Seeking Alpha Are Saying: “Compass Pathways: Risky And Overvalued”

These are the reasons they are giving..

  • Compass Pathways is a biotech psychedelic medicine development and therapy company that has developed a synthetic formulation of psilocybin, COMP360, for combatting treatment-resistant depression.
  • Received the highly-valuable FDA Breakthrough Therapy Designation for COMP360 trials and is currently in Phase 2a trials.
  • Extensive clinical trial pipeline with 21 sites in 10 countries and partners, including King’s College London, Stanford University, and more.
  • Backed by PayPal co-founder Peter Thiel, ATAI Life Sciences, and arguably the top biotech investor, Joseph Edelman at Perceptive Advisors.
  • With the recent hype in the psychedelic sector, Compass has become overvalued by 1.44x.

I’ve recently resubmitted this article due to a material error in my calculations in my last submission that a reader caught, after which I promptly took down the article. I apologize to those who read the previous article. My previous thesis had a slightly bullish outlook on Compass, but after crunching the numbers again, I believe Compass to be overvalued at the moment. My new thesis, valuation, and analysis follow.

Following my article on MindMed (NEO:MMED and OTCQB:MMEDF), I’ve been asked by many to cover some of the other key players in the psychedelic medicine space. So I’m going to be doing a series covering them all! It may be a little slow because I run my own mental health startup full-time (or more most of the time!).

If you’re new to the psychedelic space, I highly recommend reading the article on MindMed first to give yourself a primer on this new sector and landscape that has emerged.

As one of the main poster-child of the psychedelic revolution’s resurgence, I’m excited to cover Compass Pathways (CMPS) next. Compass has developed one of the most robust management team, advisory board, board of directors, and investors I have seen in the sector. They absolutely have some of the most extensive collection of the giants in the pharmaceutical development and regulation domains. They’re making it known that they’re not just a company riding on the hype, but that they are a collection of passionate and world-renowned experts that will drive innovation and advances in the realm of mental healthcare. But with one drug in their drug development pipeline, I want to talk about what that means for investors.

Investment Thesis

Although the share price has surged more than 85% since its IPO on September 18th, I believe that within that run-up, Compass Pathways has become overvalued. Although there are some critical catalysts on the horizon, both for the company itself and within the sector at large, investors should consider the small market opportunity for the company and the inherent risks involved with one primary drug in the pipeline.

Compass Pathways Overview

Compass Pathways is a biotech company that is developing psychedelic and evidence-based medicine and therapies for the challenges we have today in the realm of mental health. The company is currently clinical-stage with one primary drug in its pipeline, a synthetic formulation of psilocybin — with its starting focus on treatment-resistant depression (TRD).

As one of the most prolific players in this burgeoning and nascent space, Compass has done, in my opinion, a fantastic job getting on the radar of some of the most influential folks. Investor backing of the company includes the likes of folks like Peter Thiel (an early investor in Facebook (FB), PayPal (PYPL), and Palantir (PLTR)), Perceptive Advisors (one of the best biotech hedge funds globally), and ATAI Life Sciences. ATAI, which is still a private company and plans to have an IPO sometime early next year, owns a significant portion of Compass (~22%).

The One-Drug Pipeline

For most biotech investors, a clinical-stage drug development company going all-in on one shot is generally quite risky. And I believe that Compass is doing its best to mitigate some of these risks, but I’m not too sure how well their plan can play out in the long term.

Today, Compass is developing one sole primary drug currently amid Phase 2b trials. This drug is a synthetic formulation of a psychedelic called psilocybin (the active ingredient in “magic mushrooms”), which they’re calling COMP360.

The core benefit of developing a synthetic formulation is that it can be tested, replicated, and scaled for distribution with precise potency. The FDA has approved COMP360 for Breakthrough Therapy Designation (BTD), which is assigned to only a “very” limited number of drugs annually. BTD allows researchers to expedite the discovery process of drugs that show early promise in severe conditions and can reduce clinical trial and drug development timelines by ~30%.

Compass has also developed a substantial patent strategy concerning COMP360, including methods of formulation and manufacturing, oral dosage forms, and more:


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