Compass Pathways Archives - Green Market Report

Dave HodesMay 11, 2022
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One of the most important aspects of the psychedelics business—and one that is becoming more contentious—is about securing and protecting the patent for the specific molecule or synthetic that a psychedelics company is banking on because it can essentially protect the investment of millions of dollars a startup spends on setting up and running clinical trials, hiring expensive medical staff and other business development expenses.

Patents give protections for making, using, or selling the patented inventions of a patent holder for 20 years. They are a form of government-granted monopoly. The public policy justification for patents rests on the theory that the right to exclude competitors incentivizes innovation and encourages inventors to disclose their inventions to the public, instead of maintaining them as trade secrets. 

But when it comes to an emerging industry like psychedelics, there are no clear-cut answers to what patents should do, what they can do, and who can own them.

According to an article in the Harvard Law Review, the sudden influx of psychedelic patents has prompted criticism from stakeholders including patient advocates, scientists, journalists, lawyers, and members of Indigenous communities. “Some claim patents on psychedelics monopolize products of nature that should remain affordable and widely available. They contend that patents can exploit the traditional knowledge of Indigenous communities without permission or adequate acknowledgment and compensation. Others argue psychedelic patents are making a small number of companies gatekeepers for the emerging psychedelics industry, which could inhibit research, stifle innovation, and restrict access to needed therapies.”

One of the unique difficulties in securing a patent in the psychedelics industry is making decisions based on “prior art”, defined as “references or documents which may be used to determine novelty and/or non-obviousness of claimed subject matter in a patent application.”

Psychedelics are so new that there really isn’t much prior art. And you can’t patent a plant. But those are just a few of the trapdoors of patents in psychedelics.

To explain the patent issue in more detail, Psychedealia talked with Peter Rands, a patent attorney, and the CEO and founder of biotech company Small Pharma (OTC: DMTTF), working on DMT assisted psychotherapy. He used DMT as an example. “DMT is a molecule that is a known compound. You cannot patent what is known,” Rands said. “The specific application of known compounds can be patented if there is something novel and non-obvious about it.”

The interesting thing about the psychedelics environment, he said, is that for the most part, the private companies that are developing proprietary medicines—the fundamental evidence that these molecules were effective as kind of antidepressant medicines, maybe expanding beyond depression into other mood disorders or other neurological conditions—was put into the public domain by academia, such as Johns Hopkins and Imperial College. “So no one has proprietorship either on the fundamental molecule or the specific applications,” he said. “This opens up the question of the value of secondary patents.”

An example of a secondary patent is the specific polymorph that one of the top psychedelics industry companies, Compass Pathways, has patented with their Compass360 psilocybin therapy, which is the company’s synthesized psilocybin formulation being developed for psilocybin therapy in treatment-resistant depression. “I worked for three years at a generics company, where what we were doing was finding ways around patents, or challenging them in court,” Rands said. “And a patent that covers a very narrow polymorph is really easy to design around.”

He said that he keeps an eye on patents in the psychedelics industry. “Absolutely. There have been some interesting ones. There are a lot of companies trying to come up with novel combinations. A lot of companies are finding the sort of specific ways to assess the subjects and see what they can get protection around with kind of a pre-screening mechanism, basically, for people that will be receptive or unreceptive to psychedelic therapy.”

He said that Small Pharma is specifically focusing on the manufacturing methods for producing their DMT, which they think is more efficient than any other producers. “We published it fully in our patent application. So you know, to the extent that it’s protectable, it is also in the public domain.”

Compass Pathways (NASDAQ: CMPS) is currently addressing a patent challenge from Freedom to Operate (FTO). FTO is a non-profit founded to advance science and education, specifically to support and facilitate scientific research, in the public interest and for the public benefit. 

FTO is currently challenging Compass Pathways’ first patent with claims covering its Form A hydrate psilocybin. The Form A hydrate is distinct from the anhydrate psilocybin for which the company has already been granted eight patents in the U.S., UK, Germany and Hong Kong. It is used in Comp360.

It’s the fifth time that FTO has challenged a Compass Pathways patent. FTO claims the patent on this form of crystalline psilocybin is invalid because the substance was publicly used prior to the date on which the patent for the claimed invention was first filed. 

FTO claims that the form of psilocybin had first been used as far back at 1963, according to an open letter on the subject. The challenge is expected to continue, but it has genuinely caught the attention of the psychedelics community.

Christian Angermayer, who founded Atai Life Sciences and helped found Compass Pathways, expressed his opinion about patents in an open letter, starting off with a sort of Patents 101 discussion: “Patents were actually implemented in the U.S. to reward innovators in the short term with a temporary monopoly,” he wrote. “Patents and any similar forms of protection like data exclusivity can be compared to a mortgage on a house. For a certain period of time, society has to pay back the mortgage (assuming the house is great, and people want to move in), but after that, society owns it and can live there rent-free.”

Angermayer then added that he feels that the patent discussion is mixed up with other societal issues. “Many use this discussion to express their discomfort with current FDA regulations,” he wrote, commenting on the burdens and expense of trials. Others, he wrote, use the patent discussion to express their discomfort with capitalism itself. “I personally believe that capitalism—though it has its flaws—is by far the best economic system tried to date and that many, especially young people who flirt with socialism at the moment, forget the destruction, pain and death socialism has brought for hundreds of millions of people over the years. I would be interested in having this discussion, but…it’s not a psychedelic discussion.”

So what can be done? A more preventative approach to improving the quality of psychedelic patents involves bolstering the prior art search by creating prior art repositories, according to the Harvard Law Review. Another potential assistance would be tightening up U.S. patent law requirements for novelty and non-obviousness. 

Some call for patent pledges in the psychedelics industry. And some say that this industry should not use patents at all. “Because psychedelics represent the most innovative approach to mental healthcare in decades, and the most promising potential solution to the mental health crisis, they are too important to be monopolized,” the Harvard Law Review concluded. “Keeping psychedelics in the public domain, off-limits to the patent system, may be akin to prohibiting patents on abstract ideas, products of nature, and natural phenomena, because they are fundamental tools of scientific inquiry.”


