COMPASS Pathways IPO: Part 1
On Friday, August 28th COMPASS Pathways filed documents for an IPO on the NASDAQ.
It is noteworthy for a few reasons depending on your vantage point.
For the general public, the affiliation with Peter Theil and the spectacle of a publicly-traded ‘magic mushroom company’ makes this particularly buzzworthy.
For investors, it is a welcomed sign of legitimacy for an emerging industry hobbled by reputational damage from shady promotions in less scrutinized markets. It also provides an indication of the potential upside for early investors with some outlets reporting the initial valuation of $16 million could turn into as much as a $500 million valuation upon IPO.
For some in the psychedelic community, it is emblematic of the plodding, hard-won scientific and regulatory efforts to legitimize psychedelics as therapeutic agents for crippling conditions. For others, it is an ominous sign of commodification and a divergence from the wisdom accessible through the psychedelic experience.
There’s a lot to cover, including details from the filing documents, moral and ethical considerations about tradeoffs between financial reward and patient benefit, tradeoffs between medical innovation and systemic innovation, psychedelic drug development in the time of legalization, and decriminalization efforts, among others.
This will be the theme of the week, so today we’ll have a look at the most interesting nuggets from the prospectus related to the unique features of developing psilocybin as a licensed medicine, including issues that we have been thinking through in The Trip Report like therapist training, the role of technology, intellectual property, tradeoffs between medicalization and legalization, among others.
The below are excerpts with commentary from the Risk Factors and Business section of the prospectus, including highlights related to:
Unique challenges presented by Psychedelic Assisted Therapy
Uncertainty over future guidelines and additional data needed by regulators
Challenges of third-party relationships and establishing “Centers of Excellence”
The effect of local/state Decriminalization/legalization efforts including concern regarding Oregon’s Psilocybin Services Initiative
Update on the disputed ‘175’ patent and other IP concerns
Competition with particular attention to Usona and other non-profits plans to distribute free or at cost
Previously unannounced investment in Delix Therapeutics and a partnership with University of the Sciences
Risks Related to Our Financial Position and Need for Additional Capital
Drug development, especially with constraints associated with Schedule I substances in combination with therapy, is an expensive undertaking:
“We are a clinical-stage mental health care company and we have not generated any revenue to date. We have incurred significant operating losses since our formation… To become and remain profitable, we will need to continue developing and eventually commercialize therapies that generate significant revenue. This will require us to be successful in a range of challenging activities, including completing clinical trials of COMP360 or any future therapeutic candidates, training a sufficient number of qualified therapists to deliver our investigational COMP360 psilocybin therapy, using digital technologies and solutions to enhance our therapeutic offering, establishing and/or collaborating with providers to develop “Centers of Excellence” where we can conduct trainings for therapists, discovering and developing any future therapeutic candidates, obtaining regulatory approval for any future therapeutic candidates that successfully complete clinical trials, and establishing marketing capabilities.
Risks Related to Development, Clinical Testing and Commercialization of Our Investigational COMP360 Psilocybin Therapy and Any Future Therapeutic Candidates
The challenge of psychedelic-assisted therapy includes uncertainty over future Risk Evaluation and Mitigation Strategies( REMS), mandated limitations of use, significant changes to therapist training guidelines, among others:
“Even if we were to successfully obtain approval from the FDA, the EMA, the MHRA and foreign regulatory authorities for COMP360, any approval might contain significant limitations related to use, as well as restrictions for specified age groups, warnings, precautions or contraindications. In addition, we anticipate that any regulatory approval of COMP360 may include specific requirements or restrictions on the involvement or conduct of trained therapists in the administration of our investigational COMP360 psilocybin therapy and we have not yet received any specific guidance from the FDA, the EMA, the MHRA or other regulatory bodies regarding such requirements or restrictions.”
Schedule I designation and even rescheduling adds complexity and costs and the possibility of additional data collection beyond the customarily expected trials for FDA/EMA/etc. approval:
“In addition, the scheduling process may take significantly longer than the 90-day deadline set forth in the CSA, thereby delaying the launch of our investigational COMP360 psilocybin therapy in the United States. Furthermore, the FDA, DEA, or any foreign regulatory authority could require us to generate more clinical or other data than we currently anticipate to establish whether or to what extent the substance has an abuse potential, which could increase the cost and/or delay the launch of our investigational COMP360 psilocybin therapy and any future therapeutic candidates containing controlled substances”
The challenge of stigma from patients, healthcare professionals, and payors:
“The future commercial success of our investigational COMP360 psilocybin therapy or any future therapeutic candidates will depend on the degree of market access and acceptance of our potential therapies among healthcare professionals, patients, healthcare payors, health technology assessment bodies and the medical community at large.”
