Compass Pathways (CMPS) jumped in its first day of trading on Friday, making it the first psychedelic drug company to go public on a big U.S. exchange.
XShares surged 70.6% to close at 29.00 in the stock market today, lifting the market cap to about $1 billion. The debut comes a day after Compass Pathways announced an upsized pricing for its IPO. It has backing from billionaire investor and PayPal (PYPL) cofounder Peter Thiel.
The London-based company, which is researching a therapy using the main ingredient in hallucinogenic mushrooms, said in a release late Thursday that its IPO priced at $17 a share. That was up from initial expectations for $14-$16 announced earlier in the week, putting the valuation at about $544 million.
Compass said it sold 7.5 million American Depositary Shares in the offering, for total proceeds of $127.5 million. That was also above the 6.7 million planned. Each of the 7.5 million American Depositary Shares represented 7.5 ordinary shares in the offering.
The company has also granted the underwriters of its IPO a 30-day option to buy an additional 1,125,000 American Depositary Shares, up from 1,005,000 initially.
Compass, in a filing on Monday, said would have around 34 million shares outstanding after the offering, or 35 million if the underwriters fully exercise the option.
Worries Of Cannabis Repeat
Compass Pathways filed for the IPO late last month. Cowen, Evercore ISI and Berenberg were the joint book-running managers for the Compass Pathways IPO. Canaccord Genuity, already an active deal maker in the cannabis industry, is the lead manager.
The psychedelic drugs industry has been put into the spotlight over the past year, as more investors pour their money into startups promising treatments for a range of mental illnesses.
With that trend have come concerns about a repeat of the cannabis industry's boom and bust. Most existing drugs in the industry — like LSD, MDMA and psilocybin — aren't yet legal or patentable.
Last year, however, the FDA approved the Johnson & Johnson (JNJ) drug Spravato, which uses a derivative of ketamine, for treatment-resistant depression. This summer, the FDA approved Spravato for people who are actively suicidal.
Ketamine — perhaps best known as a party drug — is regularly used, legally, as an anesthetic. Therapists also use ketamine for psychedelic-assisted psychotherapy.
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Compass Pathways' COMP360 Therapy
The FDA in 2018 also gave breakthrough status to Compass' therapy regimen, called COMP360.
Compass plans to use COMP360, a crystalline form of psilocybin, in conjunction with therapy for treatment-resistant depression. It has a U.S. patent for COMP360. A USPTO board recently denied a challenge to that patent.
If regulators approve the therapy, Compass plans to market it to clinics and health care providers in the U.S. and Europe. Compass had a net loss of around $25 million over the first half of this year.
But psychedelic drug developers, if they want to be profitable, will likely have to develop novel drug compounds and drug-delivery methods, a path similar to the legal pharmaceutical industry.
Compass, in its IPO paperwork, noted that it faces "substantial competition" from big drugmakers, along with academic and nonprofit researchers. It said such nonprofits, like the Usona Institute, "may be willing to provide psilocybin-based products at cost or for free, undermining our potential market for COMP360."
Carey Turnbull, a board member of Usona and the Heffter Research Institute, another psychedelics-research nonprofit, has helped fund some of the legal challenges against Compass' patenting efforts, Lucid News has reported.
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