A combination of psychedelic drugs, Peter Thiel and a red-hot market for initial public offerings provided the perfect backdrop for Compass Pathways (NASDAQ:CMPS). Now that CMPS has hit U.S. exchanges, here is what investors need to know about the Compass Pathways IPO.
Did you see a mention of psychedelic drugs and then tune out? The first thing for investors to know is that Compass Pathways is playing solidly in the pharmaceutical space. That reality is also one of the biggest reasons the market has been so bullish on the Compass Pathways IPO. Shares soared 70% on its first trading day!
Compass Pathways has broken a lot of records. The company is, as of last week, the first psychedelics-focused company to list on a major U.S. exchange. While this year has seen investor interest turn to over-the-counter offerings like Champignon Brands (OTCMKTS:SHRMF), the Compass Pathways IPO offers a bit more legitimacy. Plus, if it receives approval from the U.S. Food and Drug Administration, its COMP360 drug would make waves in the mental health space. Here is what else investors need to know:
- CMPS stock returned 70.6% on its first day of trading after pricing at $17, above the previously set IPO range of $14-$16.
- Compass Pathways is based in the United Kingdom and has the backing of Peter Thiel and a long list of pharmaceutical companies and non-profit organizations.
- Its COMP360 drug uses a crystalline form of psilocybin. The U.S. Food and Drug Administration previously granted this drug breakthrough status.
- Compass Pathways is seeking regulatory approval for this drug, and hopes to market it in the U.S. and Europe as a mental health treatment. The company already has a patent on COMP360.
- CMPS posted a net loss of $25 million for the first half of 2020.
Why the Compass Pathway IPO Really Matters
There is one big reason for investors to pay close attention to the Compass Pathways IPO. Beyond the fact it is captivating the market and riding a broader IPO wave, it benefits from one unfortunate novel coronavirus catalyst.
Stay-at-home orders kept many Americans stuck at home in bad — or outright dangerous — situations. Pandemic-driven unemployment forced many others to confront homelessness and other stressors. Coronavirus cases themselves were a catalyst for increased mental illness in the U.S. Clearly, this has not been a good time for mental health.
With that in mind, experts have been calling for interest in therapy and pharmaceutical treatments to climb. We have already seen startups like Headspace receive record funding inflows. Everyone wants to go to therapy, and every investor wants to fund the companies behind that therapy. At the same time, there is a ton of interest in pursuing psychedelic drugs for mental illness. Many researchers find the likes of psilocybin to be more natural and more effective, driving the Compass Pathways IPO. Just last year, Johnson & Johnson (NYSE:JNJ) received approval for a drug that uses a ketamine derivative. This drug, Spravato, can now legally treat depression and patients who are actively suicidal.
The Compass Pathways IPO was just a start. Make sure to keep CMPS stock on your radar, especially as the pandemic continues to rage on.
On the date of publication, Sarah Smith did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Sarah Smith is a Web Content Producer for InvestorPlace.com.