Dave HodesMay 10, 2022
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During an earnings and clinical program update conference call today, George Goldsmith, founder and CEO of Compass Pathways (NASDAQ: CMPS), along with Dr. Guy Goodwin, chief medical officer and Mark Falvey, chief financial officer, discussed developments related to COMP360, updates about their work with the FDA, and promoted their completed phase IIb clinical trial of psilocybin therapy for treatment-resistant depression (TRD) in 22 sites across Europe and North America, which was the largest randomized, controlled, double-blind psilocybin therapy clinical trial conducted. 

The company is also running a phase II clinical trial of COMP360 psilocybin therapy for post-traumatic stress disorder (PTSD), and working on developing treatments for both anorexia nervosa and autism. 

Compass announced some of its goals for 2022:

An end-of-phase II meeting with the FDA and launch of their phase III program of COMP360 psilocybin therapy in TRD.

Publication of COMP360 clinical data in a peer-reviewed journal and at medical conferences.

Progression of their phase II COMP360 psilocybin therapy trial in PTSD.

Launch of COMP360 clinical development programs in additional indications.

Implementation of data and technology strategy to support their predictive and preventative model of mental health care.

Scaling up of their therapist training platform to support their phase III program.

Development of new compounds through their discovery center and other collaboration.

Earnings

In terms of earnings, Compass has been all over the place in 2021, up over predictions in earnings per share by 33.12 percent in Q1; down 18.92 percent in Q2; up again 19.93 percent in Q3; and down 22.86 percent in Q4.

Share volume is up slightly over the last 10 days from the previous 3 months—349.43 v. 265.9—with 42.51 shares outstanding. Insiders own 48.87 percent of shares, and institutions 19.65 percent.

The Compass stock price has been trending down significantly, now near a 52-week low of $7.36 from a high of $48.96 on November 1, 2021. Seven analysts rate it as either a buy or strong buy.

Mike Falvey, chief financial officer for Compass, reported during the conference call today a net loss for the three months ended March 31, 2022, of $21.2 million, or 50 cents per share, compared with a net loss of $12.7 million or 35 cents per shares during the same period in 2021. These results include non-cash share-based compensation of $3.1 million in 2022 and $1.7 million in 2021.

Research and development expenses were $15.4 million for the three months ended March 31, 2022, compared with $6.9 million during the same period in 2021. “The increase was attributable to an increase of $5.1 million in external development expenses, $2.6 million in personnel expenses, and $1 million in non-cash share-based compensation,” Falvey said.Increases in the quarter were primarily due to preparation for the expected launch of our phase three trial and TRD scheduled for the second half of this year.”

General and administrative expenses were $10.1 million for the three months ended March 31 2022, compared with $6.7 million during the same period in 2021. “The increases this quarter were primarily in support of our growing research and development organization and operations, and activities to support operation as a public company,” Falvey said.

Compass continues to maintain a strong financial position with cash and cash equivalents of $243.7 million on March 31, 2022, compared with $273.2 million at December 31 2021,” Falvey said. “With these resources, we expect to be able to fund our operations into 2024. We view our strong balance sheet as an important strategic asset which we will continue to manage carefully as we invest to advance these promising potential therapies while creating value for our shareholders,” he said.


Dave HodesMay 9, 2022
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The financial players in the disruptive psychedelics industry have become part of a jigsaw hodge-podge of new and strategic investors each taking a risky shot in an industry that is slowly attracting more millionaires. 

They want to get their piece of the action. But with an emerging industry like psychedelics and all the unknowns involved in it, they are essentially banking on the financing moves of other big-money movers and shakers in the psychedelics space for guidance.

Some are sensing a big-time, long-term winner in the making if they can just manage to wait out a company’s startup financial pain management. Others are content to just watch the ups and downs play out—for now. 

There are signs that the industry is about to make the kind of real progress that even conservative investors like to hear. The clinical work of psychedelic companies is getting tantalizingly closer to creating an FDA-approved psychedelic drug that would be a truly original treatment for mental health, currently led by developments in psilocybin and MDMA.

And some of the bigger investors have a personal reason for taking their own leap of faith with their fortunes, adding an interesting wrinkle to their investing motivation.

Psychedelic Billionaires

Over the last couple of years, the psychedelics industry has seen a few billionaires take the plunge, including German billionaire Peter Thiel, co-founder of PayPal and an early investor in Facebook, currently enjoying a net worth of $7.9 billion, down from a 2021 high of over $9 billion. He has also done venture stage investments in both SpaceX and LinkedIn. 

Peter Theil

Thiel invested $11.9 million in Atai Life Sciences (NASDAQ: ATAI), which was founded by billionaire Christian Angermayer in 2018, who himself got into psychedelics after an illuminating personal experience with psilocybin

Thiel and Angermayer watched their Atai Life Sciences stock surge 40 percent in its NASDAQ debut in June 2021, just the third psychedelics company to go public in the U.S., raising $225 million from selling 15 million shares. Angermayer also owns about a quarter of Compass Pathways (NASDAQ: CMPS), one of the earliest stars of the psychedelics industry that is gaining even more momentum after completing a phase IIb clinical trial of psilocybin therapy for treatment-resistant depression in 22 sites across Europe and North America. 

It was the largest randomized, controlled, double-blind psilocybin therapy clinical trial ever conducted.

Angermayer has become a sort of investor guru for psychedelics. He appears to ostensibly be on more of a personal mission to cure the ills of mankind than just a billionaire playboy looking for cool investments. He always discusses the huge market for any psychedelic drug that can successfully treat depression, often citing the statistic from the World Health Organization that there are 300 million people suffering from depression worldwide.

