COMPASS Pathways(CMPS) - 2022 Q4 - Annual Report

Part I Item 1. Business COMPASS Pathways is a clinical-stage mental health company developing COMP360 psilocybin therapy for treatment-resistant depression, advancing to Phase 3 Overview and Strategy Developing COMP360 psilocybin therapy for TRD, the company is in Phase 3, expanding indications, and integrating digital solutions - The company is pioneering a new model of psilocybin therapy, combining its proprietary COMP360 psilocybin formulation with psychological support[26] - The primary focus is on treatment-resistant depression (TRD), with ongoing Phase 2 trials for anorexia nervosa and post-traumatic stress disorder (PTSD)[27][29] - A pivotal Phase 3 program for TRD has commenced, with topline data from the first trial (COMP005) expected in summer 2024 and the second (COMP006) in mid-2025[31][35] - Key strategic elements include expanding indications, discovering new compounds via its Discovery Center, establishing Centers of Excellence for care model optimization, and using digital technology to improve scalability and patient outcomes[39][40][41][42] Market Opportunity and Existing Therapies The large market for MDD and TRD, with 100 million TRD patients globally, faces significant unmet needs due to limitations of existing therapies Global Patient Population for Depression | Condition | Patient Population (Worldwide) | | :--- | :--- | | Major Depressive Disorder (MDD) | 320 million | | Persistent Depression (2nd Line) | 200 million | | Treatment-Resistant Depression (TRD) | 100 million (~33% of total) | - The economic burden of MDD in the U.S. was estimated at over $200 billion per year as of 2010, with direct medical costs for TRD patients being two to three times higher than for non-TRD MDD patients[56][66] - Existing pharmacotherapies for depression often have limited efficacy, high relapse rates (up to 90% for third-line+ treatments), and significant side effects[54][56] - Somatic therapies like ECT and VNS are invasive, associated with significant adverse reactions, and are typically reserved for patients who have not responded to other treatments[72] Our Investigational Psilocybin Therapy - COMP360 COMP360 is a proprietary psilocybin formulation acting on 5-HT2A receptors, showing potential for rapid symptom reduction through a three-phase therapy protocol - COMP360 is a proprietary, pharmaceutical-grade polymorphic crystalline psilocybin formulation optimized for stability and purity[380] - The mechanism of action is primarily through the active metabolite psilocin, which stimulates 5-HT2A serotonin receptors, leading to downstream effects on neuroplasticity and brain network connectivity[318][323][327] - Multiple academic studies (though not using COMP360) have shown that psilocybin therapy can provide rapid and lasting reductions in depression and anxiety symptoms, with a low toxicity profile and no serious adverse events reported[333][334][341] - The COMP360 therapy protocol involves three distinct phases: preparation with a therapist, a 6-8 hour psilocybin administration session, and post-administration integration sessions to process insights[367][368][369][370] Clinical Development Program COMP360's clinical program includes a successful Phase 2b TRD trial, advancing to pivotal Phase 3, and expanding into anorexia nervosa and PTSD studies - A Phase 1 trial with 89 healthy volunteers showed COMP360 was generally well-tolerated with no serious adverse events and no negative long-term effects on cognition or emotional processing[384][105] - The Phase 2b trial in 233 TRD patients was the largest of its kind and achieved its primary endpoint. The 25mg dose group showed a statistically significant and clinically relevant reduction in depression symptoms (MADRS scale) compared to the 1mg group at week 3 (p<0.001)[192][167] Phase 2b Trial Key Efficacy Results (25mg vs 1mg at Week 3) | Metric | 25mg Group | 1mg Group | | :--- | :--- | :--- | | Responders (≥50% MADRS decrease) | 36.7% | 17.7% | | Remission (MADRS score ≤10) | 29.1% | 7.6% | - The Phase 3 program consists of two pivotal trials: COMP005 (n=255, single 25mg dose vs placebo, data summer 2024) and COMP006 (n=568, repeat dose study, data mid-2025)[114][132][422] - The company is expanding into other indications with Phase 2 trials in anorexia nervosa and PTSD, and supports numerous investigator-initiated studies (IISs) in conditions like bipolar II disorder and severe TRD[423][444] Drug Discovery, Manufacturing, and Commercialization The company conducts drug discovery, outsources manufacturing, implements a scalable therapist training program, and plans in-house commercialization via Centers of Excellence - The company established a Drug Discovery Center to develop optimized psychedelic compounds targeting the 5-HT2A receptor and has acquired an IP portfolio covering various psychedelic substances[142][125] - Manufacturing is outsourced to contract drug manufacturing organizations (CDMOs) to ensure cGMP-compliant production of the API and final drug product[129][148] - A comprehensive, four-tier therapist training program has been established to ensure quality and scalability, having already trained over 200 therapists[127][446][157][146] - Commercialization plans involve building in-house sales and marketing capabilities for the U.S. and Europe, and establishing Centers of Excellence to serve as research and innovation hubs[439][159][463] Intellectual Property The company actively seeks and defends patent protection