The Magic of Mushrooms (Audio)

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Hi friends 👋,

Happy Monday! Damn it feels good to be an American.

Speaking of feeling good, today’s essay is on one of the least boring trends I’ve ever written about. Mental health disorders are an epidemic, and we have been fighting it with antiquated and suboptimal tools. The solution might come from an unexpected technology that we’ve had at our disposal for decades.

Let me make an important caveat upfront: I am not a doctor or a registered adviser. This is not financial or medical advice. Don’t go out and take anything or buy anything without a prescription or doing your own research. But you should know about the growing research around psychedelics’ efficacy in treating mental health disorders and the companies bringing treatments to market.

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Now let’s get to it…

The Magic of Mushrooms

Let’s Take a Trip

What do you think of when you think of psychedelics?

Maybe you think of hippies in the 1960s. Maybe you think of Phish concerts. Maybe you think about that one time in college. Maybe you just think: those are drugs, they’re illegal, they’re dangerous, and they’re bad. Just Say No.

To steal a phrase from Michael Pollan’s bestselling 2018 book on the benefits of psychedelics, I want you to Change Your Mind. By the end of this essay, you’ll understand why we underestimate psychedelics, the promise they hold in solving our biggest mental health challenges, and the business model behind the first public psychedelics company in the US, COMPASS Pathways.

It’s easy to get excited about psychedelics. MDMA combined with therapy looks like it may cure PTSD in a large number of patients. Psilocybin with therapy is showing promise in fighting depression. And unlike traditional medication, psychedelics can cure while creating meaning. In a 2006 Johns Hopkins study, 67% of participants who took psilocybin rated the experience either the most meaningful or among the top five most meaningful in their lives! As Matthew Johnson, the Associate Director of the Johns Hopkins Center for Psychedelic and Consciousness Research wrote, “Psychedelics are psychoactive substances that historically have attracted exaggerations of benefits as well as alarmism.” 

So let’s try to avoid exaggerations, and instead take a trip together to soberly explore:

* The Psychedelic Renaissance. After fifty years, psychedelics are going mainstream again.

* The War On Drugs. Like the Food Pyramid, but Drugs. 

* Mushrooms’ Magic. Although there are many promising psychedelic compounds, we’ll focus mainly on psilocybin given its potential wide-ranging benefits. 

* COMPASS’ Pathway. The story behind the first public psychedelic company. 

* COMPASS’ Business Model. COMPASS is like a dating app -- it’s product may be so good that it’s bad for business. But analysts are bullish, and so am I. 

* Irrational Exuberance About Psychedelics’ Future. Can they make the world a more harmonious place? Can they unleash creativity? Can they cure everything? 

The Psychedelic Renaissance

Because of long-held negative or recreational associations, most people are unaware that psychedelics are the most promising treatment for a wide range of mental health issues -- from depression to alcoholism to anorexia -- that we’ve ever seen. 

The psychedelic renaissance couldn’t have come at a better time. The world desperately needs innovative solutions to mental health disorders. The worldwide numbers are staggering. 

And those numbers are pre-COVID. According to a JAMA Network Survey, depressive symptoms have tripled during the pandemic.

The total direct and indirect costs of the mental health epidemic are expected to reach $6 trillion by 2030, up from $2.5 trillion in 2010, according to the World Economic Forum. The Lancet Commission estimates that number to be as high as $16 trillion when you include the loss of productivity, and spending on social welfare, education, and law and order. Despite the huge need, the last real innovation in the fight against mental illness was the release of Prozac in 1988.

After fifty years in the dark, though, psychedelics are once again getting the chance to shine. Led by public figures like Michael Pollan, Tim Ferriss, and even Joe Rogan, and leading institutions like Johns Hopkins, NYU, Berkeley, and Imperial College London, therapeutic psychedelics are going mainstream again: 

* On election night, Oregon voted to legalize psilocybin for mental health treatment in supervised settings. Washington, DC voted to decriminalize it. 

* The FDA granted Breakthrough Therapy Designation, which they grant to therapies that have shown great promise and clinically significant improvement over available therapies, to three trials using psychedelics to treat mental health indications, one with MDMA and two with psilocybin, the active ingredient in magic mushrooms. 

* Last week, Johns Hopkins released a new study that showed that treatment with psilocybin and supportive psychotherapy produced rapid and large reductions in depressive symptoms in adults with major depression, with a magnitude of effect four times larger than antidepressants’.

