What happened

Shares of the mental healthcare company Compass Pathways (CMPS 2.62%) rose by a noteworthy 15.8% through the first four days of trading this week, according to data from S&P Global Market Intelligence. Following this latest move higher, Compass' stock is up by a staggering 129% over the prior 90 days.  

Investors have been rushing into this biotech stock in response to the steady progress of its psilocybin-based depression therapy COMP360 in the clinic. After a successful mid-stage trial, the company is reportedly gearing up to advance COMP360 into a pivotal-stage trial for treatment-resistant depression (TRD) soon.

Image source: Getty Images.

So what

Wall Street has been rolling out some truly eye-catching price targets as a result of COMP360's clinical progress. Investment bank H.C. Wainwright, for instance, reportedly thinks this healthcare stock could gap up by an astounding 559% over the next 12 months.

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NASDAQ: CMPS

COMPASS Pathways plc

Today's Change

(-2.62%) $-0.32

Current Price

$11.90

Key Data Points

Market Cap

$1.6B

Day's Range

$11.57 - $12.28

52wk Range

$2.25 - $12.48

Volume

42.1K

Avg Vol

3.9M

The firm's rosy outlook is based on the fact that COMP360 could turn out to be a game-changing new modality for TRD -- a mental healthcare market that is estimated to be worth several billion a year in annual sales. With that kind of upside potential in play, it's not surprising that Compass' stock has been ripping higher over the past three months.   

Now what

Is Compass' stock still worth buying? While Compass' upside potential is tantalizing to be sure, there are some unique regulatory risks associated with this psilocybin-based depression therapy. The good news is that GW Pharmaceuticals, now part of Jazz Pharmaceuticals, faced similar regulatory headwinds for its cannabis-based epilepsy therapies prior to their approvals by the U.S. Food and Drug Administration. So there is a clear roadmap for Compass to follow in the event COMP360 hits the mark in late-stage testing.

Nonetheless, risk-tolerant investors should still exercise some caution with this high-flying name. TRD has proven to be a tough nut to crack, and there's no way to accurately handicap COMP360's odds of breaking through in this high-value indication.