for COMP360, its manufacturing processes, and treatment methods, with key U.S. patents expiring around 2038 - The company's strategy focuses on obtaining and defending patents for its crystalline psilocybin, manufacturing processes, formulations, and methods of treatment[452] Key U.S. Patents for COMP360 | U.S. Patent No. | Subject Matter | Est. Expiration | | :--- | :--- | :--- | | 10,519,175 | Methods of treating treatment-resistant depression | ca. 2038 | | 10,947,257 | Oral dosage forms of crystalline psilocybin | ca. 2038 | | 10,954,259 | Crystalline psilocybin; Pharmaceutical formulations | ca. 2038 | - Petitions for post-grant review of U.S. Patents 10,947,257 and 10,954,259 were filed by a third party but were denied institution by the USPTO in June 2022[163] - The company owns trademark registrations for COMPASS, COMPASS PATHWAYS, and MYPATHFINDER in the US, EU, and UK, with applications pending for CHANTERELLE[154][457] Government Regulation The company operates under extensive regulation, including FDA/EMA approval processes, complex DEA rescheduling for psilocybin, and uncertainty regarding third-party payor reimbursement - The U.S. drug approval process requires extensive preclinical and clinical trials (Phase 1, 2, 3) to establish safety and efficacy before an NDA can be submitted to the FDA[156][166][190] - Psilocybin is a Schedule I controlled substance in the U.S. and a Class A/Schedule 1 drug in the UK, meaning it has no currently accepted medical use and is subject to strict controls. Post-approval, it would require rescheduling by the DEA to be marketed in the U.S.[207][251] - In Europe, marketing authorization can be obtained through a centralized procedure via the EMA, which grants a single authorization valid throughout the EEA. The UK has a separate process post-Brexit[412][224][234] - Commercial success is highly dependent on securing coverage and adequate reimbursement from third-party payors like Medicare, Medicaid, and private insurers, which is uncertain for novel therapies[261] - The company is subject to numerous other laws, including the federal Anti-Kickback Statute, the Foreign Corrupt Practices Act (FCPA), and data privacy regulations like HIPAA in the U.S. and GDPR in Europe[275][679] Human Capital Management The company significantly grew its workforce to 181 employees in 2022, emphasizing employee wellbeing, fostering a positive culture, and promoting Diversity, Equity, and Inclusion - The company grew its workforce by 59% to 181 employees as of December 31, 2022, with 74% engaged in research and development activities[285] - A strong focus is placed on mental health and wellbeing, providing resources such as a global employee assistance program, confidential check-ins, and access to meditation apps[286][287] - The company actively promotes a positive culture and DEI, achieving a high employee net promoter score and implementing initiatives to raise awareness and recruit diverse candidates[296][302] - As of December 31, 2022, female representation was 33% on the board and 64% across the entire company[305] Item 1A. Risk Factors The company faces significant financial, development, regulatory, and operational risks, including ongoing losses, reliance on COMP360, controlled substance challenges, and IP protection - Financial Risks: The company is a clinical-stage entity with a history of significant losses ($91.5 million in 2022) and expects to incur losses for the foreseeable future. It will need substantial additional funding to complete development and commercialization, and failure to obtain it could force delays or termination of programs[314][315][473] - Development & Commercialization Risks: The business is highly dependent on the success of a single therapeutic candidate, COMP360. Clinical development is lengthy, expensive, and uncertain, with a high risk of failure in late-stage trials. Potential adverse side effects could delay or prevent approval[487][501][513] - Regulatory & Legal Risks: COMP360 contains psilocybin, a Schedule I controlled substance in the U.S. and UK. This requires a complex, uncertain, and potentially lengthy rescheduling process post-approval for commercialization. The company is also subject to extensive healthcare fraud and abuse laws[809][810][649] - Dependence on Third Parties: The company relies on third-party CMOs for manufacturing and CROs for clinical trials. Any failure by these partners to perform their duties, comply with regulations (like cGMP), or meet deadlines could significantly delay development and commercialization[530][531][535] - Intellectual Property Risks: The company's success depends on obtaining and defending patents. These patents can be challenged, invalidated, or circumvented by competitors. Litigation to enforce IP is costly and uncertain[700][701][718] Item 2. Properties The company leases its corporate headquarters in London, UK, and maintains additional office space in New York, NY - The company's corporate headquarters are leased in London, UK, and it also leases office space in New York, NY[942] Item 3. Legal Proceedings The company is not currently involved in any material legal proceedings that would adversely affect its business or financial condition - As of the report date, the company is not involved in any material legal proceedings[954] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's ADSs trade on Nasdaq under "CMPS"; it has never paid dividends and intends to retain earnings for business development - The company's