At this point, you might be thinking: dope. This sounds amazing. Give people shrooms! But this isn’t a healthcare newsletter. Not Boring isn’t Out of Pocket. Why are you telling me this?  

In September, COMPASS Pathways (NASDAQ: CMPS) IPO’d and became the first public company with a psilocybin-based product. ATAI Life Sciences, a “biotech platform to heal mental health disorders” with a wide range of psychedelic-based therapies, recently raised a round from investors like Peter Thiel and Michael Novogratz and is expected to go public soon. 

It’s tempting to group psychedelics companies like COMPASS in with the “green wave” of cannabis companies that have taken the market by storm starting with Tilray’s IPO in July 2018. But psychedelics companies like COMPASS are less like cannabis companies, which have mainly focused on recreational use, and more like biotech stocks focused on the hardest-to-tackle mental health indications. ATAI’s Colin Keeler told me:

We’re seeing increasing acceptance across investor classes - traditional biotech investors, Silicon Valley, family offices. The biggest names and the best analysts in the space are approaching psychedelics with real sincerity, and the government to a large extent is approaching them the same way, because mental health disorders have such a large unmet need.

The research reports back him up. Citron Research, best known as an activist short fund, gushed uncharacteristically when it called COMPASS, “the most compelling IPO of the year whose significance to humanity has the potential to be a generational stock.”

Here’s the crazy thing. Most hot IPOs feature companies whose products weren’t even imaginable a decade or two ago. We’ve been studying psilocybin’s benefits for 62 years. What the hell took us so long? 

The War On Drugs

In this time of vicious political division in the United States, I think there’s one thing that all Americans can agree on: Richard Nixon was a real dick. 

In addition to being the Watergate guy, in 1971, Nixon declared a War on Drugs that has, among other evils, cost the United States over $1 trillion, disproportionately targeted Black people, and led to an arrest for drug possession every 25 seconds.

The War on Drugs cost millions of American lives and prevented tens of millions more from their Constitutional right to the pursuit of happiness. It’s the reason that we lump all Schedule One drugs together as “bad and dangerous” despite their vastly different profiles, while doctors happily write prescriptions for the opioids that kill 128 Americans every day. 

So why’d he do it? 

In 1955, a New York banker named R. Gordon Wasson went to Mexico in search of a god-like mushroom, and detailed his experiences in a 1957 Life Magazine article called “Seeking the Magic Mushroom,” bringing the experience into the western consciousness. He also brought psilocybin into the lab. He sent mushroom samples to Albert Hofmann, a Sandoz scientist who had previously discovered LSD, and in 1958, Hofmann isolated the chemical structure of the active compound. By 1960, Sandoz released Psilocybin pills under the name Indocybin. 

With Indocybin, scientists and psychologists began doing real research on psychedelics’ potential benefits. According to the Beckley Foundation, the number of scientific studies published on psilocybin grew from five in 1958 to forty in 1968. The American Psychologists Association focused on LSD research, specifically a paper titled Personality change associated with psychedelic (LSD) therapy at its 1964 meeting. 

But psychedelics jumped from the lab and into the counterculture. In 1960, Harvard clinical psychologist Timothy Leary started the Harvard Psilocybin Project with Richard Alpert (who would later become Ram Dass) using psilocybin they ordered from Sandoz. The Project undertook some legitimate research, like the Marsh Chapel Experiment in which divinity students were administered the drug in a chapel to determine whether it could facilitate profound religious states (ten out of ten self-reported that it did), but largely devolved into the epicenter of recreational psilocybin and LSD use.

Harvard shut down the project in 1962, but Leary continued his work spreading the word about mushrooms and LSD. In 1966, he famously told America’s youth to “Turn on, tune in, drop out.” Despite pleading from serious researchers who feared that Leary was going to “wreak havoc on all of us doing LSD work all over the nation,” Leary pushed on, like the friend who gets too high and gets everyone in trouble. According to Pollan, Leary said things like “LSD is more frightening than the bomb,” and “The kids who take LSD aren’t going to fight your wars. They’re not going to join your corporations.” 

The FDA didn’t like the sound of that, ordering in 1966 that researchers halt all work with psychedelics. Neither did Tricky Dick. In 1970, in large part to slow down the anti-war counterculture movement, the Nixon government passed the Controlled Substances Act, which classified psilocybin and LSD as Schedule One drugs, which have no medical use and a high potential for abuse. In 1971 Richard Nixon declared the War on Drugs and labeled Leary “the most dangerous man in America.”

