Compass Pathways (CMPS) - Company Analysis

Welcome back for my second blog post, today's is an exciting one. This will mark my first company review, on one of my most optimistic holdings, Compass Pathways, ticker symbol CMPS. Please, do your own due-diligence before blindly listening to anything you read here; however, if you do sense a little bias in this post, it is because I am extremely bullish on these guys. So, what is Compass Pathways? In recent years, the world of mental health care has seen a noteworthy shift towards more nuanced and innovative methods where traditional therapies have fallen short, to which I believe is warranted. The mental health of Canadians is three times worse than before the Covid-19 pandemic (Shelson, 2024). In any given year, 1-in-5 Canadians experience mental illness, and by the time Canadians are 40 years old, 1-in-2 either have, or have had a mental illness (CAMH). The company practically leading the charge in this mental health treatment revolution is Compass Pathways, a trailblazer in the emerging field of psychedelic-assisted therapy.

Compass Pathways has completed groundbreaking work with psilocybin, the psychoactive ingredient found in magic mushrooms, and they are exploring new frontiers in the treatment of treatment-resistant depression (TRD); a condition that affects millions and resists conventional treatments. Now, I'm not saying that you go trip off of some mushrooms this weekend with the fellas and boom your mental health concerns disappear, because there are some other very important factors that go into the company's leading product – COMP360 – which make it so spectacular. As mentioned, COMP360 is a psilocybin-based therapy which is the company's flagship product that they have allocated all of their resources to recently. However, unlike other drug based therapies where you take a daily pill, COMP360 involves a single-dose session in a controlled setting paired with psychotherapy before and after the session. This immersive approach is designed to facilitate deep psychological healing, which might explain its potential in treating stubborn mental health conditions. I don't know about you, but this whole thing is giving me ayahuasca retreat vibes, like the ones all those rich and famous people go on now to have mental breakthroughs.

I want to talk numbers for a second now, before I get into my real feelings about the direction of this company, because they honestly can be very misleading. This is how we're gonna do this; I'm gonna throw them all at your face, try not to cringe, then I'll hold your hand and walk you through them as I piece together your shattered hope for this company. Ready? Profit margin: 0%. Net income: -144.32 million. ROA (return on assets): -35.22%. ROE (return on equity): -64.68%. EPS (earnings per share): -2.18 (Yahoo, 2024). I know, I told you this wasn't going to be easy. So, why are their numbers so atrocious? To put it simply, they aren't commercialized yet; they can't make any money because they don't technically have a finalized product to sell at this point. As of now, their COMP360 trials are at a pivotal stage, and they are burning millions in cash month on month in research and development. The silver lining within these numbers is that they are typically within the estimates, sometimes even narrower losses than expected. For example, in Q3 2024 their EPS loss was smaller than expected. A critical piece of information that I would like to mention is that on January 16th 2025, CMPS shares were trading at $3.35 USD. Late in 2020, the same year as their inception, CMPS was trading $57.85 USD per share. That is over 1700% down in the last 5 years. This will prove very interesting for some recent milestones Compass Pathways have achieved.

Listen, down 1700% is scary I'll admit, but while others are fearful of this drop off, I see it as a massive discount. I might not be the only one either, since just over a month ago on December 23rd 2024, CMPS was added to the NBI (Nasdaq Biotech Index). Now, what does this mean? When I first saw this news the thought that jumped at me is, why now? The company's share price was at an all time low, and now is a good time to index them? See, the NBI has some specific requirements; first, the company must have a market cap of $200 million, and the stock also must have a minimum average daily trading volume of 100,000 shares. CMPS has had both the market cap and trading volume for a couple years now, but this past year CMPS had drastically increased their outstanding shares in an attempt to raise more capital for their research and development, which could explain some of this decision. Now, to switch speeds to some even more optimistic facts regarding CMPS, the Wall Street analysts are loving this company. Morgan Stanley, RBC Capital, TD Cowen, Rodman & Renshaw, H.C. Wainwright and many more basically have this thing marked at meme-coin style returns. The combined average 12 month target is $20.89 USD per share, for a 387% increase to the price of $4.23 USD when writing this. The target range high is $60 USD for a 1300% return for Christ sake, in ONE YEAR! I know what some of you might be thinking; "I've watched the Big Short, I've watched the Wolf of Wall Street, those guys don't know jack", and while I can see where you are coming from, when it comes to analyst ratings these guys have incentive to be right and don't just pull this stuff from thin air.