Post-approval administration will take place at third party sites, indicating that while COMPASS is training therapists, the employment and delivery of the treatment will be the responsibility of non-COMPASS clinics and healthcare systems:
“Our commercial model of delivering our investigational COMP360 psilocybin therapy will also involve third-party therapists before, during and after the psilocybin administration session, which will be hosted in one of the third-party therapy sites. We intend to commercialize our investigational COMP360 psilocybin therapy and any future therapeutic candidates by building close relationships with qualified third-party therapy sites where these therapists will administer our investigational COMP360 psilocybin therapy. Because we intend to work only with third party sites and providers who agree to adhere strictly to our treatment protocols, we may face limitations on the number of sites available to administer our investigational COMP360 psilocybin therapy… If we are unable to establish a sufficient network of third-party therapy sites certified under applicable standards, including regional, national, state or other applicable standards as needed to render psilocybin therapeutic services, including the certifications that such third-party therapy sites may require, it would have a material adverse effect on our business and ability to grow and would adversely affect our results of operations and commercialization efforts. We expect the therapists to be employed by the third-party.”
The challenges that these third-party sites face is not insignificant and includes specific certifications, adherence to COMPASS protocols, enrollment in REMS (RMP in Europe) and other unusual expenses
“Given the novel nature of our treatment, third-party therapy sites may face additional financial and administrative burdens in order to deliver any approved therapy, including adhering to a REMS plan in the United States or a Risk Management Program, or RMP, in Europe. The process for a third-party therapy site to obtain a certificate under a REMS plan can be very costly and time-consuming, which could delay a third-party therapy site’s ability to provide our therapies and materially adversely affect our commercialization trajectory. Furthermore, third-party therapy sites will need to ensure that they have the necessary infrastructure and equipment in order to deliver our investigational COMP360 psilocybin therapy, such as adequate audio-visual equipment, ancillary equipment and sufficient treatment rooms. This may deter third-party therapy sites from providing our therapeutic candidate and reduce our ability to expand our network and generate revenue.”
The difficulty in scaling Therapist Training
“We currently administer our investigational COMP360 psilocybin therapy in our clinical trials through qualified third-party therapists working at third-party clinical trial sites. However, there are currently not enough trained therapists to carry out our investigational COMP360 psilocybin therapy at a commercial scale, and our efforts to facilitate training and certification programs for therapists, including through our planned Centers of Excellence, may be unsuccessful… Although we currently provide training and expect to continue providing training to the therapists (directly or through third-party providers), we generally rely on qualified and certified third-party therapy sites to manage the therapists and monitor the administration of our therapies and ensure that the administration process of our therapies comply with our established protocols.”
Centers of Excellence
“Our business strategy includes developing Centers of Excellence, which we expect will involve significant costs, time and resources. If our efforts are unsuccessful, our business, prospects and financial condition would be adversely affected… We intend to use these Centers of Excellence to gather evidence to optimize our therapy model, train and certify therapists, conduct clinical trials, including proof of concept studies, develop and test digital technology solutions to improve patient experience and outcomes and pursue other activities to refine our approach to delivering our investigational COMP360 psilocybin therapy safely and cost-effectively.”
Reimbursement is by no means guaranteed:
“Our ability to achieve acceptable levels of coverage and reimbursement for therapies by governmental authorities, private health insurers and other organizations will have an effect on our ability to successfully commercialize, and attract additional collaboration partners to invest in the development of our investigational COMP360 psilocybin therapy or any future therapeutic candidates. There is limited clinical data on the long-term efficacy of psilocybin on treating TRD. Certain patients may need repeated treatments over their lifetime to avoid relapse. This may increase treatment costs, making it more difficult for us to secure reimbursement. Even if we obtain coverage for a given therapy by third-party payors, the resulting reimbursement payment rates may not be adequate or may require patient out-of-pocket costs that patients may find unacceptably high. We cannot be sure that coverage and reimbursement in the United States, Europe or elsewhere will be available for any therapy that we may develop, and any reimbursement that may become available may be decreased or eliminated in the future.”