When Harper’s writer Dan Baum tracked Nixon’s domestic policy chief John Ehrlichman down in 1994, Erlichman admitted that the War on Drugs was an indirect way to target the two enemies of the Nixon administration: the antiwar movement and Black people. “Did we know we were lying about drugs? Of course we did.” 

In a total narc move, the US also pushed other countries to follow its drug scheduling guidelines. The 1971 UN treaty, the Convention on Psychotropic Substances, largely adopted the US scheduling, grouping psilocybin with drugs like heroin and crack cocaine and effectively halting research on its benefits worldwide. 

Despite being built atop a lie, the War on Drugs and its associated propaganda worked for decades. It’s why we’re just getting back to psychedelics now. 

When I was in 7th grade, we had to read a book. I forget what it was called or what it was about; the only thing I remember is that the main character’s older brother did acid once, lived in a flop house, and had frequent flashbacks in which spiders crawled all over his body for years.

It surprised me to find out many years and “no acid for me, thanks!”s later that LSD and mushrooms are the two safest drugs out there on the active/lethal dose and dependence potential scale. All weekend, I was drinking beers and coffee; turns out I would have been much safer tripping. 

The War on Drugs was like the Food Pyramid on crack, tricking generations of Americans into making unhealthy decisions despite the best intentions. Nixon started it, and Raegan picked up where he left off, waging an all-out media offensive. In 1987, the Partnership for a Drug-Free America dropped the classic “This is Your Brain on Drugs” commercial. 

Lied to again! A 2014 Proceedings of the Royal Interface study actually looked at the brain on drugs, psilocybin specifically, and discovered that this is your brain on drugs:

Far from killing brain cells, psilocybin rewires the brain and forms rich new connections, at least temporarily, between parts of the brains that don’t normally speak to each other. That’s why people report seeing music or tasting colors when they’re tripping. 

The bad press and propaganda surrounding mushrooms, largely a remnant of the culture wars of the early 1970s and late 1980s, obfuscates their incredible therapeutic promise. 

Mushrooms’ Magic

Over the past decade, researchers have begun studying psilocybin again. And the findings, although early, have been incredibly promising for a variety of mental health indications. Early research focused on patients suffering from depression due to terminal cancer:

* At UCLA in 2011, Grob et. al showed that psilocybin reduced depression and anxiety for at least six months in twelve patients with anxiety and acute stress due to advanced-stage cancer. 

* At NYU in 2016, Ross et. al showed a “Rapid and sustained symptom reduction following psilocybin treatment for anxiety and depression in patients with life-threatening cancer” from psilocybin treatment. 

* At Johns Hopkins in 2016, Griffiths et. al found that “Psilocybin produces substantial and sustained decreases in depression and anxiety in patients with life-threatening cancer.”

Dr. Stephen Ross of NYU Langone (where our son was born!) said of his study:

It was very surprising and very moving to see somebody terminally ill with cancer feeling like their life is over, scared out of their mind, disconnected from family and friends and their spirituality, to suddenly just be out of that terrible place and feeling so much better.

More recent studies have focused on otherwise healthy patients suffering from MDD or TRD:

* At Imperial College London, Carhart-Harris et al. in 2016 and 2018 showed a reduction of over 50% in the Beck Depression Inventory scores of patients with TRD. 

* Just last week, at Johns Hopkins, Griffiths et al. showed that two doses of psilocybin with psychotherapy produced “rapid and large reductions in depressive symptoms, with most participants showing improvement and half of study participants achieving remission through the four-week follow-up.”  

Alan Davis, a researcher at Hopkins, said of the study, which was supported by Tim Ferriss, Blake Mycoskie (TOMS), Dave Morin (Facebook, Path), and Matt Mullenweg (WordPress): 

The magnitude of the effect we saw was about four times larger than what clinical trials have shown for traditional antidepressants on the market. Because most other depression treatments take weeks or months to work and may have undesirable effects, this could be a game changer if these findings hold up.

Taken together, the studies point to rapid and durable reduction in symptoms related to depression. Improvements in many studies have persisted six months to a year after the treatment, with research underway on longer-term effects. That means that psilocybin treatment with therapy may be as close to a one-shot “cure” for depression as we have. 

