When it comes to investing, open-mindedness is a virtue. Entertaining ideas outside the mainstream means you’ll find opportunities that other people might reject or fail to recognize. In this vein, open-minded investors should definitely be watching the psychedelic therapy space very closely, because one of its leaders is on the cusp of something wonderful.
Compass Pathways (NASDAQ:CMPS) will likely be the first healthcare company to bring a psychedelic therapy to market. While its business model relies on in-person clinical sessions that may be costly to administer, it’s also one of the few psychedelics companies that has a plethora of opportunities to upsell patients on value-added services. And its much-vaunted training program for therapists could make it a key upstream supplier of skilled and credentialed labor for the rest of the psychedelics industry for years to come. Let’s take a closer look at why these two tidbits make it a game-changing stock.
An innovative approach makes for more opportunities to find value
Compass’ lead program for treatment-resistant depression, COMP360, isn’t a typical biotech project.
COMP360 is the combination of the psychedelic drug psilocybin and several sessions of psychological support from trained practitioners. The therapy is in phase 2b of clinical trials, and it’s currently the world’s largest clinical trial of psilocybin for any indication. It’s also a bit complicated, so let’s take a moment to understand how it works.
First, therapists prepare patients for their psychedelic experience with the help of the company’s automated education platform. Then, they guide the patients through a talking therapy routine while they’re under the drug’s hallucinogenic effects, which last for around seven hours. All the while, patients rest comfortably in Compass’ specially designed therapy rooms. Finally, the therapists help patients to build on their progress with more discussion sessions in the weeks after the psilocybin treatment.
Compass is the only psychedelic company that’s using its training program for therapists as a major center of value generation. Its curriculum includes supervised hands-on practice in cooperation with academic institutions, and improvements are constantly being made based on data from clinical trials.
Having a training regimen is incredibly valuable, as it’s part of the package which Compass will submit to regulators to prove that COMP360 is safe and effective. If the therapy is approved for sale, the training curriculum will become the first of its kind, and it’s realistic to think competitors might want to license it to train their personnel. What’s more, the company’s curriculum could become a sought-after credential among mental health practitioners if and when psychedelic therapies become ever more common.
The business’s other major value-adding innovation is its control of the therapeutic environment. Compass’ therapy rooms are designed to support therapeutic outcomes by providing a pleasant but neutral setting, thereby reducing the chance that a patient has a difficult experience. To my knowledge, no other psychedelic medicine company is taking this key factor into account as seriously as Compass. As a result, it has developed what may be a powerful force multiplier and important safety feature for its treatment. That’ll support COMP360’s efficacy in the clinic, and it’ll also give the company the opportunity to command a significantly higher price once regulators have given the go-ahead.
You might need to wait awhile to see returns
One important thing to know about Compass’ stock is that it’ll be at least a couple of years before its revenue starts to grow from administering its therapies, assuming they get regulatory approval. Another issue is that psilocybin is still heavily restricted and illegal at the federal level in the U.S., though a few jurisdictions have made some exceptions. So, there’s a risk that COMP360 never makes it to the market if the legal landscape remains inflexible.
Nonetheless, there are still a few upcoming catalysts which could make the stock worth owning in the short term. Before the end of the year, the company should report the full data from its phase 2b clinical trial. If the readout is favorable, expect the stock to jump in anticipation of the commencement of the final phase of the development process. Even if the data isn’t what investors were hoping for, it might provide another good opportunity to buy the stock.
Compass is also investigating in preclinical studies a smattering of conditions for which its lead candidate might also be effective, including Alzheimer’s disease, chronic pain, epilepsy, and autism spectrum disorders. Given its favorable efficacy so far, it’d be surprising if there wasn’t at least one other promising indication to move forward into clinical trials over the next couple of years.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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