Over the past few weeks, the US has seen a tsunami of IPO announcements.
After starting the year off relatively slow, the number of new listings has boomed. With plenty of companies looking to cash in on some insatiable investor appetite.
They’re not all small deals either.
The recent debut of Snowflake Inc [NYSE:SNOW] is proof that the top end is hungry for new stocks too. With the likes of Airbnb and DoorDash to make their own public foray in the near future.
And even outside of the US, we’re seeing some crazy IPO news. Such as the much talked about and extremely hyped listing of Ant Group. The financial arm of Chinese tech giant Alibaba.
As of right now the numbers have yet to be locked in stone, but it is looking like it will be a record breaker. Likely raising close to or over US$35 billion — the biggest sum ever for a public listing.
Which is pretty astonishing as it will only be listed in China and Hong Kong. Forcing Wall Street to get creative if they want a piece of the action.
But I digress.
Because today I want to talk about an IPO that most people didn’t even notice. A company that officially listed on the NASDAQ last Friday with just a little fanfare.
However, if they can deliver on their goals and objectives: this relatively small stock could be the most important IPO of the year…
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An unconventional biotech
The company in question is known as Compass Pathways PLC [NASDAQ:CMPS].
They’re a biotech company of sorts; headquartered in the UK, but with an office in the US. A relatively small biotech (by US standards anyway) that managed to drum up US$127.5 million in fresh capital.
This generous sum of money helped bring Compass’ valuation to US$578.1 million following the IPO. With their shares priced at $17 a pop.
It wouldn’t stay that way for long though…
Compass’ first official trade was priced 38% above their US$17 IPO price. With the share price opening around the US$23 mark — and it didn’t stop there.
By Wednesday morning, just three trading days after listing, Compass shares peaked at US$42.75. Netting early investors a 151% gain for less than a week’s work.
It’s an incredible result — highlighting once more the incredible potential of small-caps and biotech stocks alike. But, that’s not what makes this stock truly fascinating.
The real reason Compass deserves your attention is because they are a pioneer.
See, Compass is a biotech that is working on psychedelic drug treatments.
Their lead drug is known as COMP360 — a highly specialised and extremely pure mixture of psilocybin. Or, as it is more commonly known, magic mushrooms.
This is what truly sets Compass apart.
They are a ‘shroom stock’. A new investment trend that bears plenty of similarities to the pot stock boom of 2017/18.
Just like the cannabis trend, Compass is hoping to turn an illicit drug into the next medicinal wonder. Using these mind-bending mushrooms to fight one of our most insidious diseases: depression.
It’s a bold plan, one that is bound to polarise a lot of people.
But, it is hard to ignore just how far Compass has come and how much potential these psychedelic drugs may have.
And that is going to attract a whole lot more interest from competitors and investors alike.
A trend in the making
Truth be told, Compass isn’t the first psychedelic stock to go public. Granted, they are the first to be listed on a major exchange.
However, there are a plethora of small and obscure biotechs that dabble in the same sector. Many of which are listed on over the counter exchanges in Canada or the US.
Personally, I’ve found just over a dozen of these stocks. All of whom are trying to find a way to turn drugs like magic mushrooms, LSD, or ketamine into viable treatments for mental health issues.
18 months ago, none of these companies existed. Or at the very least, weren’t publicly listed.
They have all popped up relatively recently, and Compass is just the latest (and biggest) to do so. Signalling to me that this psychedelic trend is just getting started.
Whether or not it will be as big, or maybe even bigger than the pot stock frenzy, is hard to say.
It is hard to ignore the returns from Compass’ debut though.
Plus, the research behind these drugs has been steadily growing. With many of these companies finally exploring the hidden potential of these demonised substances.
As an article published by ValueTheMarkets back in July explains:
‘At some point there will be a rush to buy psychedelic stocks.
‘It’s inevitable.
‘The scientific evidence supporting psychedelic assisted therapies is too compelling, and the worldwide need for these treatments too great.
‘They really could augment or replace existing therapies for depression, anxiety, post-traumatic stress disorder and addiction.’
We may be at that point. At least, the very start of it.
Because if Compass’ debut is anything to go by, the ‘shroom boom’ is already here. It is simply a question of which drug and which company will take the spotlight next.
And for that reason, I believe this IPO will be remembered as the most important of 2020.
Regards,
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Ryan Clarkson-Ledward,
Editor, Money Morning
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