Seeking Alpha Is Not Impressed By Compass

BiotechValley Insights is initiating coverage of COMPASS Pathways with a “Bearish” rating at a $13 PT.

CMPS has filed an IPO with an initial valuation of US$544M; since then, the stock has rallied 210% as of today. I think the current share price is extremely frothy.

The company has a single “mediocre” Phase 2 candidate, COMP360, which is a serotonin 2 receptor partial agonist for treating treatment-resistant depression (TRD). I have doubts about its commercial success.

I am going to explore the market landscape and clinical data of COMP360 and explain why it will likely be a mediocre treatment option for TRD.

The complex nature of its in-person therapy that requires 5+ visits to the clinic, reimbursement hurdles, and side-effect profile will be detrimental to COMP360’s commercial success.

I will analyze three key questions to guide investors:

1. Is there a market for this drug? Is the market sustainable?
2. Is this drug going to work? Are there any feasibility challenges?
3. Is the current valuation cheap?

Risks are high, and the upside is limited

1. The side-effect profile of COMP360 may limit its commercial success. Two patients treated in phase 2b have experienced serious adverse reactions that may be drug-related. One patient experienced an adjustment disorder that led to hospitalization. The investigator deemed the event, which happened more than a month after treatment, to be of moderate severity and possibly related to the drug. Moreover, another patient was hospitalized with suicidal ideation. There could be a lot of unknown safety risks that may emerge during the large-scale trial. Having only one drug to support the current valuation is highly risky for a small-cap biotech company. Any negative readout will destroy the stock price as there is no other pipeline candidate to fall back on.