Compass Pathways Plc. has developed a crystalline form of psilocybin (COMP360) that makes other crystals (like the Hope Diamond, pictured above) look cheap. Over the last four years, Compass has built a company around this crystalline form. Earlier this year, Compass received a patent on this crystalline form. Now, Compass is going public. And despite zero revenue and plenty of expenses, Compass is already valued at anywhere from $100 to $500 Million.
Why? Patents. Specifically, the company’s clever strategy of patenting a novel crystalline form of psilocybin.
Compass Pathways IPO on Nasdaq under the symbol CMPS
On Friday August 25, 2020, Compass Pathways filed to go public on the Nasdaq Global Market under the symbol CMPS. According to the documents filed with the U.S. Securities and Exchange Commission, Compass plans to raise $100 million through the IPO. According to Bloomberg‘s accounts from “people familiar with the matter, who asked to not be identified because the details aren’t public,” Compass’s “[m]ost recent funding rounds suggest a value of more than $500 million, before proceeds from the initial public offering….”
According to the “Financials” section of the above mentioned SEC S-1 document (see page 118) Compass is not making any money but they are burning through a ton of cash. They have raised $116M in equity offerings and also issued about $25 Million in promissory notes, which have now converted into equity. (page 129). As of August 20, 2020, Compass had about $72 Million of this cash remaining.
Why is Compass worth between $100 to $500 Million?
Patents. And a very clever strategy for attaining them. After spending 4 years and about $60 Million, Compass is not making any money. However, Compass has developed patent assets that protect its psilocybin product, COMP360. See Compass Pathways’s Patents. In January of 2020, Compass Pathways issued a press release stating “that it has been granted US Patent No 10,519,175 (“the ‘175 patent”), relating to methods of treating drug-resistant depression with a psilocybin formulation, by the US Patent and Trademark Office.” See also Compass Pathways’s Crystalline Form Patent.
Here, Compass deserves some high praise for their approach to patenting psilocybin. Florian Brand, co-founder and CEO of ATAI Life Sciences, Compass’ biggest investor, recognized the importance of being able to “re-ornament chemical compounds in a way that makes them new — and patentable.” See Investors.com. Mr. Brand explains, “If you talk about the psychedelic compounds, the well known ones, like psilocybin and ibogaine, you certainly have to be a little bit more creative, once there’s a lot of knowledge on these molecules, to establish an ability to block [competitors from entering the space].” He continued: “We are working with attorneys on this, across the platform, with all companies, to have a strong ability to block in place. It ranges from composition of matter, to use patents to process formulation and manufacturing patents.”
Although psilocybin is a natural product and has been in the prior art (in both mushrooms and as an isolated compound), Compass developed a novel crystalline form of psilocybin. By recognizing that COMP360 is a novel crystalline form, Compass’s IP team at Cooley LLP was able to craft a patent strategy based on the differences between Compass’s crystalline form and those already in the prior art. And it worked!
In allowing Compass’s claims, the patent examiner at the USPTO explained the importance of Compass’s crystalline form data. Specifically, the examiner’s reason for allowing Compass’s claims hinged on the difference between (A) the characteristics of the crystalline form of psilocybin recited in Compass’s claims and (B) the characteristics of the crystalline form of psilocybin recited in “the closest prior art of record….” This distinction made it possible for Compass to patent its crystalline form of psilocybin despite 60 years of prior art related to the compound psilocybin and thousands of years of use within naturally occurring mushrooms.
Now, Compass’s patents covering COMP360 (their crystalline form of psilocybin) support an IPO of $100MM+. As discussed below, Compass plans to use the proceeds from the IPO to develop its most valuable asset: COMP360.
What is Compass’s Plan?
Compass plans to use proceeds from the IPO to fund clinical trials for “COMP360,” its psilocybin crystalline form product. According to the S-1 document filed with the SEC, Compass intends to use the proceeds from the IPO for the following:
- Fund Phase II clinical trials for COMP360 (their crystalline form psilocybin product), beginning in 2020;
- Fund R&D for use of COMP360 for other indications beyond Treatment-resistant depression. (The indications being explored in Compass’s investigator initiated studies include: bipolar type II disorder, body dysmorphic disorder, chronic cluster headache, depression in cancer, MDD, and severe TRD.)
- Fund other business activities, including R&D for other novel drug compounds and strategic investments in digital technologies to complement their therapies
Compass’s Crystalline Psilocybin Makes Diamonds Look Cheap
Looking at the big picture, Compass’s present $100-500 Million dollar valuation and the company’s future all rests on the foundation of a single crystalline form of psilocybin. This one new crystalline form of an old compound (psilocybin) has made it possible for Compass to earn patent protection on its COMP360 product. That IP is Compass’s most valuable asset. For comparison, the famous Hope Diamond is worth an estimated $250 Million dollars, making it an exceptionally valuable crystal. Arguably, Compass’s IP team has already made a more valuable crystal with COMP360, its novel crystalline form of psilocybin.