If you can afford it – and it would not be too big a position in your portfolio – putting $2,000 into a couple of speculative biotechs might be a good idea here. One I like is Compass Pathways (CMPS), explains Michael Murphy, editor of New World Investor.
Say you put $2,000 into a stock that goes from 50¢ a share to $10. The $2,000 turns into $40,000. Then you put the $40,000 into another stock that goes from 50¢ to $10. That turns the $40,000 into $800,000. You did it with two stocks and never risked going negative more than $2,000.
Not that you won’t be mad at me if the first one works and then the second one doesn’t, taking your $40,000 to Money Heaven. But buying out-of-favor, fallen, or forgotten companies that can get important products through the FDA at very low market capitalizations seems like a good strategy to me.
Of course, development-stage biotechs are subject to investor sentiment swings from wildly optimistic to excessively pessimistic – mostly the latter recently. So below, I’ve highlighted the Primary Risk for CMPS, I’ve added the clinical stage of its lead product, the probable time of its first FDA approval, and the probable time of its next financing.
Compass Pathways (CMPS)
As always, you need to think about an appropriate position size. You could buy a full position upfront and then just hold on. Or buy some upfront and leave room to add more on the inevitable financings, transient clinical trial setbacks, and the like.
CMPS announced the publication of a paper in JAMA Psychiatry that demonstrates the potential for COMP360 psilocybin treatment in another disease, treatment-resistant bipolar type II disorder (bipolar II).
The primary endpoint of the study was the change in the Montgomery-Åsberg Depression Rating Scale (MADRS) total score from baseline to week three. All 15 participants had lower MADRS scores, with a mean change from baseline of -24.0 points at week three. Twelve participants met the response criteria and 11 met the remission criteria.
There was no increase in the suicidality score based on the MADRS, no manic symptoms, and no unexpected adverse events or difficulties with the dosing sessions reported throughout the study.
Primary Risk: Its drug fails in the clinic.
Clinical stage of lead product: Phase 3
Probable time of first FDA approval: 2025
Probable time of next financing: Late 2025
Recommended Action: Buy CMPS