That’s just the sort of help-for-all-mankind bandwagon that attracts other big-money players who are checking out the market. Just two years ago, a group of Silicon Valley and Wall Street executives reportedly raised $30 million to speed the development of MDMA to treat trauma patients, including Genevieve Jurvetson and her husband Steven, who co-founded the automation startup Fetcher. They donated $2.6 million. 

Joby Pritzker

Joby Pritzker, the Silicon Valley investor whose private equity company has holdings in Tesla, Uber, and SpaceX, donated over $1 million and is on the board of the Multidisciplinary Association for Psychedelic Studies (MAPS). 

Another Silicon Valley superstar, billionaire Bob Parsons, founder of the web-hosting company GoDaddy, gave $2 million.

Parsons also has a personal connection to psychedelics. He is a Vietnam vet suffering from PTSD who began exploring psychedelic therapy as an option to manage his trauma.

Parsons later went even further with his psychedelics investments. He gave $5 million to the Mount Sinai Health System in September to build and support training and education for therapists using MDMA-assisted psychotherapy and other psychedelic medicine approaches. The multiyear grant will support the Center for Psychedelic Psychotherapy and Trauma Research in the Department of Psychiatry at the Icahn School of Medicine at Mount Sinai.

R&D Investment

But it’s not always the big money guys playing, because the industry is seeing record-setting benchmarks in the industry coming from other investor sources. For example, in 2021, investments in psychedelics companies grew to $595 million across 45 deals, setting a new annual record, accelerated by such drivers as the overall declines in return on investment for drug research and development pushing pharmaceutical companies to explore alternative product types like psychedelics. 

But it’s all a bit of a sticky wicket. While all this good news is playing out, the leading psychedelics companies are still experiencing financial loses. For example, one of the top five psychedelics companies, MindMed, listed a net loss of $93 million in 2021in their annual report, adding that “considerable effort was directed towards employing a successful financing strategy.”

But still: The millionaire—and billionaire—drumbeat for psychedelics gets louder every year. In fact, the world’s richest person, super billionaire Elon Musk (current net worth is $268 billion) appears to be hovering around the psychedelics industry, tweeting in April that he “talked to many more people who were helped by psychedelics & ketamine than SSRIs & amphetamines.” Is he next to jump in? Or is this psychedelics bonanza slowing down for the time being? As with many things in the disruptive psychedelics industry, all that can be done is to wait and see.


Dave HodesApril 19, 2022
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The year 2021 has not been kind to the psychedelics industry. The stock performances of the 60 publicly traded psychedelics companies on the Psychedelic Stock Index have been trending steadily downward since February 22, 2021, to their lowest point since the index began on June 1, 2020.

The pandemic has definitely affected psychedelic business development. Nevertheless, a few companies are getting closer to offering products and expanding therapy services. So a looming perfect storm of more psychedelic companies laying the groundwork for further development may encourage a business rebound in 2022.

Here are our picks for the five psychedelic companies to watch in 2022:

Atai Life Sciences, Berlin, Germany – listed on NASDAQ (ATAI) since July, 2021 – Market cap $999 million

Atai Life Sciences, a clinical-stage biopharmaceutical company aiming to transform the treatment of mental health disorders, is also one of the largest shareholders in Compass Pathways. In December, 2021, Atai Impact, launched in October, 2021 as the philanthropic program of Atai Life Sciences, announced its first major initiative, the establishment of the Atai $2 million Fellowship Fund in Psychedelic Neuroscience in collaboration with Massachusetts General Hospital’s Center for the Neuroscience of Psychedelics. The company also entered into a series of joint ventures and acquisitions in 2021, including with Psyber, a globally based startup focused on the development of brain-computer interface-enabled digital therapeutics for treating mental health issues. What’s coming in 2022: In January, 2022, the U.S. Food and Drug Administration (FDA) gave Atai Investigational New Drug (IND) clearance to conduct a clinical study of ketamine. Atai plans to initiate the study early this year through its platform company Perception Neuroscience.

Compass Pathways, London, England – listed on NASDAQ (CMPS) since September 2020 – Market cap $751 million

Compass Pathways is a mental health care company dedicated to accelerating patient access to evidence-based innovation in mental health. Compass has completed a phase IIb clinical trial of psilocybin therapy for treatment resistant depression in 22 sites across Europe and North America, one of the largest randomized, controlled, double-blind psilocybin therapy clinical trial ever conducted. Compass is also running a phase II clinical trial of COMP360 psilocybin therapy for post-traumatic stress disorder (PTSD).  What’s coming in 2022: The company is preparing for a meeting with the FDA in early 2022 to finalize a program using their psilocybin therapy, and anticipates commencing that program late in 2022.

 

Cybin, Toronto, Ontario, CNlisted on NYSE (CYBN) since August 2021 – Market cap $192 million

Cybin is a leading biotechnology company focused on progressing psychedelic therapeutics by utilizing proprietary drug discovery platforms, innovative drug delivery systems, novel formulation approaches and treatment regimens for psychiatric disorders. It was the first psychedelics company to trade on the NYSE in August, 2021. The company has raised just over $96 million to date to fund clinical trials, M&A and IP strategies. What’s coming in 2022: In October 26, 2021, the FDA authorized an IND application to proceed with the company’s sponsored feasibility study using Kernel’s Flow technology to measure ketamine’s psychedelic effect on cerebral cortex hemodynamics (brain flow blood). Kernel Flow uses pulsed light instead of continuous wave light to increase measured brain information. Kernel Flow is a wearable device the size and look of a bicycle helmet. In the future, it could be more broadly used for neuroscientific or physiological studies of brain activity during psychedelic use.