The results are particularly promising because they solve such a large unmet need. Hundreds of millions of people globally suffer from depression and other mental health disorders, and the current medications are the same ones patients have been using since I was born. 

As Davis pointed out, the pharmacological solutions available today, selective serotonin reuptake inhibitors (SSRIs) like Prozac and Zoloft and lesser-known serotonin–norepinephrine reuptake inhibitors (SNRIs) are given chronically (meaning you need to take it forever once you start) and have chronic side effects like loss of libido, headaches, nausea, and insomnia. 

Mental health is a huge, underserved market and research suggests that psilocybin could crack it. Sounds great! If only there was a way to invest… 

Meet COMPASS Pathways.

COMPASS’ Pathway

The COMPASS Pathways story starts like so many other startups’ lore: entrepreneurs experience a problem, can’t find a good solution, and set out to build it themselves. 

In this particular story, George Goldsmith and Ekaterina Malievskaia’s son developed severe depression shortly after going to college in 2011, and his parents wanted to help. The couple were particularly well-suited to solve a health problem. Goldsmith was a serial entrepreneur and founder of Tapestry, which facilitated drug developers and regulators working together to speed up approvals, and Malievskaia was a doctor who worked in internal medicine and global health. And yet, despite their backgrounds, they couldn’t find a treatment that helped their son. 

So they dug into the research. One morning in February 2013, Goldsmith told BioBoss, Malievskaia came to him with a discovery: “I just found an article on this medicine called psilocybin. It’s really part of magic mushrooms. You were alive in the ‘60s and ‘70s, what do you know about it?”

That led the two down a rabbit hole, they launched a non-profit, and then converted it into a for-profit company in order to better bring a psilocybin-based depression treatment to market. 

But hold up. Also like many other startups’ founding stories, COMPASS’ seems to be generously edited to fit the current narrative. 

A well-researched 2018 Quartz article by Olivia Goldhill claims that Goldsmith and Malievskaia originally told researchers and psychologists working on their non-profit, C.O.M.P.A.S.S. that they were focused on using psilocybin to treat end-of-life anxiety for terminally ill patients. Through the non-profit, they were able to recruit researchers to help the cause without formal contracts or payment. 

In June 2016, they created the for-profit company, COMPASS Pathways, in London, and began telling the story about their son’s depression when the company announced itself in a September 2017 article in the Financial Times. They also announced a £4 million seed round from Fortress’ Michael Novogratz and Christian Angermayer, who would launch ATAI Life Sciences (which owns ~25% of COMPASS) the following year.

While the conflicting backstories and potentially shady practices are cause for concern, COMPASS seems to be executing tremendously well as a for-profit. 

In October 2018, COMPASS raised a £25 million Series A. Based on promising early research, that same month, the FDA granted COMPASS Breakthrough Therapy Designation (“BTD”) for a “randomised controlled phase IIb study of psilocybin therapy in 216 patients with treatment-resistant depression in 20 sites across Europe and North America.”

The BTD is significant because it can shorten the process of drug development and review by about 30%, driving down costs. The BTD is one of three that the FDA has granted to psychedelic-based treatments -- it granted the other two to non-profits, one to MAPS for its trial on MDMA to treat PTSD and one to the Usona Institute for its trial on psilocybin to treat major depressive disorder (MDD). 

The FDA designation is emblematic of COMPASS’ approach to working closely with regulators, payers (what healthcare calls the entities that actually pay for treatments, like insurance companies and governments), and leading research institutions. Its Scientific Advisory Board includes the former Director of the National Institute for Mental Health along with researchers from Harvard, Stanford, Duke, Johns Hopkins, and Imperial College London. Sure, its first treatment is psychedelic-based, but it wants you (and regulators) to know that it’s legit. 

Patented legit. One of the concerns about the business model of psilocybin-based therapeutics is that, since mushrooms grow naturally, it’s hard to protect IP. But you can’t just prescribe ‘shrooms, and COMPASS developed its own synthetic psilocybin formula, COMP360, to best-in-class Good Manufacturing Practices standards. Because it created a controlled formulation, it was able to apply for a patent on COMP360 in a therapy protocol for patients with TRD, which the USPTO granted in December 2019. 

