COMPASS Pathways plc — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. COMPASS is a clinical-stage biotechnology company developing COMP360 psilocybin treatment, with its primary focus on treatment-resistant depression (TRD). It has no approved products and has generated no revenue.
Financial performance and position
| Metric | Q2 2023 | Six months 2023 | Comparable 2022 period |
|---|---|---|---|
| Revenue | No revenue | No revenue | No revenue |
| Research and development expense | $19.8 million | $38.9 million | $15.9 million Q2; $31.3 million six months |
| General and administrative expense | $12.8 million | $25.6 million | $11.3 million Q2; $21.4 million six months |
| Total operating expenses / operating loss | $32.7 million | $64.5 million | $27.3 million Q2; $52.7 million six months |
| Net loss | $28.3 million | $52.5 million | $21.0 million Q2; $42.2 million six months |
| Basic and diluted loss per share | $0.62 | $1.19 | $0.50 Q2; $1.00 six months |
| Cash used in operating activities | Not separately presented | $52.5 million | $41.1 million six months |
As of June 30, cash and cash equivalents were $148.2 million ($148.5 million including restricted cash), compared with $143.2 million at December 31, 2022. Total assets were $209.8 million; current liabilities were $12.8 million; total liabilities were $43.4 million; and shareholders’ equity was $166.4 million. The company reported no product gross margin, as it has no revenue.
Cash increased by $5.1 million in the first half of 2023. Financing provided $57.0 million, principally from $28.1 million net proceeds under the at-the-market (ATM) share facility and $29.6 million net debt proceeds; operating activities used $52.5 million. The company reported an accumulated deficit of $313.7 million.
Changes versus prior periods
- First-half net loss widened by $10.3 million year over year, as operating expenses rose $11.8 million. R&D expense increased $7.6 million, mainly from clinical and preclinical development costs and added personnel. G&A expense increased $4.2 million, largely from personnel and share-based compensation.
- Q2 net loss widened by $7.3 million year over year. Operating expenses rose $5.4 million; lower R&D tax-credit benefit and foreign-exchange gains also affected the comparison.
- First-half operating cash use increased $11.4 million year over year. The prior-year period included a $24.8 million adverse foreign-exchange effect on cash, compared with a $0.7 million favorable effect in 2023.
- The company changed the functional currency of its parent and a wholly owned holding subsidiary from pound sterling to U.S. dollars effective January 1, 2023.
- Ordinary shares outstanding increased from 42.6 million at December 31, 2022, to 45.8 million at June 30, 2023, including ATM issuance.
Debt, liquidity and funding
On June 30, 2023, COMPASS entered into a Hercules loan agreement and drew the initial $30 million tranche. Up to a further $20 million may be available: a $10 million tranche subject to performance milestones and a $10 million tranche subject to the lender’s investment committee approval. The loan matures July 1, 2027. Interest is the greater of prime plus 1.50% or 9.75%, with 1.40% payment-in-kind interest; the stated effective interest rate was 15.1% at June 30. Debt’s balance-sheet carrying value was $28.1 million after issuance costs.
The agreement requires at least $22.5 million of cash beginning January 1, 2024, subject to specified timing and market-capitalization provisions. The company reported covenant compliance at June 30. Management believes existing cash will fund operating and capital requirements for at least the next 12 months, but says substantial additional funding will be needed to complete development and commercialization. Additional funding may dilute shareholders, add restrictive debt terms, or require licensing or surrendering program rights.
Programs, outlook and key risks
- TRD Phase 3: COMP005 (n=255; single 25 mg dose versus placebo) was expected to report topline results in summer 2024. COMP006 (n=568; repeat-dose arms of 25 mg, 10 mg and 1 mg) was expected to report by mid-2025. Both use change in MADRS score at week 6 as the primary endpoint.
- Other studies: A Phase 2 study in major depressive disorder began in Q1 2023. Phase 2 studies in anorexia nervosa and PTSD are ongoing. Recruitment and screening challenges delayed the anorexia nervosa study; the company no longer expected data in 2023 and amended the protocol.
- Regulatory: COMP360 has FDA Breakthrough Therapy designation. The company received FDA feedback on proposed Phase 3 protocol amendments and said it continued under its previously announced study design. FDA draft guidance on psychedelic-drug development was published in June 2023; the company noted the FDA could still request changes or additional studies.
- Spending and tax credits: Management expects R&D expense to continue increasing as Phase 3 advances, alongside Phase 2 programs and public-company costs. UK R&D tax-relief rates fell effective April 1, 2023, which reduced the benefit versus the prior-year quarter. Future credit eligibility and rates remain uncertain.
- Principal risks: Clinical efficacy, safety, enrollment and timing are uncertain; psilocybin is a controlled substance and commercialization depends on regulatory approval and scheduling. The company also relies on third-party manufacturers, clinical sites and therapists, and faces reimbursement, market-acceptance, intellectual-property, financing, foreign-exchange and macroeconomic risks. No material litigation or contingency reserves were reported at June 30. Management stated disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Progress, enrollment, protocol status and reported results for COMP005 and COMP006, and whether the stated data timelines remain current.
- Recruitment progress and revised timing for the anorexia nervosa study, as well as development milestones for PTSD and MDD.
- Cash use relative to management’s at-least-12-month runway estimate, funding needs, ATM issuance and potential dilution.
- Ability to meet Hercules loan covenants and obtain any additional tranches; assess the interest, PIK, fees and repayment schedule.
- FDA requirements for trial design, safety, abuse-potential assessment and any eventual scheduling; assess the impact of controlled-substance rules on launch and distribution.
- Eligibility and expected proceeds from UK R&D tax credits after the rate reductions. The filing’s statements show different rounded amounts in places; the precise credit value should be checked against the financial statements and supporting disclosures.