 

Field Trip Health, Toronto, CN – listed on NASDAQ (FTRP) since July 2021 – Market cap $149 million

Field Trip does research and development on novel, psychedelic-inspired regulated medicines, and operates clinics that deliver ketamine-assisted psychotherapy in Canada and the United States. Field Trip currently operates and/or owns nine clinics in Toronto, Ontario; Fredericton, 

New Brunswick; New York, New York; Santa Monica, California; Chicago, Illinois; Atlanta, Georgia; Seattle, Washington; Houston, Texas; and Amsterdam, The Netherlands. What’s coming in 2022: The company is planning to build an additional nine Field Trip Health Centers in Vancouver, British Columbia; San Diego, California; Washington, DC; Stamford, Connecticut; San Carlos, California; Austin, Texas; Scottsdale, Arizona; Dallas, Texas; and Miami, Florida. On January, 2022, Field Trip announced that the U.S. Patent and Trademark Office (USPTO) issued a Notice of Allowance for Field Trip’s patent application for their first novel psychedelic molecule in development. Field Trip expects the patent to be issued in February, 2022.

 

MindMed, New York, NY – listed on NASDAQ (MNMD) since April 2021. Market cap $357 million.

MindMed is a clinical-stage biotech company that seeks to discover, develop and deploy psychedelic-inspired medicines and therapies to address mental health and addiction. What’s coming in 2022: On January 4, 2022, the company announced the completion of its Phase 1 clinical trial of 18-MC, the company’s non-hallucinogenic proprietary derivative of ibogaine, being developed for the treatment of indications linked to opioid use disorder. This phase 1 single and multiple ascending dose trial conducted at a single clinical research site in Perth, Australia, evaluated the safety, tolerability, pharmacokinetics, and effects on the cognitive activity of 18-MC in healthy volunteers. The trial was completed in December 2021 with results expected in early 2022.

Sources: Company SEC filings; Yahoo! Finance; Psychedelic Stock Index; company websites and press releases


Dave HodesApril 6, 2022
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Using huge amounts of money to invest in a business with no products seems like a fool’s errand. 

But in the psychedelics world, that’s just what’s going on. Big money from billionaires like Peter Thiel and others is pouring in because of big predictions for future growth hopefully fueled by a big shift in mental health remedies and therapies.

Big.. hopes..

But all of that bigness doesn’t hide the fact that there is still a lot of guesswork in the psychedelics side of the biotechnology business that is not for the faint of heart investor. And some investors who have been riding the rollercoaster of a psychedelics stock market hoping for some sign of steady growth look away one week, not interested, then take another look when another big money announcement hits.

Psychedelics are intriguing, it’s good for all mankind.. but it’s fraught with financial landmines and market hiccups.

One biotech news company said that, when the pandemic hit, every biotech IPO was generating value. But the momentum didn’t last. Stock prices of newly public biotech companies tumbled in 2021, caused by clinical and regulatory setbacks, macro-economic forces, and an increasingly negative investor.

So if it was that hard for biotech companies to survive, many who had actual products to sell and had a research-to-market system in place, did that mean that investing in psychedelics companies, with so many more unknowns than the standard biotech company, should not even be on an investor’s radar?

One thesis for investing in psychedelic stocks goes like this: Over the next 5-10 years, psychedelic medicines and the companies that produce them will utterly disrupt the pharmaceuticals market, particularly when it comes to mental health care. Therefore, those who invest in the sector early will make a great return on investment. “The potential 2028 market for psychedelics is a knee wobbling $52.36 billion,” according to the thesis.

You hear that figure as an investor and it’s usually “Where do I sign up?” But it’s tough because you have to be aware of the variables. Science. Mental health. Brain chemistry. Long clinical trials. FDA. DEA.

This is a science-driven industry. There are generally no shortcuts to drug development, but there are accelerated programs for fast track and breakthrough therapy approval from the FDA. 

There is a lot at stake in drug development. Any drug development, including capital costs and expenditures on drugs that fail to reach the market, has been estimated to range from less than $1 billion to more than $2 billion.

On top of that, psychedelics therapies are still in the experimental stage, using guided sessions and other assisted methodologies as they ask a patient to trust their minds to a total stranger wielding a substance that takes them through visual and aural twists and turns that some people don’t want to experience. 

Will it have broad appeal? That’s another question that an investor needs to consider.

The usual adjustments and business gyrations still haunt this emerging industry—resignations and reassignments and science team building—especially science team building, since this can provide a quicker pathway to clinical studies.

But recently, there are other, more alarming signs that the industry can be a bit shakier than some believe it to be.  Core One Labs (CSE: COOL) (OTC: CLABF), whose science team developed DNA sequences that produce enzymes replicating the biosynthetic pathway used by psilocybe mushrooms, just acquired Awakened, a psychedelics research and technology company, in February. Good moves, both. 

But that wasn’t enough to keep Core One afloat. It is looking to be acquired. “Acquisition or investment by a major pharmaceutical company could be mutually beneficial,” the company reported in a press release. 

Mind Cure Health (CSE: MCUR) (OTCQX: MCURF) reported that it was halting its psychedelic medicines research, following a “strategic review” undertaken by the company. The review determined that “the additional capital required to execute the Company’s business plan is unlikely to be found under the current and foreseeable market conditions and that none of the strategic alternatives available to the Company necessitated ongoing developmental expenditures.”

The industry is sagging. The Horizons Psychedelic Stocks index (OTC: HPSYF)—which include psychedelics industry leaders MindMed, Cybin, Compass Pathways and others—shows a steady, and somewhat steepening decline, since October, 2021.

While the bad news piles up, there is still good news that trickles in as well. For example, Compass Pathways (Nasdaq: CMPS) partnered with King’s College London to launch a psychedelic research center. 

Startups are not shying away, such as Real Brands (OTCQB: RLBD. Real Brands Inc. is a multi-brand owner, formulator, extractor and manufacturer of branded hemp-derived CBD products. The company is initiating expansion to become a premier provider of medical psychedelics and will be working on getting DEA licensure for psychedelics. 

Another recent addition to the psychedelics space is Mota Ventures Corp. (OTCPK:PEMTF) (CSE:MOTA), with the acquisition of Verrian Ontario, which will provide the company with addiction medicine experts, R&D facilities and a 110,000 square foot pharmaceutical manufacturing facility in Radebeul, Germany.