COMPASS is still in Phase IIb trials, but the company is moving forward on the financing side. In April 2020, it raised an $80 million Series B from investors ranging from ATAI Life to Tinder founder Justin Mateen to healthcare fund Soleus Capital to contrarian venture capitalists Founders Fund. 

COMPASS became the first publicly traded psychedelic drug stock when it went public on September 18th, 2020. It raised $127.5 million in order to fund research and clinical trials, and to continue developing digital technologies to pair with its therapies. 

The market was high on the offering, sending shares soaring 23% on opening day, from $23.40 to $29. As of Friday afternoon, shares were trading at $38.71, up 65%, fueled by strong analyst support, an October 23rd CNBC appearance by Goldsmith (the stock popped 16% before he went on when CNBC announced he was up next), and the election night psilocybin victories in DC and Oregon. 

COMPASS’ current market cap is $1.35 billion; not bad for a pre-revenue company! But biotech stocks trade differently than most other stocks and make even tech stocks look tame. Biotechs are mainly driven by their progress in clinical trials and the total addressable market. Both bode well for COMPASS:  

* Market Size. 100 million people worldwide suffer from TRD, 4 million of whom are in the US. And it has the potential to expand to treat more conditions. 

* Clinical Trial Progression. Because COMPASS has the BTD from the FDA and the recent Hopkins results at its back, it’s trading as if it’s almost certainly going to pass Phase IIb and move onto Phase III trials. 

The bigger questions for COMPASS are around its business model. Is its product too good to support a good business? 

COMPASS’ Challenges

Currently, COMPASS is in the exciting stage of the treatment development lifecycle in which the majority of its efforts are just focused on proving that it’s safe and it works in treating TRD. If it succeeds in trials, though, it will need to shift from drug development to building a profitable business. 

The core of COMPASS’ business is offering psilocybin therapy in a three-step process: 

* Preparation: Therapist and patient get to know each other in a series of preparation sessions to understand the issues the patient faces and to allow the patient to get comfortable with the person who will guide their psilocybin session.

* The Psilocybin Session. The patient lies on a bed, takes a psilocybin capsule, and puts on an eye mask and listen to a “specially designed playlist” to help them focus internally. A therapist and assisting therapist are present throughout the 6-8 hour session.

* Integration. Patients come back for therapy sessions in the following days to discuss their experience in the psilocybin session and generate insights and ideas to change emotional and behavioral patterns.

To ensure a consistent experience, COMPASS will roll out its own clinics. By contrast, MAPS, the non-profit using MDMA to treat PTSD, is focusing on training therapists to use the therapy in their own practices. 

There are two main, interconnected challenges to this model: 

* It’s Expensive. COMPASS’ therapy is more than just a pill. It includes many hours of labor in preparation, during the session, and in the integration phase from trained therapists. That gets expensive quickly. Johnson & Johnson has faced reimbursement challenges with its eskatemine therapy, which also requires repeated in-office treatments. 

* It Works Too Well. Early research suggests that psilocybin therapy can cause remission of depressive symptoms in one to three sessions. Contrast that with SSRIs like Prozac, which patients take (and insurance companies pay for) for the rest of their lives. That means that there’s little recurring revenue, so COMPASS needs to convince the payers to cover all of its costs plus a margin in the first shot. 

Once it completes trials and takes its product to market, COMPASS becomes like any other company: it needs to lower costs and generate more revenue.

To bring down costs, COMPASS is building digital products that will allow it to track and assist in delivering psychological support, effectively using telehealth where permissible to lower costs and better support patients while building more robust data. It’s also testing simultaneous administrations through which it can support six patients at the same time to lower labor costs and improve scalability. The Phase I study demonstrated the feasibility of the simultaneous approach.

To convince payers to pay more, COMPASS will need data. 

One way to think of COMPASS is like a dating app that your parents pay for. Dating apps have huge addressable markets -- everyone wants to find someone -- but a big problem: if the dating app works, two customers find each other, settle down, and never use the dating app ever again. They’re the victim of their own effectiveness! BUT there’s a twist if you’ll allow me to torture the analogy. Imagine that the single people using the apps aren’t the ones paying for them. Their parents are. And in this analogy, the parents are worried that if their kid doesn’t get married, they’ll have to support him or her financially for the rest of his or her life. So the dating apps strike a deal with the parents: you pay us some discounted amount based on what you’d have to pay to support your kid for the rest of his or her life, and we’ll make sure that doesn’t happen. 

