapy. In April, COMPASS offered the outcomes of an investigator lead examine into Anorexia Nervosa. This critical psychological sickness carries the very best mortality charge of psychiatric problems, with as much as 40% of deaths coming from suicide. In the trial, 40% of sufferers skilled clinically vital reductions in consuming dysfunction psychopathology on the 3-month follow-up, and 50% demonstrated statistically vital decreases in consuming issues. 90% of sufferers thought the therapy had helped them, and no antagonistic reactions have been recorded.

COMPASS introduced in July 2022 that they might be urgent on with a double-blind, randomized managed section II trial of COMP360 in anorexia nervosa. The trial shall be of FDA commonplace and happen within the UK and the US with 60 sufferers.

COMPASS has additionally initiated a Phase II trial COMP360 with sufferers who’ve PTSD.

How can one drug be anticipated to deal with all of those completely different psychological problems?

The mind’s capability to vary, its neuroplasticity, makes a remedy doable. This video explains that Psilocybin impacts the serotonin system within the mind, a widespread complicated system of receptors of which one, Serotonin 2A, concerned in regulating temper, sleep, and pondering course of, is affected by Psilocybin. The compound will increase the mind’s neuroplasticity, permitting completely different mind areas to attach in new methods; connections inflicting unhealthy states equivalent to despair and habit will be reset healthily.

The drug permits the mind to reset unhealthy patterns and, in consequence, may fit on all unhealthy patterns. Which explains the optimistic results present in each examine in each space investigated.

Treatment consists of the drug and remedy each earlier than and after to attempt to relaxation the brand new wholesome mind patterns

The financials

The common value goal from the 9 analysts following COMPASS pathways is $68 towards a present value of $14.9, implying a 356% upside and a goal market cap of $3 billion. I worth COMPASS pathways at a a lot larger determine.

Suppose COMPASS can get its drug authorized for treatment-resistant despair. In that case, the next is an affordable forecast. (the value of $1,000 per affected person is my estimate). COMPASS has not indicated the price. I used figures from a meta-analysis of MDMA to get a ballpark concept:

Results: MDMA-AT as carried out within the section 3 trial prices $11,537 per affected person.

The largest pharmaceutical in 2021 was Johnson and Johnson, with a turnover of $93 billion; Johnson and Johnson has a market cap of $449 billion. So the market cap is 4.8 x Revenue.

Using 4.8 as a multiplier, COMPASS pathways would have a market cap of $52.3 trillion. (I’m not suggesting this as a goal, simply exhibiting the potential)

The 4.8 multiplier offers $23 trillion.

The potential is obvious, however can they get the drug authorized?

The Cash Position

At the latest Q2 earnings name, after a query from the Citi analyst, CFO Mike Falvey defined that the money burn for the quarter of $37 million included an $18 million FX cost on changing GBP denominated money balances to USD for reporting functions. As COMPASS have each U.S. and GBP money balances, this $18 million was a paper loss solely as they fulfill greenback payables in {dollars} and pound payables in kilos. Adjusting, we get a money burn of $19 million; they ended the interval with $207 million money on the stability sheet. That equates to about ten quarters on the present burn charge, however as they’re starting some vital trials later this 12 months, we should always in all probability lower that to eight quarters or two years.

How lengthy will it take to get the drug to market?

The Phase II trial began recruiting sufferers in 2019, and with outcomes out inside two years, the section III trial could comply with the same time-frame. The Breakthrough Therapy Designation and the massive unmet want ought to guarantee some urgency behind this trial. If overwhelming efficacy is discovered through the trial (the reported investigations counsel that is possible), then the oversight board will advocate ending the trial early. For this to occur, the trial must meet its endpoints statistically considerably and meet any prespecified stopping pointers. We must wait till October 12^th to search out the trial phrases.

The U.S. administration seems to be getting ready to authorize using Psychedelic therapies throughout the subsequent two years, tying in with this timeline. In a letter dated May 13^th 2022, from the SAMHSA (secretary for psychological well being and substance abuse) to Madeleine Dean on the House of Representatives, the next two quotes will be seen.

…anticipated approval by the Food and Drug Administration (FDA) of three,4-methylenedioxymethamphetamine (MDMA) for the therapy of Post-Traumatic Stress Disorder and Psilocybin for the therapy of despair inside roughly 24 months.

….SAMHSA agrees that too many Americans are affected by psychological well being and substance use points, which have been exacerbated by the continued COVID-19 pandemic, and that we should discover the potential of psychedelic-assisted therapies to handle this disaster

Conclusion

If COMPASS pathways will get its COMP360 drug authorized the potential market is large, trillions of {dollars}. The drug goes to a section III trial this 12 months and, based mostly on the proof of earlier trials, has a superb likelihood of success.

The U.S. administration seems to be on the point of authorize the drug and the FDA is working with CMPS below the Breakthrough Therapy Designation as a result of perceived excessive likelihood of success and the unmet want amongst a big affected person inhabitants.

It appears a compelling funding thesis, and I purchased CMPS @ $16.11. I’ve additionally purchased Atai Life Sciences (ATAI), a considerable investor in CMPS, at @ $4.13 and shall be writing about them shortly.