Compass Pathways Leads the Way in Psychedelic Research & Development Spending

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For the nascent psychedelics industry, where new products and their associated revenues can be years away from fruition, investments in research and development can be a critical component for future success.

As part of their public listing in September, psychedelic market cap leader COMPASS Pathways (NASDAQ:CMPS) was required to reveal details of their historical financials as well as their spending plans for the future. The prospectus that Compass filed revealed that not only had the company invested substantive and ever-growing sums in research and development prior to their go public, but they have planned an aggressive industry-leading expansion using the cash from their recent raise.

Read: Canaccord Genuity Report Projects $80 Price Target for Compass Pathways

The Compass Prospectus Offers Promising Insight into Their Progress

Compass’ prospectus shows that in fiscal 2018 and 2019, the company spent $8.92M and $12.56M respectively on R&D, which comprised 71.3% and 59.3% of those years’ total operating expenses. The pace of spending also increased considerably in 2020, with the company booking R&D expenses of $11.95M in the first six months of 2020, a 144.5% increase over the $4.87M spent in the first six months of 2019. All told, for the 30 months prior to their go public, Compass booked over $33.43M in research and development expenses.

The granular breakdown of these historic R&D expenses also reveal how Compass has made considerable investments in both personnel recruitment and motivation. R&D cash expenditures on personnel jumped by more than 111.1% between the first six months of 2019 and 2020, as the cash spend on personnel increased from $894K to $1,888K.

compass pathways research development psychedelic spending

Investing in the Scientists: A Novel Strategy to Incentivize Drug Development

Perhaps more importantly, the ‘non-cash share-based compensation expense’ allocated to R&D, a figure which reflects the value of equity incentives such as stock options that are granted to employees and/or consultants, skyrocketed between 2019 and 2020. In the first six months of 2019, only $426K in share-based compensation expense was allocated to R&D, with the figure jumping to $3.52M in the first half of 2020 – a 725.6% increase! This significant allocation can provide a powerful motivator for the company’s growing number of researchers, as it gives them a significant stake in the company’s future and a means to capture considerable value from their inventions. Compass’ willingness to dole out considerable equity incentives to researchers may not only help Compass recruit and retain, but also poach key talent from competitors as well.

Read: CMPS Stock Surges More than 20% on the Back of Bullish Citron Research Report

compass pathways research development psychedelic spending

Compass Has Outlined Sizeable Allocations for Future R&D Activities

Beyond the historical spending, Compass also outlined their sizable allocation for future R&D activities on the back of their recent raise. The company plans to allocate $70.0M in cash to ‘fund clinical trials, therapist training and other activities to support the development of our investigational COMP360 psilocybin therapy…’, and an additional $11.0M to ‘fund research and clinical development activities related to our investigational COMP360 psilocybin therapy to support the progression of COMP360 as a therapy for other neuropsychiatric conditions and further our mechanistic understanding of psilocybin.’

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A Look Ahead for the Dynamic Team at Compass Pathways

All told, between the company’s historical spend of $33.43M and their planned cash spend of over $80.0M on R&D activities (not counting future share-based compensation for researchers), Compass’ currently identifiable R&D expenses could be set to clear $110M. While R&D activities, by their nature, are no guarantee of results, and competitors continue to emerge every day – a strong commitment to R&D spending in a sector primed for innovative products and services can be a powerful leading indicator for success.

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