The payers -- insurance companies and governments -- are COMPASS’ patients’ parents here. COMPASS needs to convince them that it will save them a lot of money over time.

David Burstein, co-founder of Brain Trust Collective, told me that the best case scenario for COMPASS and other psychedelic-based treatments for non-acute conditions is being able to accurately quantify the direct and indirect costs of poor mental health. Recall that mental health disorders are expected to cause direct and indirect costs of $6-16 trillion by 2030. The payers, governments and insurance companies, will need to foot a large portion of that bill. If COMPASS can prove, with data, that paying for its treatment will lead to lower spend elsewhere, it can justify the high price point. In terms we’re more familiar with, COMPASS would generate a high AOV on first-purchase to make up for the low repurchase rate. 

Burstein thinks that the most straightforward path to this outcome in the near-term is to quantify the relationship between mental and physical health. It seems obvious on the surface that better mental health leads to lower stress which means less obesity, fewer heart problems, and a reduction in a whole host of physical maladies. But payers don’t pay based on intuition; they pay based on data. COMPASS’ digital tools might help in collecting ongoing patient data that they can use to demonstrate a relationship between improved mental health and lower physical health costs. 

Goldsmith’s background is in dealing with regulators and payers to bring drugs to market, and he’s bent over backwards to acknowledge the importance of relationships with payers and regulators in interviews. Goldsmith is well-suited to the task and this early in the development process with strong results at his back, he has the time and cards to play it right.

The COMPASS Bull Case

Assuming that COMPASS passes its clinical trials, lowers costs, and convinces insurance companies and governments to cover the full therapy, this is one of the most exciting companies on the market. 

Partially, I’m bullish because the mission is so important and its product so promising. In Software is Eating the Markets, I wrote:

Like angel investments in the Bay Area, when you add social and experiential value to other asset classes like stocks, sneakers, and cryptocurrencies, price is divorced from hard math and becomes more emotional. 

COMPASS fits that thesis. There’s just something cool about owning a piece of a company that could improve peoples’ mental health more effectively than anything that’s come before. All of the other technological innovation -- flying cars, the Metaverse, even life extension -- mean little if people are miserable.

Beyond the societal benefit, though, more serious analysts who (theoretically) get paid to ignore the hype and focus on the business are also wildly excited about COMPASS. All six analysts reports I read on the company have a “Buy” or “Outperform” rating on the stock with an average price target of $72, representing 86% upside from Friday’s closing price. 

Most of these targets assume some probability of around 50% that COMPASS passes its Phase III clinical trials, and expect the company’s peak sales to be between $1 and $2.5 billion. Upside scenarios, in which trials go quickly and smoothly and the safety profile remains clean, go as high as $180, or 365% up from current prices. Bear cases in which they fail trials go as low as $3 or $4. 

There are five main points to the bull case for COMPASS: 

* Depression is a Large and Unmet Need. 322 million people suffer from Major Depressive Disorder, 100 million of whom have Treatment Resistant Depression, four million of whom are in the US. At $20k per treatment, that’s a $80 billion TAM in the US alone. Unfortunately, depression is only growing and has spiked during COVID. If COMPASS works for just TRD, it has a lot of room to run. GW Pharmaceuticals, the first FDA-approved cannabis treatment, only treats pediatric epilepsy (~15% as many afflicted as TRD) and it has a $3.6 billion market cap, 3x higher than COMPASS’.

* Psilocybin Shows Promise. Research has shown that psilocybin treatment has a large and durable effect on depression, even after just one session. COMPASS itself and independent researchers from leading universities continue to produce strong results. COMPASS’ COMP360 could have a much greater benefit in fewer sessions than J&J’s esketamine treatment, Spravato, which should make reimbursement easier. The FDA’s Breakthrough Treatment Designation should speed up development and lower costs. Remember, in pre-revenue biotech stocks, fast and clean approval is the name of the game.

* Relatively Strong Defensibility. While psilocybin itself isn’t patentable, companies will need a synthetic version that complies with Good Manufacturing Practices to go to market via the clinical path. COMPASS’ synthetic version, COMP360, is patent-protected in the US and many countries around the world. Further, its proprietary digital tools, training, and eventual network of physical locations should provide barriers to entry. Generics won’t be able to steal share from COMPASS as easily as they can from other drugs because COMPASS’ therapy involves both the drug and the therapy. 

