Compass Pathways (CMPS) has grabbed the interest of Canaccord Genuity analyst Sumant Kulkarni, who gave the biotech company an $80 price target. The shares are lately trading at approximately $37, so that's a hefty belief that Compass can deliver.
Compass Pathways is a London-based biotech company whose main focus is developing a synthetic version of the natural mushroom substance psilocybin -- a type of hallucinogenic compound. Often called "magic mushrooms," these fungi have long been used by people for a long-lasting psychedelic trip.
Recreational use of psilocybin, however, is not the focus for Compass.
Instead, the company has targeted its compound for TRD, or treatment resistant depression. These are patients suffering from a major depressive disorder and who have tried at least two traditional anti-depressant drugs. The Canaccord report stated that there are only two approved products on the market for TRD at this time, but that they have shortcomings.
"So, the market for TRD translates to tens of billions of dollars at rational branded prices. We model unadjusted peak US/Europe sales for COMP360 of $3.3 billion/1.0 billion in 2021."
Kulkarni is assuming launches in the U.S. in 2025 and gives the probability of approval at 50%.
It should be noted that not only are psychedelic drugs illegal, the number of people who take magic mushrooms for the trip is tiny. According to the Substance Abuse and Mental Health Services Administration, which conducts the largest annual national survey on drug use, only 0.1% of people across all ages were current psychedelic users annually from 2002 to 2014. Being a "current" user means they reported use within 30 days of completing the survey. In 2014, 0.3% of the 11,643 of the respondents who were age 18 to 25 said they were current users. Only 0.1% of 33,750 respondents age 26 or older were.
Compound-ed Interest in Compass
COMP360 is Compass' proprietary synthetic version of psilocybin and is currently in a phase 2b trial. The trial is a single oral dose given to a patient who is receiving psychological support -- typically called an assisted trip. It's an unconventional approach to treating depression, but there are early reports that patients are responding well to psilocybin treatments. Compass said it expects to deliver top-line data in late 2021.
A Trip With Risks...
Kulkarni outlines the risks involved with Compass. These include educating investors on the use of psilocybin-assisted therapy. There are also unknowns with regards to this type of treatment, such as whether patients will build up tolerance to the drug and whether some patients won't respond at all. There is some skepticism surrounding this type of treatment, too, even as ketamine clinic treatment centers are quickly growing and facing acceptance.
Then there is the study results risk that all biotech firms face. For example, if a study trial doesn't generate the hoped-for results, the company usually faces a share selloff. This can lead to stock volatility.
Even if COMP360 delivers positive study results, there will still be regulatory hurdles to jump over. Psilocybin and psilocyin are both Schedule 1 drugs and would need to be rescheduled. This brings in licensing issues and Drug Enforcement Administration restrictions.
The analyst does bring up the idea intellectual property challenges, but suggests that it is really only possible generics coming into play. Vince Sliwoski of law firm Harris Bricken wrote, "If COMP360 performs well in current trials, a lot of people stand to benefit. Hopefully COMP360 expands rather than limits the seemingly vast potential of magic mushrooms. If it does not, the fallout will be deeply felt. Even compared to the cannabis community, the magic mushrooms crowd is decidedly anti-corporate and impassioned with respect to ownership claims on the compound. Psilocybin advocates will be watching COMPASS closely."
Other than COMP 360, there is little information about other items in the Compass pipeline. The company has said it is targeting other disorders like anorexia, bipolar depression, and chronic cluster headaches. Plus, this is the first drug that Compass has developed -- it isn't an established bio tech company. It could make a lot of mistakes. While it is well-capitalized now, with a cash runway through 2022, that doesn't guarantee the company won't need to raise more money.
...And Benefits
Of course, many of the risks outlined above are valid, but the promise of being able to treat so many people draws hope among investors. The World Health Organization estimates that over 17 million in the U.S. suffer from depression. The TRD patient group could number between two million to three million. Since the product is synthetic, production and delivery are more controllable than those using natural psilocybin. Plus, the safety profile looks to have registered this drug as having a low rate of abuse and only one reported death that was deemed unlikely to be treatment related.
Early findings are showing that one treatment lasts upwards of six months for patients, and it is well-tolerated with low side effects. The costs are estimated to be between $17,000-$25,000 per patient. But if treatment lasts six months insurance companies may be willing to take that price.
Kulkarni is estimating U.S. sales of $108 million in 2025, the expected launch year and $3.3 billion in 2031. He is giving it a Buy rating.
Debra Borchardt has no position in any company mentioned in this story.