Novamind, Inc. (CNSX: NM)(OTCQB: NVMDF) and Red Light Holland Corp. (CSE: TRIP) (OTC Pink: TRUFF) both reported increased revenue. Red Light generated revenues of $622,247 for the quarter resulting in a gross profit of $232,792, an increase of $75,822. Novamind delivered total revenue of $2,452,540 in the quarter ending December 31, 2021—an increase of 32% over the previous quarter.

What the industry has going for it more today than even a year ago is increased visibility from media—The Economist, Wall Street Journal, Scientific American and other mainstream publications are picking up their coverage of the industry. 

That helps to create more discussion about how to help the mental health of the world—along with a slowly building relaxing of some government rules and laws about some psychedelics in both the United States and the UK

Attitudes are changing about psychedelics—an investor can genuinely bank on that.

Investors can take comfort in that there are companies out there trying to help them understand the psychedelics landscape and get in early to test the waters. 

For example, Origin Therapeutics is an actively managed investment issuer providing investors with diverse exposure to the psychedelic industry. “There is a tremendous amount of innovation taking place in the psychedelics sector,” said Origin Therapeutics CEO Alexander Somjen on the company website. “Investors want to get in on it—but for many, it is only possible to access companies that are already publicly traded, which means that a lot of that initial opportunity to participate in the earliest stages of growth has passed.”

Origin Therapeutics plans to invest in a diverse range of psychedelic companies that encompass different areas of growth in the industry. This could include early-stage drug development companies, clinics, and other ancillary companies that help to push the industry forward, such as those companies focused on education, marketing, and building awareness around the psychedelics industry.

There are more historic and encouraging scientific breakthroughs such as when the Multidisciplinary Association for Psychedelic Studies (MAPS) released results of Phase 3 trial investigating MDMA-assisted therapy in May 2021, which is just the ticket for an investor looking at a long run in psychedelics. 

Seasoned investors know that a big, long, super profitable run can happen. The volatility of the stocks will calm. But no one can soundly predict when the goodwill outweigh the not-so-good as the industry develops, and declare that the growing pains of this emerging industry have been healed.


Dave HodesMarch 9, 2022
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When you take a big picture look at the psychedelics industry, you can easily get starry-eyed: Predictions of $6.85 billion industry by 2027. Mental health and wellness demands firing up a ready-made market. Support from more and more mainstream educational and institutional organizations creates credibility and access. Big money investors all in.

Yet most of these psychedelic companies are startups, still in the product research and development stage, working on novel compounds, with no product, no revenue, as they spend more and more on research and development just to stay in the game.

Perhaps there can be some comfort gleaned about the future of a young psychedelic company from the established non-psychedelic life science product companies, who have actual products ready to sell, and who continue adding products to their pipeline. 

They face the same issues as the psychedelics companies—regulatory hurdles, patent protection, and months or even years of product development. They have a tried-and-true track record for success—a pathway from expensive research and development to (sometimes) wild profit.

Established non-psychedelic life science drug development companies spend up to 25% percent of their revenues on R&D. Those costs go up all the time, increasing by about 8.5 percent per year over roughly the past decade, according to an April 2021 report from the Congressional Budget Office. 

Adjustments to manage R&D costs have to be made to this engine of innovation, which is also the genie of profitability. In response to higher R&D costs, non-psychedelic life science companies are focusing on specialized R&D models that require enhanced capabilities to promote greater R&D efficiency.

The critical importance of the burden of R&D expenses to the success of these non-psychedelic life sciences operations is a lesson learned by psychedelic startups, who know that R&D costs are pivotal because they fuel the future pipeline. 

As they operate with no revenue, psychedelics companies tell potential investors from the outset that R&D, where they spend most of any money they can get, is the key to the kingdom of future revenue riches right now. Otherwise, they’re sunk.

Take a look at what one of the fastest-growing and more successful psychedelic companies, Compass Pathways (NASDAQ: CMPS), says about itself. 

Compass raised $146 million in its their September 2020 IPO, and an additional $144 million in a secondary offering in April 2021.

Fair enough..and wow. Sounds like a winner.

But what Compass management reported in their Securities and Exchange filing for the fiscal year ending on December 31, 2021, was rife with warnings and negative scenarios about their future success, just so no one misunderstood or diminished the obstacles they are up against in trying to be a profitable, R&D-driven psychedelics company. 

In fact, most of the warnings seem to be part of a reporting boilerplate for other psychedelic companies (such as Atai Life Science). 

First the good R&D news from the SEC filing. On November 3, 2021, the company announced that they are conducting a Phase II clinical trial to assess the safety and tolerability of COMP360 psilocybin therapy in post-traumatic stress disorder (PTSD). The study expands COMPASS’s research pipeline in COMP360 psilocybin therapy. 

Then Compass pounded away on itself, admitting to serious business survival issues that resonate with other psychedelic companies—no revenue, more R&D expenses expected—especially in their list of 24 bulleted statements in the “risks associated with their business” section of the SEC (pages 5 and 6). 

Here’s a selection of those statements: 

Page 5: “We are a clinical-stage mental health care company and have incurred significant losses since our inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.”

Page 5: “Research and development of drugs targeting the central nervous system are particularly difficult, which makes it difficult to predict and understand why the drug has a positive effect on some patients but not others.”

Page 5:We have never commercialized a therapeutic candidate before and may lack the necessary expertise, personnel, and resources to successfully commercialize our therapies on our own or with suitable collaborators.”

Page 6: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.”

The SEC document noted that R&D expenses doubled for Compass to $44 million for the year ended December 31, 2021, over the previous year. But those expenses are nowhere near slowing down.

Page 136: “Research and development activities are central to our business model. Product or therapeutic candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials and related product manufacturing expenses. As a result, we expect that our research and development expenses will continue to increase over the next several years.”