Risks Related to Regulatory Compliance
I believe the standard refrain from concerned parties that Big pharma will block psychedelic therapy so it won’t cut into SSRI profits is unlikely. I think we’ll see many of these early companies get acquired by Big pharma. However, the pharmaceutical industry’s ability to meddle in politics, via powerful lobbying is grounds for real concern, and COMPASS makes their opposition to Oregon’s Psychedelic Services Initiative clear:
“there may be changes in the status of psilocybin or psilocin under the laws of certain U.S. cities or states. For instance, the city of Denver voted to decriminalize the possession of psilocybin in 2019 and there is currently a campaign in Oregon to pass a bill in November 2020 for the legal medical use of “psilocybin products,” including magic mushrooms, to treat mental health conditions in licensed facilities with registered therapists. The legalization of psilocybin without regulatory oversight may lead to the setup of clinics without proper therapeutic infrastructure or adequate clinical research, which could put patients at risk and bring reputational and regulatory risk to the entire industry, making it harder for us to achieve regulatory approval. Furthermore, the legalization of psilocybin could also impact our commercial sales if we receive regulatory approval as it would reduce the barrier to entry and could increase competition.”
“Our patent strategy includes pursuing protection for our novel high-purity polymorphic crystalline psilocybin, large-scale psilocybin manufacturing processes, psilocybin formulations and compositions, and methods of treatment using psilocybin… Our portfolio of patents and patent applications cover our novel crystalline polymorphic psilocybin, psilocybin formulations, methods of manufacturing psilocybin, and use of psilocybin for the treatment of psychiatric and neurological indications, including TRD and MDD, as well as a range of other indications.”
“Our first patent, U.S. Patent No 10,519,175, was granted on December 31, 2019, with claims directed to methods of treating treatment-resistant depression with oral dosage formulations of COMPASS’s high-purity crystalline psilocybin (including COMP360). Three Third Party Observations were previously filed during the pendency of the application, each considered by the Examiner and found to not be a barrier to patentability. This patent expires October 9, 2038. A Petition for Post Grant Review of the patent was filed on February 21, 2020 and was dismissed on the merits on August 20, 2020.”
“We face substantial competition and our competitors may discover, develop or commercialize therapies before or more successfully than us, which may result in the reduction or elimination of our commercial opportunities."
Usona and other non-profit’s ability to provide psilocybin for free/at cost
The rise of companies with psychedelic based research programs
The leverage Big pharma has to protect established markets, greater resources for R&D, marketing, regulatory navigation, and acquisitions.
“We also face competition from 501(c)(3) non-profit medical research organizations, including the Usona Institute. Such non-profits may be willing to provide psilocybin-based products at cost or for free, undermining our potential market for COMP360. In addition, a number of for-profit biotechnology companies or institutions are specifically pursuing the development of psilocybin to treat mental health illnesses, including TRD.
We are aware of other organizations or institutions evaluating the use of psilocybin in mental health and neurocognitive conditions. In addition, there are various companies exploring other psychedelic compounds for the treatment of mental health and neurocognitive conditions.
Many of the pharmaceutical, biopharmaceutical and biotechnology companies with whom we may compete have established markets for their therapies and have substantially greater financial, technical, human and other resources than we do and may be better equipped to develop, manufacture and market superior products or therapies. In addition, many of these potential competitors have significantly greater experience than we have in undertaking non-clinical studies and human clinical trials of new therapeutic substances and in obtaining regulatory approvals of human therapeutic products. Accordingly, our competitors may succeed in obtaining FDA, EMA or MHRA approval for alternative or superior products. In addition, many competitors have greater name recognition and more extensive collaborative relationships. Smaller and earlier-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. An increasing number of companies are increasing their efforts in discovery of new psychedelic compounds.”
Partnership and Investment
COMPASS has formed a partnership with a Drug Discovery Center at the University of the Sciences in Philadelphia, PA to:
“focus on developing optimized psychedelic and related compounds targeting the 5-HT2A receptor, which is believed to mediate the potential therapeutic effects of psychedelics. Pursuant to the agreement, USciences will perform research services on our behalf, and has granted us an exclusive, royalty bearing, worldwide license, including rights to sublicense, all jointly held intellectual property for any and all purposes, and a non-exclusive, fully paid-up, worldwide license to any pre-existing intellectual property utilized over the course of performing the services.”
Additionally, the prospectus includes the investment in Delix Therapeutics.
“a drug discovery and development company researching novel small molecules for use in CNS indications. Delix Therapeutics develops non-hallucinogenic psychoplastogens, which are molecules capable of promoting neural plasticity without hallucinogenic effects, by modifying existing psychedelics. These compounds may have potential for a range of neuropsychiatric conditions.”
OK, that was a lot to cover, and there is so much more information in the prospectus; it is a treasure trove of information.
Thanks for reading, and see you on Wednesday. Zach