So finally, why do these analysts think what they do about the direction of CMPS's share price, and what do I think? Well, for the sake of my portfolio, I sure hope they're right. Before I give you the golden reasons on why I believe in this company, I'm going to be brutally honest about the difficulties and hurdles ahead, because every company and industry has them. To say it how it is, the only thing between me and those sweet meme-coin style returns is those buzzkills at the FDA (Food and Drug Administration). I am joking of course, I know they have a job to do, but as of now no psychedelic drug has received full FDA approval for general therapeutic use yet, which is the number one roadblock for all psychedelic drug treatment companies right now. However, there is a plethora of reasons why I think this is simply just a matter of time before we jump this hurdle. For one, we can take a look at the history of similar situations in regards to prohibited substances being legalized not only for medical use, but recreational as well. We could talk about alcohol and the prohibition, although it has no medical uses. However, cannabis is a perfect comparison; it was legalized in 1999 for medical use, then following in 2018 was legalized for nonmedical use. Pretty much any and all drug danger ranking will have magic mushrooms dead last on the list, 100% for certain behind alcohol and cannabis. An example is a chart from ScienceAlert which shows a global comparison of emergency medical treatment seeking in 2017 based on 9 different recreational use drugs, magic mushrooms of which being last by a long shot (Nield, 2018).

However, we are talking about medical use here, not recreational, to which I believe psilocybin mushrooms hold much more potential in providing real capable healing treatment, compared to cannabis being legalized over 25 years ago for 'pain relief'. The FDA also has a designation to psilocybin called Breakthrough Therapy, which basically accelerates the development and review of drugs showing significant potential to improve treatment for serious or life-threatening conditions, based on early clinical evidence. This designation helps expedite the approval process and provides additional support to bring promising treatments to market faster.

The truth is I could find positive things to yap about this company for probably another 1,500 words, but I have to wrap this up now so I am going to leave this company review on a high, optimistic note. Compass Pathways is really the leader in these large-scale trials for psilocybin based treatments and are reporting promising and encouraging results time and time again. They are currently in phase 3 trials, and past completions like trial 2b looked very optimistic. The numbers are out there, you can go look at these trials for yourself, but in terms of what I really think about Compass Pathways future; they are currently undervalued and at a massive discount financially, they stand for a good, promising cause that solves a problem which is on the up rise, and the only major hurdle in front of them will be jumped in only a matter of time, assuming these trial results keep showing the optimistic facts that I hope and believe they will. To me, it's really not rocket science here, I stand with the analysts when I say... It's a STRONG buy.

Thank you for reading, the support is very much appreciated.

I am hopeful that you enjoyed and learned something, but always conduct your own research before blindly listening to anyone.

• Nolan Kushnir

Citations

Shelson, L. (2024, November 19). The state of Mental Health in Canada: Ground-breaking CMHA report reveals troubling trends. CMHA Toronto. https://cmhato.org/news/the-state-of-mental-health-in-canada-ground-breaking-cmha-report-reveals-troubling-trends/#:~:text=The%20most%20recent%20statistics%20from,lead%20author%20of%20the%20report.

Mental illness and addiction: Facts and statistics. CAMH. (n.d.). https://www.camh.ca/en/driving-change/the-crisis-is-real/mental-health-statistics

Compass Pathways plc (CMPS) valuation measures & financial statistics. (n.d.). https://finance.yahoo.com/quote/CMPS/key-statistics/

Nield, D. (2018, February 10). Scientists rank 9 recreational drugs from safest to most dangerous. ScienceAlert. https://www.sciencealert.com/researchers-rank-recreational-drugs-based-on-how-dangerous-they-are