COMPASS Pathways plc — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. U.S. GAAP unaudited results; amounts below are U.S. dollars.
Business context
COMPASS is a clinical-stage mental health company developing COMP360 psilocybin therapy, administered with psychological support. It has no approved products and has generated no revenue. Its lead program targets treatment-resistant depression (TRD); Phase 2 studies are also underway in anorexia nervosa and PTSD.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $14.0m | $12.2m | $45.3m | $30.4m |
| General and administrative | $11.6m | $9.6m | $33.0m | $24.5m |
| Total operating expenses | $25.5m | $21.8m | $78.2m | $54.9m |
| Net loss | $18.4m | $15.8m | $60.6m | $46.1m |
| Basic and diluted loss per share | $0.43 | $0.38 | $1.43 | $1.17 |
As a pre-revenue company, gross margin and operating margin are not meaningful. Other income, including UK R&D tax-credit benefits and foreign-exchange gains, partly offset operating expenses; total other income was $7.3m in Q3 and $17.9m for the nine months.
- Cash and cash equivalents: $173.1m at September 30, 2022, down from $273.2m at December 31, 2021. Restricted cash was $0.2m.
- Cash flows, nine months: $60.1m used in operations; $0.5m used in investing; $0.4m provided by financing. Cash, cash equivalents and restricted cash declined $100.1m, including a $39.9m adverse exchange-rate effect.
- Liquidity outlook: Management expects cash on hand to fund operating expenses and capital expenditures into 2024, based on assumptions that may prove inaccurate. Additional financing will likely be needed thereafter; no ADSs had been sold under the $150m at-the-market facility as of the filing.
- Debt and obligations: No debt is reported. Total liabilities were $30.0m, including $2.3m of operating lease liabilities; future minimum lease payments were $2.4m before imputed interest.
Changes versus comparable periods
- Nine-month operating expenses increased $23.3m year over year, led by R&D (up $14.8m) and G&A (up $8.5m), reflecting expanded development activity, staffing, share-based compensation, professional fees and public-company costs.
- Nine-month net loss increased $14.5m to $60.6m. The increase in operating expenses was partly offset by higher other income, including $10.0m of UK R&D tax credits and $3.6m of other income.
- Cash and cash equivalents fell $100.2m from year-end 2021. The nine-month period had only $0.4m of financing proceeds, compared with $155.8m in the prior-year period, which included the May 2021 follow-on offering.
- Foreign currency translation produced a $39.5m comprehensive-loss component for the first nine months of 2022, versus $6.8m in 2021. A Q3 forward-exchange-contract gain of $2.6m was included in other income.
Outlook, risks and notable items
- Management anticipated starting the three-trial Phase 3 TRD program in Q4 2022. It expected top-line results by the end of 2024 for pivotal trial COMP 005 and by mid-2025 for COMP 006; these are forward-looking targets, not reported outcomes. Both pivotal trials use change in MADRS score at Week 6 as the primary endpoint.
- The filing cites positive Phase 2b TRD top-line results announced in 2021 and published in The New England Journal of Medicine on November 3, 2022. The 233-participant study met its primary endpoint for the 25mg dose versus the 1mg arm at three weeks. Phase 3 confirmation remains necessary.
- Management expects R&D and G&A expenses to rise as Phase 3 begins and other programs, pre-commercial work and public-company requirements continue. The company expects losses for the foreseeable future and may never become profitable.
- Key risks include trial delays or unfavorable results, safety and tolerability, regulatory approval and controlled-substance scheduling, availability of qualified therapists and trial sites, third-party manufacturing and supply, access to further capital, reimbursement and market acceptance, competition, foreign-exchange movements, and COVID-19 or other operational disruptions.
- No material litigation or contingency reserves were reported as of September 30, 2022. Management said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter. Previously identified material weaknesses were described as remediated.
- The company reported a new CEO appointed in August 2022 and continued to flag leadership-transition and key-personnel risks. It had 42.55m ordinary shares outstanding at September 30; 5.04m share options were outstanding, a potential source of dilution.
Important facts for investors to verify
- Whether Phase 3 trials began on schedule, and whether enrollment, trial execution and reported timelines remain on track.
- Final and complete Phase 2b evidence, including durability, safety, adverse events and the extent to which results translate into pivotal trials.
- Cash burn, prepaid R&D and tax-credit receivables, foreign-exchange exposure, and whether the stated runway into 2024 remains realistic.
- Availability and terms of additional financing, including potential dilution or licensing of COMP360 rights.
- Regulatory requirements for psilocybin, including FDA review, DEA scheduling, and the practical requirements for commercial sites and therapists.
- Manufacturing capacity and compliance at third-party suppliers, and the company’s ability to secure adequate therapy-site, therapist and reimbursement access if approved.