ADSs are listed on The Nasdaq Global Select Market under the ticker "CMPS"[957] - The company has never paid dividends and does not plan to in the foreseeable future, as it intends to retain all funds for business growth[960] Issuer Purchases of Equity Securities (Q4 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 2022 | 0 | $0 | | Nov 2022 | 0 | $0 | | Dec 2022 | 8,986 | $9.20 | | Total Q4 | 8,986 | $9.20 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The company incurred a net loss of $91.5 million in 2022, driven by increased R&D and G&A expenses, and holds $143.2 million in cash to fund operations Results of Operations The net loss increased to $91.5 million in 2022, primarily due to higher R&D and G&A expenses, partially offset by increased other income from tax credits Consolidated Results of Operations (in thousands) | Account | FY 2022 | FY 2021 | Change | | :--- | :--- | :--- | :--- | | Research and development | $65,053 | $44,027 | $21,026 | | General and administrative | $45,350 | $39,194 | $6,156 | | Total operating expenses | $110,403 | $83,221 | $27,182 | | Loss from operations | $(110,403) | $(83,221) | $(27,182) | | Total other income, net | $19,306 | $11,678 | $7,628 | | Net loss | $(91,505) | $(71,742) | $(19,763) | - Research and development expenses increased by $21.0 million (47.7%) in 2022, driven by higher external development costs for preclinical studies and manufacturing, increased personnel expenses from team expansion, and higher non-cash share-based compensation[1016] - General and administrative expenses increased by $6.2 million (15.7%) in 2022, primarily due to higher personnel costs from increased staffing, a rise in non-cash share-based compensation, and increased legal and professional fees[1007] - The benefit from the UK R&D tax credit increased to $14.4 million in 2022 from $9.6 million in 2021, reflecting the growth in research activities[1024] Liquidity and Capital Resources Funded by equity, the company held $143.2 million in cash as of December 2022, with net cash used in operations increasing to $105.5 million, requiring future funding - As of December 31, 2022, the company had cash and cash equivalents of $143.2 million, deemed sufficient to fund operations for at least the next 12 months[1021][1058] Summary of Cash Flows (in thousands) | Cash Flow Activity | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $(105,451) | $(67,745) | $(41,380) | | Net cash used in investing activities | $(596) | $(334) | $(628) | | Net cash provided by financing activities | $1,040 | $156,646 | $194,155 | - Net cash used in operating activities increased to $105.5 million in 2022, primarily due to a higher net loss and a significant increase in prepaid expenses, including the R&D tax credit receivable[1043] - Future funding requirements are substantial and depend on the progress of clinical trials, regulatory approvals, and commercialization efforts. The company expects to finance these needs through equity or debt offerings, or collaborations[1051][1053] Item 8. Financial Statements and Supplementary Data This section incorporates the company's consolidated financial statements and supplementary data, appended at the end of the Annual Report - The company's consolidated financial statements are included at the end of the report, starting on page F-1[1175] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[1234][1236] - Based on the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2022[1238] - There were no material changes in internal control over financial reporting during the fourth quarter of 2022[1166] Part III Items 10, 11, 12, 13, and 14 Part III incorporates information for Items 10-14 by reference from the forthcoming 2023 Proxy Statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the forthcoming 2023 Proxy Statement[1181][1417][1188] Part IV Item 15. Exhibits, Financial Statement Schedules This section lists financial statements, schedules, and exhibits filed with the Annual Report, including consolidated financial statements starting on page F-1 - The consolidated financial statements are located in a separate section starting on page F-1 of the report[1190] - A detailed index lists all exhibits filed with or incorporated by reference into the Annual Report, including governance documents, material contracts, and certifications[1191][1192] Financial Statements Audited consolidated financial statements for 2020-2022, with an unqualified opinion, show $197.3 million in assets and a $91.5 million net loss in 2022 Consolidated Balance Sheet Data (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $143,206 | $273,243 | | Total current assets | $191,651 | $295,300 | | Total assets | $197,294 | $300,898 | | Total current liabilities | $15,596 | $15,107 | | Total liabilities | $16,014 | $16,486 | | Total shareholders' equity | $181,280 | $284,412 | Consolidated Statement of Operations Data (in thousands) | Account | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Total operating expenses | $110,403 | $83,221 | $51,393 | | Loss from operations | $(110,403) | $(83,221) | $(51,393) | | Net loss | $(91,505) | $(71,742) | $(60,334) | | Net loss per share | $(2.16) | $(1.79) | $(3.55) | - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the consolidated financial statements[1211] - The critical audit matter identified was the significant management judgment involved in estimating the qualifying expenditures for the UK R&D tax credit, which totaled $14.4 million for 2022[1214][1217]