Compass Pathways is currently the largest player in the psilocybin space, enroute to becoming a large public company, likely in 2020 through an IPO. Compass has raised three rounds of financing, the most recent hit media outlets highlighting an $80 million Series B investment, at an $800 million valuation. There are numerous big investors included in this deal, and their development and cash burn rate is likely the highest in the industry at the moment.
The company is taking psychological therapy tactics and applying psilocybin to guide patients through their mental difficulties, specifically with depression. Compass pathways believes the treatments can potentially cure depression for its patients, or at least alleviate suffering for many months.
Compass is conducting the world’s first large-scale psilocybin therapy clinical trial for 216 patients, in 20 sites across nine countries in Europe and North America. Compass has received “FDA Breakthrough Therapy” designation for its programme of psilocybin therapy in treatment resistant depression. The current research being conducted is directed at proving the drug’s safety for individuals. The classification of the current trail is Phase IIb, enroute to Phase III trails hopefully by the end of 2021-early 2022.
The company claims that the costs of an average patient with depression currently costs the healthcare system between $20-40k per year. Therefore, if psilocybin can potentially cure many of these patients, the question becomes, what is that therapeutic service worth, and how much of the market for depression medicine and therapy will it disrupt?
An 800 million valuation might seem rich, until you study the size of the market that Compass is trying to treat. Depression is the first affliction that is undergoing clinical trials. Over 16 million people in the United States suffer in one way or another with depression. Worldwide, the total is many multiples of that number. The market beyond uses for depression remains to be tested, but there are other possible treatments. One interesting potential use of psilocybin is for terminal patients as the drug anecdotally tends to remove the fear of death.
Psilocybin is a Schedule 1 drug at the moment, considered highly addictive, and without medical use. A clinical research study is the only way to remove the drug from schedule 1 designation, to prove its designation has been incorrectly labelled for decades. There are numerous companies who have been working on this, and also many retreats for psilocybin who offer drug experiences outside of the official clinical research.
Considering Psilocybin’s long public usage history, there is a potential problem of patenting the therapeutic application of psilocybin. If Compass Pathway’s patent is not accepted because the drug has been available forever, and is also being used in many areas of the world naturally, then legalization might be the only method of monetization. While Compass would still have an early mover advantage, if legalization happened, the potential valuation of the company would change with less barriers to entry in the space, but also a potentially bigger market size.
Overall, for investors, Compass should be considered a bluechip in this highly speculative, rapidly growing market of psychedelic research. However, at Stage IIb trials, the Series B valuation of 800 million also means some of the potential upside has already likely been achieved.