Investors seem to like psychedelics companies today, wary about the riskiness of them but banking on the hope of a psychedelics therapy development that could make them millions nearly overnight. It’s happened repeatedly in the non-psychedelics life science world. And it continues today. For example, Aduhelm, a treatment for Alzheimer’s disease from life science giant, Biogen, could make upwards of $15 billion in the U.S

Public opinion could calm investor jitters, too. A recent survey from the United Kingdom think tank found that 59 percent of respondents would consider psilocybin-assisted therapy for themselves if they had a condition where there was strong evidence it could be effective—something only ongoing research and development could confirm.

But for now, investors in psychedelics—and psychedelics company executives—have to live with the burdensome truth of emerging growth companies: a ton of R&D expenses on the rise, no revenue insight, and many, many health and mental wellness promises to keep.

 

 

Sidebar #1

Research and development activities for a psychedelics company:

– Laboratory research aimed at discovery of new knowledge. 

– Searching for applications of new research findings or other knowledge. 

– Conceptual formulation and design of possible product or process alternatives. 

– Testing in search for or evaluation of product or process alternatives.

– Modification of the formulation or design of a product or process.

– Design, construction, and testing of preproduction prototypes and models. 

– Design of tools, jigs, molds, and dies involving new technology.

– Design and development of tools used to facilitate research and development or components of a product or process that are undergoing research and development activities.

Source: SEC filing, Compass Pathways, Chapter 3: Research and Development

 

Sidebar #2

Definitions of R&D in the psychedelics industry:

– Research is planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service (referred to as product) or a new process or technique (referred to as process) or in bringing about a significant improvement to an existing product or process. 

– Development is the translation of research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or use. It includes the conceptual formulation, design, and testing of product alternatives, construction of prototypes, and operation of pilot plants.

Source: SEC filing, Compass Pathways, Chapter 3: Research and Development


Debra BorchardtFebruary 24, 2022
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COMPASS Pathways plc (Nasdaq: CMPS)  reported its financial results for the fourth quarter and full-year 2021 ending in December and gave an update on recent progress across its business. At this time, Compass doesn’t have any meaningful revenue. However, it has been devoting most of its resources to research & development (R&D) where expenses were $44.0 million for the year versus $23.4 million during the same period in 2020.

The increase was attributable to an increase of $16.1 million, $6.0 million, and $0.4 million respectively in development expenses, personnel expenses and other expenses, partially offset by a reduction of $1.8 million in non-cash share-based compensation, as COMPASS progresses its COMP360 psilocybin therapy in TRD, and continues to explore additional indications and therapeutic approaches. The company is in a comfortable position to continue its research with cash and cash equivalents were $273.2 million as of December 2021 compared with $190.3 million at the end of 2020.

The net loss for the year was $71.7 million, or $1.79 loss per share (after including non-cash share-based compensation expense of $8.6 million) versus $60.3 million or $3.55 loss per share, during the same period in 2020 (after including non-cash-share-based compensation expense of $18.0 million). The net loss for the fourth quarter was $25.7 million, or $0.61 loss per share (after including non-cash share-based compensation expense of $2.8 million), compared with $18.8 million, or $0.52 loss per share, during the same period in 2020 (after including non-cash share-based compensation expense of $1.4 million)

George Goldsmith, Chairman, CEO and Co-founder, COMPASS Pathways, said, “With our end-of-phase II meeting now scheduled with the FDA, we will be finalising our phase III programme design for an expected start in the second half of the year. Moving into phase III is another important step towards providing a much-needed therapeutic option for patients suffering with treatment-resistant depression and extends our leadership in this area of science with the most extensive evidence package to date. At the same time, we continue to broaden our pipeline through a phase II trial in PTSD, ongoing investigator-initiated studies, and development of new compounds through our Discovery Center and our partnership with Dr Matthias Grill of MiHKAL GmbH.”

COMP360 psilocybin therapy in treatment-resistant depression (TRD)

  • Positive results from groundbreaking phase IIb clinical trial; additional data shows patient improvements beyond reduction of depression symptoms, including in positive affect and quality of life
  • Positive results from open-label study of 25mg COMP360 psilocybin therapy as adjunct to SSRI antidepressants in TRD
  • End-of-phase II meeting scheduled with FDA for late April 2022
  • Phase III programme expected to begin in second half of 2022

Dave HodesFebruary 23, 2022
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The rush to get into the psychedelics industry is becoming a must-have for any bioscience operative, be that the research scientist with a novel therapeutic or the investor with a pile of cash hoping for the big payoff when a novel psychedelic drug becomes the next big thing for treating some of the untreatable or hard to treat human conditions like PTSD or depression. 

Psychedelics as the top-of-the agenda consideration for these operatives began with the promise of drug development using synthesized versions of psilocybin—a development that has ramped up significantly over the last two years with more psilocybin-related clinical trials (53) treating more human wellness conditions (113) than even the most optimistic investor could imagine just a few years ago. 

Every month, as more trials are added and more human health conditions are considered targets for more psychedelics research using a variety of different psychedelics, to an interested investor, the psychedelics industry is looking like a hot gold mine of good deals.

There is a catch, though. A wrench in the works, if you will. The unpredictable variable—and that’s the actual process of a psychedelic drug development.

Most drugs have to finish a Phase III clinical trial for consideration by the FDA, which is the first step to making them profitable. 

Unless a drug gets on an accelerated program at the FDA, such as fast track, breakthrough therapy, or priority review, getting a drug from test tube to market can take 10 months through the FDA review process, which begins after Phase III is complete.

Most companies working on psilocybin or other psychedelics are not that far along yet in their clinical trials—though the psychedelic world was rocked by the completion of a Phase IIb study by Compass Pathways (NASDAQ: CMPS), which promises to be in Phase III by the end of the year. 

It was the largest (233 patients), randomized, controlled, double-blind psilocybin therapy study ever completed.

That Compass Pathways announcement really got investors excited. Investment dollars poured into Compass and other psychedelic companies. Other more risk-averse investors began taking a look at the psychedelics. 

