1 Recent Healthcare IPO to Put on Your Radar

Innovation in the pharmaceutical industry has never been more exciting than it is right now, and there are some excellent companies that could be big winners for patient investors. In this Fool Live clip, recorded on Sept. 15, Fool.com contributor Jason Hall explains to Senior Analyst Asit Sharma why Compass Pathways (CMPS 1.01%) in particular is on his watch list now. 

Jason Hall: This is something that I'm going to talk about. I think it's probably something that hits home for a lot of us, and I'm going to start just by sharing a screen from the company presentation of the company that I'm going to cover first. That's talking about subjects that's a topic that hundreds of millions of people deal with every day and that's depression. There are estimated to be more than 300 million people worldwide who are actually being treated for depression. That's not the total number of people that are depressed, that are suffering from depression, the people that are being treated are around 320 million people.

The typical treatments starting with antidepressants, different types of interventions like cognitive, behavioral therapy, so just therapy sessions, that sort of thing. Those are your frontline treatments. It's estimated that more than two-thirds of those people that use these treatments and psychological therapies relapse, they continue to struggle with bouts of depression. Of that amount, it's estimated that you have 200 million that go to the next phase of antidepressant combination medications, trying different combinations. Again, you're still looking at, and also stepping up the types of psychological interventions, and you're still looking at more than half of those individuals who continue to suffer with relapse of depression. Here's the big one, it's estimated that you have 100 million of those individuals who don't respond to any of the therapeutics that are available today.

They just don't work. They just simply don't work. The types of therapies that they expose also greatly impact the quality of life, thinking about the side effects of a lot of the medications that they take. I can tell you from talking to friends and family that have suffered from it, there are a lot of people that go through this that the side effects of the treatments, they feel are worse than the depression itself in many ways. It can be very challenging. But the good thing, and this is where the company that this slide came from, the good thing that's happening is there are more noble treatments on the way, and COMPASS Pathways, so that's the company, ticker CMPS, is leading the charge with psilocybin. A lot of folks may have heard of psilocybin. If you haven't, you've probably heard the term magic mushrooms.

Asit Sharma: Excuse me, Jason.

Hall: Yes.

Sharma: Excuse me, Jason. That's psilocybin. Please.

Hall: Psilocybin.

Sharma: I had to get Jason for that.

Hall: Thank you.

Sharma: For those of you who are familiar with our back-and-forth, we do a lot of this.

Hall: Thank you, Asit.

Sharma: I think it might actually be psilocybin.

Hall: Very well played. I owe you a coke now for correcting me, so that's one off your tab.

Sharma: Thank you.

Hall: One off your tab there. Psilocybin. Again, most people have heard of magic mushrooms. If you haven't heard of the chemical compound that causes the psychotropic response. The thing is, guys, there's a taboo that is fading in terms of the idea of this sort of treatment. What COMPASS Pathways has done is they've refined and they are using micro doses of this psilocybin compounds in very controlled environments tied with therapies and the results were incredible.

The company has already completed a Phase I clinical trial, it's the largest clinical trial using this compound that's ever been conducted. It's in the late stage of the Phase II be trial, with several hundred patients going through that clinical, and they're expecting data just about anytime, they're saying late 2021, so approaching the ending phase of it's Phase II. Phase I, this is the safety phase. Is there harm, are there side effects? Phase II, start getting more evidence of how well the treatment works. We're getting closer to a point where Phase III clinicals could be conducted starting in the very near future to move these treatments toward commercial availability. For the 100 million people plus that simply don't have any treatment that helps them deal with depression, we're talking about a life changing potential.

Now, that's exciting, and I think that's the thing that we can all get behind, and this is a company that we want to succeed, and I think that's the reason why I'm so excited about this business. But let's not deny the fact that this is certainly still a high-risk business. This is a company that does not generate revenue, it is still pre-revenue. When you're thinking about going through these clinicals, its success is going to be tied to a couple of things. Number 1 is completing that Phase III and getting authorization from regulatory bodies around the world to be able to sell us therapy. It's also going to be very heavily tied to the mental health industry, the healthcare industry, making sure that they're going to prescribe this, that they're going to bring it into their tool bag of tools. A big part of that is education, training the experts in the field, that this is a safe and that it's an effective treatment. I think there's a lot of progress has been made on the taboo here.

The evidence from their trials looks quite positive. This is a company that went public about a year ago, it's based in the U.K. Three co-founders, one is the CEO and Chairman. The next is their Chief Innovation Officer, a physician who suffered from this within her family. You have really important leaders who have skin on the game that are founders of this business that are involved in bringing it to scale and that creates a lot of value. Again, this isn't a company you can follow the revenue trends to see if there's progress. It's a start-up in the pharmaceutical industry, so it's all about following its clinical successes and understanding its cash burn, how much money is on the balance sheet, and is that enough money to get us to the point where it can be commercially viable?