* Best People. COMPASS has built a team of employees, advisors, and investors that is the best in the industry. Its founder, George Goldsmith, is not what you’d expect from a psychedelic CEO; his background in working with regulators and payers should help smooth the approval and reimbursements process. COMPASS’ Scientific Advisory Board has representation from all of the leading psilocybin research institutions, giving it a cornered resource. It’s backed by ATAI, Peter Thiel, and strong biotech investors, and has an advantage from being the first company in the space in the public markets. 

* No Competition from Big Pharma. Because COMPASS breaks big pharma’s model -- it involves expensive in-person treatment and doesn’t need to be prescribed over a long period of time -- none of the major pharmaceutical companies are competing with COMPASS in the space. COMPASS is the best-resourced company in psilocybin, and is currently the only way to invest in the psychedelic trend in the US markets, which should mean increased investor demand. 

COMPASS is risky. So risky that its F-1 contains 92 pages (p. 14 - 105) of risks including everything from failing clinical trials to currency risks to data leaks from its digital product. It’s an early stage biotech company with added regulatory and public perception risk because its first drug is psychedelic, plus it’s based in the UK, plus that questionable backstory as a non-profit looms, plus it needs to operate a network of physical locations, plus it has non-profit competitors that might try to undercut it on cost, plus plus plus… 

But unlike many biotech companies, COMPASS’ plan is not to develop one drug and sell it to a major pharmaceutical company. It has a fifty year vision of “accelerating patient access to evidence-based innovation in mental health,” and plans to address more mental health disorders both with COMP360 and new treatments. That means that the risk could be rewarded with uncapped upside.

Additional indications for COMPASS’ psilocybin therapy represent the major bull case. Assuming that the company is able to get FDA and international approval for additional indications for which psilocybin has shown promise, including MDD, anxiety, end of life care, eating disorders, pain, substance abuse, epilepsy, OCD, and even Autism and Alzheimer’s, the company’s potential could be orders of magnitude larger than estimates suggest. 

Irrational Exuberance About Psychedelics’ Future

See what I just did there? It’s exceedingly hard to research psychedelics and not get incredibly excited about their potential to cure all of our ills. The researchers, companies, and analysts in the space have a professional duty to stay calm and do the science, but as an outsider, it’s fun to explore the possibilities. 

In the medium-term, once COMPASS has come to market with its treatment for TRD, it should be able to more easily expand into other indications, like the ones I mentioned above. Imagine one treatment that can make a dent in everything from depression to addiction to eating disorders. 

Personally, nothing scares me more than Alzheimer’s. My grandmother had it, and as I’ve written about before, my biggest fear is that I or the people I love lose our memories. It’s very early, but some researchers believe that psilocybin might even be an effective treatment for Alzheimer’s Disease Dementia.

In 2019, Johns Hopkins opened the Center for Psychedelic and Consciousness Research to work on studies using psilocybin to treat Alzheimer’s, as well as smoking cessation, anorexia, alcoholism, and of course, depression. Sixty-two years after Albert Hofmann first synthesized psilocybin in a lab, we’re just getting started. 

Beyond medical applications, psilocybin and other psychedelics, when used responsibly, have the potential to enhance well peoples’ experiences as well and unleash creativity and innovation that would lead to breakthroughs across fields. Early Silicon Valley engineer and current Salesforce VP Peter Schwartz said, “I have no doubt that Hubbard LSD all of us had taken had a big effect on the birth of Silicon Valley.  Steve Jobs famously called taking LSD “a profound experience, one of the most important things in [his] life.” 

What does the world look like if hundreds of millions of people held back by depression suddenly rewire their brains and unlock new creativity? If you’ll allow me to get even more hippie, writing this during such a divisive election made me wonder how much less divided we’d be if everyone just underwent a little psilocybin treatment. 

If we’ve learned anything from Timothy Leary, though, it’s to make sure that the utopian vision doesn’t get in the way of the real medical benefits. Everyone needs to Trust The Process and let COMPASS, ATAI, and the other psychedelics-based mental health companies bring their products to market. Be cool, man.

Thanks to Dan for making me look like I know how to write, and to Colin and David for serving as my… guides… through the world of therapeutic psychedelics.

Full Disclosure: I own CMPS stock (less than 1% of my portfolio). It’s how I got interested in the company in the first place.

Thanks for listening, and see you on Thursday,

Packy

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