COMPASS Pathways plc — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2023. COMPASS is a clinical-stage biotechnology company developing COMP360 psilocybin treatment, primarily for treatment-resistant depression (TRD). It has no approved products and has generated no revenue.
Financial performance and position
Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise stated.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $21.5 | $14.0 | $60.4 | $45.3 |
| General and administrative expense | $12.5 | $11.6 | $38.1 | $33.0 |
| Total operating expenses / operating loss | $34.1 | $25.5 | $98.5 | $78.2 |
| Net loss | $33.4 | $18.4 | $85.9 | $60.6 |
| Net loss per share | $0.67 | $0.43 | $1.81 | $1.43 |
Margins are not meaningful because the company has no revenue. Net loss for Q3 included $2.0 million of foreign-exchange losses, compared with $1.1 million of foreign-exchange gains a year earlier. The nine-month period included $2.1 million of foreign-exchange gains, down from $4.4 million. UK R&D tax-credit benefits were $9.5 million for nine months, versus $10.0 million; the company attributed the decrease to lower relief rates effective April 1, 2023.
- Liquidity at September 30: Cash and cash equivalents were $248.0 million; restricted cash was $0.3 million. Current assets were $284.8 million and current liabilities $15.4 million.
- Cash flow, nine months: Operating activities used $69.6 million, compared with $60.1 million in 2022. Investing activities used $0.1 million. Financing activities provided $173.8 million, principally from equity issuance and debt.
- Debt: Carrying value of long-term debt was $28.4 million. The $30 million Hercules term loan bears interest at the greater of prime plus 1.50% or 9.75%, plus 1.40% payment-in-kind interest; effective interest rate was 15.8% at September 30. Maturity is July 2027.
- Equity financing: The August PIPE issued 16.1 million ADSs and warrants for up to another 16.1 million ADSs. The company reported $116.9 million net proceeds; warrant exercise could provide up to approximately $159.6 million gross, but is not assured. Ordinary shares outstanding were 61.9 million at September 30 and 61.9 million at October 30.
Material changes versus prior comparable periods
- Nine-month operating expenses rose $20.3 million year over year, led by a $15.1 million increase in R&D. Management linked the increase primarily to clinical-trial and other development costs and expanded R&D staffing.
- Nine-month net loss widened by $25.4 million. Q3 net loss widened by $15.0 million, reflecting higher operating expenses and less favorable other income, including the new Hercules interest expense and a Q3 foreign-exchange loss.
- Cash increased from $143.2 million at December 31, 2022 to $248.0 million at September 30, 2023, principally following the PIPE, ATM share sales and Hercules loan proceeds.
- The company changed the functional currency of its parent and a financing subsidiary from pound sterling to U.S. dollars on January 1, 2023. Foreign exchange movements continue to affect reported results.
Outlook, risks and other notable matters
- Management estimates existing cash will fund operating expenses and capital expenditures into late 2025. This estimate depends on assumptions that could prove incorrect; the company expects continued losses and substantial additional funding needs.
- COMP005, the 255-participant pivotal Phase 3 TRD trial, was expected to report topline data in summer 2024. COMP006, a 568-participant repeat-dose Phase 3 trial, was expected to report topline data by mid-2025. Both use change in MADRS score at week six as the primary endpoint.
- The company began a Phase 2 study in major depressive disorder in Q1 2023 and also has Phase 2 trials in anorexia nervosa and PTSD. It reported recruitment challenges in anorexia nervosa and protocol amendments; timing of that study’s data readout had been pushed back.
- Key risks include clinical-trial execution and outcomes, regulatory approval and potential additional FDA requirements, controlled-substance scheduling and compliance, safety, third-party manufacturing and therapist/site availability, reimbursement and market acceptance, intellectual-property challenges, and access to further capital. COMP360 contains psilocybin, a Schedule I substance in the United States; approval would not by itself resolve the separate scheduling and operational requirements.
- The Hercules loan includes up to $20 million of additional borrowing subject to milestones and, for one tranche, lender discretion. A minimum-cash covenant of $22.5 million begins July 1, 2024, subject to stated conditions; the company reported compliance at September 30, 2023.
- The company reported no material litigation or material contingency reserves. Management said disclosure controls were effective and there were no material changes to internal control over financial reporting during the quarter.
- Subsequent events disclosed include commencement of a three-year New York office lease on October 9, 2023, with $0.7 million total stated payments, and termination of the WeWork membership on October 31, 2023.
- The risk-factor discussion notes the CFO’s recent resignation and search for a replacement; the filing was signed by the interim CFO.
Important facts for investors to verify
- Progress, enrollment, safety and data-readout timing for COMP005 and COMP006, including whether trial results support the planned regulatory path.
- Cash burn against management’s late-2025 runway estimate, and whether further financing is needed; PIPE warrant proceeds are contingent and may be cashless.
- Potential dilution from the PIPE warrants and resale-eligible securities, and the impact of the Hercules debt terms, covenants and conditional tranches.
- Changes in UK R&D tax-credit eligibility and rates, and the resulting effect on cash receipts and operating runway.
- Whether controlled-substance regulation, manufacturing capacity, qualified therapists, clinical sites and reimbursement can support eventual commercialization.