What they were seeing is a life science darling with great potential—but with a lot of back and forth on clinical trials, a flurry of patent applications to lock in their intellectual property (Eighteen psychedelic companies filed psilocybin product patents for formulations or methods of production in 2021; 19 patents were published in 2019 alone), and other basic life science groundwork which hinted at a fantastic earnings future complicated by hard-to-measure risk.

Intellectual property lawsuits are likely. Clinical trials could show that a certain formulation doesn’t work. A negative FDA review could kill a drug development, causing a psychedelics drug company to lose millions instantly.

What this new and growing wave of investors—Business Insider identified 11 firms investing about $139.8 million in psychedelics startups over the last few years—have found is that there are no promises of success in an industry that promises so much with products that take so long to get to market and become profitable.

They want a sure thing. A Plan B. They are finding it in psychedelics-industry services.

There is whole network of psychedelics startups focused on tech, delivery, and distribution that have risen up to lay the groundwork for what might become a $100 billion market, according to Business Insider.

One example comes from Cybin, sponsoring a study by Kernel Flow into a unique tech product. It’s a wearable helmet system that uses pulsed light instead of continuous wave light to increase measured brain information and help find out what is happening in the brain during a psychedelic experience.

Cybin doubled down on the value of their sponsorship, likely in part to lure investors to stick with them while their psilocybin clinical trial process continues. 

Cybin’s sponsorship agreement allows them to retain an exclusive interest in any innovations that are discovered or developed through its independent analysis of the Kernel Flow study findings. “We believe the results of this study will lead to future studies that will test the effectiveness of psychedelic treatments and will further support our mission to develop psychedelics into therapeutics,” Doug Drysdale, Cybin CEO, said in a press release about the study. 

Another example is Delica, Inc., with their digital health solution app, MyDelica, that charts an interested user’s psychological profile and its dynamics across time, and helps guide someone on a safer psychedelic journey. The objective of MyDelica is to capture the naturalistic use of psychedelics in ‘the wild’ and use that information to further guide scientific discovery. 

Delica, Inc, is a spinoff from the Centre for Psychedelic Research at the Imperial College of London.

And the evolution of the industry has also fired up exclusive help for psychedelics startups, another good sign for investors. Late in 2021, Woven Science formed a partnership with Founders Factory, a company that partners with companies to build, fund and scale startups worldwide, and launched one of the first startup business accelerators focused exclusively on mental wellness solutions that enhance the value of psychedelic treatments. They have identified four key pillars of investment: compounds, clinics, community and technology.

Yet another way that psychedelics companies are presenting themselves as a good investment is by simply expanding their lab services for contract work by other companies, as is the case with Numinus Wellness, Inc., through its research vertical, Numinus Bioscience. The expanded lab services include bioanalytical testing, bioassay and in-vitro studies, and small batch manufacturing, all of which the company hopes will be new revenue drivers. Numinus already provides services to several psychedelics organizations for analytic testing, product development and ancillary services.

Another company is using technology to proactively search for new chemicals to develop. Atai Life Sciences, a clinical-stage biopharmaceutical company, launched TryptageniX, a new platform company that will specialize in the discovery of new chemical entities for the Atai pipeline through bioprospecting (which is the search for natural products from which medicines can be developed), and on biosynthesis of Atai’s naturally derived development candidates. 

This platform is viewed as a good match for Atai, which in November, 2019, launched a joint venture with Cyclica, Inc., makers of an artificial intelligence-augmented end-to-end drug discovery platform that allows researchers to visualize the complete polypharmacological profile of a compound and specially tailor drugs to target specific disease pathways related to mental health. 

Cyclica, Inc., describes its system as a sort of work-around for the trouble that drug developers experience today—and what gives investors cold feet. It’s designed to “revolutionize a system troubled with attrition and costly failures” and “accelerate the drug discovery process” and “develop medicines with greater precision.”

There are also a host of other artificial intelligence companies for life science businesses that are designed to speed up clinical trials and reduce costs, such as Datavant, Cloud Pharmaceuticals, and Denovicon Therapeutics. And that’s just the equation investors like to count on: More certainty plus more predictability plus targeted development equals faster track to market.


Dave HodesFebruary 4, 2022
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Leading psychedelics advocacy groups are tasked with goals of demonstrating and influencing the way that the psychedelics business operates. 

They create conferences, organize wellness seminars, provide teaching and training courses as a way of not only introducing psychedelics to people who may not have heard about their natural healing power but to outline principles and methods of collaboration. 

Some look at the work of advocacy groups as stepping stones to the broader goal of psychedelics reform, complete with a solid ethics framework.

But for all the good that these advocacy groups are doing, there have been bumps in the road along the way when it comes to the products and therapies that the industry is producing—products that are predicted to create a multi-billion industry, with already millions being invested in development. 

But it’s a slow process to bring a drug to market. Any pharmaceutical designed for humans takes years of research and millions of dollars in expenses. This is especially true of any drugs targeting the central nervous system. They are not a slam-dunk kind of business. They are more of a wait-and-see deal while investors hope for the payoff.

With so much at stake, there was a fear that new psychedelic product discoveries, new methods of synthesizing such substances as psilocybin, could get locked up within a company’s intellectual property vaults, effectively slowing down or blocking innovations by other companies that are, after all, part of a bigger mission of psychedelics: treating human mental health conditions with novel drug therapies.

There should be a stopgap of some sort when confronted with this goal of making something for the greater good. There needs to be guardrails on how the industry develops.

Indeed, one of the earliest and well-known advocacy groups, Multidisciplinary Association for Psychedelic Studies (MAPS), was and continues to be focused on that greater good goal through its outreach work and its wholly-owned subsidiary, MAPS Public Benefit Corporation (MAPS PBC). MAPS PBC does psychedelic drug development, therapist training programs, and sales of prescription psychedelics “prioritizing public benefit above profit.”

But as the nascent industry continues to find its footing, one company, Compass Pathways (NASDAQ: CMPS), found that the temptation to become a lead player in the multi-billion-dollar psychedelics industry created a red alert for industry activists and advocates who believed they were witnessing a monopoly being formed.

London-based Compass Pathways was started as a non-profit in 2015 by co-founders George Goldsmith (now also chairman and CEO) and Ekaterina Malievskaia (now also chief innovation officer) to assist with psilocybin therapy based on “painful effects of depression within their own family,” according to their website. A fair enough incentive to start a non-profit. 

Then on June 13, 2016, Compass became a for-profit company, with a co-founder, president and chief business officer, Lars Wilde, and financing from PayPal co-founder and billionaire Peter Thiel who helped guide the company to their IPO on NASDAQ in September, 18, 2020—the first psychedelics company to be listed on NASDAQ. 

MAPS congratulated Compass on their IPO, and noted that they had built their company “upon the innovative work of non-profit organizations including the Heffter Research Institute, Usona Institute, the Beckley Foundation, and MAPS.”

Then, in April, 2021, Compass did the unthinkable: they filed an international patent application for psilocybin. The company claims the patent is just for their formulation of synthetic psilocybin. But patent lawyers who reviewed the document say that it reads as broadly asserting a patent on any sort of psilocybin administration.

Now their patent has been challenged by the non-profit group Freedom to Operate with a filing on December 15, 2021, requesting a post-grant review (a post grant review is a trial proceeding to review the patentability of one or more claims in a patent). The review process could take up to 18 months. It’s a case being carefully watched by the industry.

As the psychedelics industry continues evolving, and dealing with the growing pains that any nascent industry experiences, industry leaders know that they need to assert and protect the ethical cause of what they are doing and continue to remind each other about the help their work means for people suffering from mental health problems like treatment-resistant depression. Advocacy groups drive and sustain that cause.

One example of the industry getting on the same page: In December 2017, just a few months after Compass decided to change to a for-profit company, a number of non-profit company leaders, along with dozens of scientists, scholars, practitioners, and philanthropic organizations, signed a statement committing to various principles of research and therapy work in psychedelics. The statement, led by Robert Jesse, a psychedelics researcher, was developed “in response to concerns that, as psilocybin and MDMA progress through clinical trials showing promise as medicines, commercial enterprises will form in ways that incentivize them to not share materials or knowledge, to prioritize profits, or to act competitively against others.”

The statement reads, in part, that signatories to the statement will “place the common good above private gain” and will “strive to place our discoveries into the public domain, for the benefit of all.”

Maybe this psychedelics industry declaration of intent will become the document on which psychedelics companies will build their businesses. Maybe it will get dismissed as just wishful thinking by those who don’t fully grasp the concept of capitalism. But at least it’s a good start for an agreed-upon ethical base that this industry needs going forward into what promises to be a very busy year for the psychedelics industry.


Debra BorchardtDecember 13, 2021
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COMPASS Pathways plc (Nasdaq: CMPS) announced positive results from its exploratory study of COMP360 psilocybin therapy in conjunction with SSRI use. The study wanted to test whether patients with treatment-resistant depression could tolerate and do well with psilocybin treatments while also taking regular depression medicine.

“The results of this study challenge the widely-held belief that the use of SSRI medication together with psilocybin could interfere with psilocybin’s therapeutic effect. Our findings provide a strong signal that COMP360 psilocybin therapy could be an adjunctive treatment to SSRI antidepressants as well as a monotherapy. For some patients with treatment-resistant depression, withdrawal is a difficult step even though, by definition, ‘treatment-resistant’ means that those antidepressants are not working. This is exactly why we conduct rigorous research to help guide our clinical trial design – including addressing barriers to adoption of COMP360 therapy,” stated Guy Goodwin, Compass Pathways’ Chief Medical Officer. “We are now looking forward to meeting with the FDA early in the new year in light of these new data to finalize our plans for the phase III program, which we expect to begin in Q3 2022.” Compass has Breakthrough Therapy designation with the FDA.

Study Details

Compass said in a statement that the open-label study included 19 patients from clinical sites in Ireland and the United States. The majority of patients were female (68.4%) and the average age was 42 years. The primary endpoint was the change in baseline MADRS1 total score at 3 weeks in patients having 25mg COMP360 psilocybin therapy given in augmentation with their existing SSRI antidepressant regimen. In the study, 8 of the 19 patients (42.1%) were responders1 at week 3 (compared with 36.7% at week 3 in the phase IIb trial) and all 8 were also remitters1. The mean reduction from baseline observed in MADRS total score was 14.9 at week 3 (compared with a 12.0 mean reduction in MADRS in the phase IIb trial). There was a rapid response from day 2 to week 3 after COMP360 therapy, which is also consistent with the phase IIb result. The baseline MADRS score of patients entering the study was 31.7, representing moderate to severe depression. MADRS scores were assessed by blinded independent raters at baseline, on the day following COMP360 psilocybin therapy, and at weeks 1, 2 and 3. Patients were then invited to participate in COMPASS’s long-term follow-up study which also includes patients from the phase IIb trial.

COMP360 psilocybin therapy using a 25mg dose also showed overall signals of improvement in most other measures including improvement in anxiety, clinician and self-rated depressive symptoms, and positive and negative affect.

TRD

According to Compass, more than 320 million people globally suffer from major depressive disorder (MDD). About a third of these patients – 100 million people – aren’t helped by existing therapies and suffer from treatment-resistant depression (TRD). As many as 30% of these attempt suicide at least once during their lifetime. TRD carries two to three times the medical costs of a non-TRD MDD patient, and patients with TRD have higher all-cause mortality compared with non-TRD MDD patients. The TRD population is by definition more difficult to treat and more likely to relapse than patients with major depressive disorder. In 2018, COMPASS received FDA Breakthrough Therapy designation for its COMP360 psilocybin therapy for TRD.


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