Atai IPO Day An Underwhelming Event

It finally happened. Atai Life Sciences (US:ATAI) commenced trading on the NASDAQ on Friday, June 18th (yawn).

It was supposed to be a big deal.
  • One of the very first for-profit companies in this emerging industry
  • By far the largest player in the psychedelic drug industry (public or private)
  • A market darling for many high-profile investors

It didn’t turn out that way.

Atai’s mediocre IPO

First, you had to scan NASDAQ’s IPO calendar to find out about the atai IPO. A company that (post IPO) will have roughly $500 million in cash didn’t want to put out a news release alerting retail investors to its trading date.

Then retail investors had to wait nearly an hour for the NASDAQ to open up trading in ATAI to the general public. Add in broader markets that were solidly lower on the day and you have a perfect recipe for a mediocre IPO.

At day’s end, atai closed up 29.67%, on volume of 8.8 million (less than 6% of shares outstanding).

Let’s put this into perspective. On IPO day for Compass Pathways (US:CMPS) , it rose 70% -- on heavy volume.

When MindMed Inc (US:MNMD / CAN:MMED) uplisted to the NASDAQ in April, trading volume was over 20% of total outstanding shares. And MindMed also traded over 10% of its shares the day before its official uplisting.

Ata’s IPO was even more eagerly anticipated by retail investors, in part because atai telegraphed its intentions so far ahead of actually commencing trading.

When atai completed its Series C financing round back in November 2020, CEO Christian Angermayer let investors know of atai’s intention to go public “in the spring of 2021”.

In the last week of spring, ATAI commenced trading. Anti-climactic.

More context.

Back when Compass Pathways commenced trading, the psychedelic drug industry was barely on the radar of the mainstream media. Conversely, in the week’s leading up to the atai IPO, there have been dozens of feature articles on psychedelics in the media.

The industry has never been more in the public spotlight. Yet when atai Life Sciences commenced trading, the investing public mostly yawned.

NASDAQ-listed companies generally consider themselves too cool to put out pre-IPO news releases to tell investors when they will commence trading (and get them excited).

MindMed did put out a release announcing (in advance) its own trading date on the NASDAQ. Compass Pathways didn’t put out a news release before its IPO, but it got away with it.

Atai Life Sciences and its shareholders haven’t been so lucky. And there are a lot of shares being held.

Post IPO, ATAI will have over 150 million shares outstanding. Not high in comparison to MindMed (400+ million). But MindMed has raised most of its US$200+ million since going public, much of that selling shares below CAD$1.

Compass Pathways has only 41 million shares outstanding. Before atai’s IPO, atai looked like the much stronger play to most investors. Today, the jury is now out.

The (investing) jury is undecided on atai

Psychedelic Stock Watch was among the pundits in this space expecting big things from atai on IPO day. Indeed, we warned investors not to get suckered into over-paying for ATAI shares. And, consequently, we saw better value for investors in other psychedelic stocks.

The warning proved unnecessary. But we still see better value in other psychedelic stocks.

Back when the company first announced its intentions to go public, Psychedelic Stock Watch touted atai, primarily on the basis of simply being the biggest and best-backed entity (financially). Great potential.

However, look past Compass Pathways’ Phase IIb clinical trial for Treatment-Resistant Depression (atai holds ~20% of CMPS) and atai has very little advanced R&D in its pipeline.

MindMed has a much more advanced drug pipeline, with three drug candidates in or entering Phase II clinical trials. Multiple other R&D initiatives are in Phase I or pre-clinical testing. MindMed also has a significantly better cash-to-market-cap ratio than atai.

Compass Pathways has considerably less depth in its pipeline. But its lead drug candidate is perhaps the best-positioned clinical trial in the psychedelic drug industry today.

Then there are some of the other contending public companies in this industry.

Cybin Inc (CAN:CYBN / US:CLXPF) is entering its own Phase II clinical trial for depression, also psilocybin-based, but it is targeting Major Depressive Disorder rather than Treatment-Resistant Depression.

Having raised over CAD$80 million, Cybin isn’t in the same league as atai financially. But it has a substantial capital cushion given its current burn rate. Cybin is also rapidly building out its drug R&D pipeline.

Market cap: ~US$220 million.

Field Trip Health (CAN:FTRP / US:FTRPF) is combining mental health clinic operations with drug R&D. It already has operating clinics in many of North America’s largest markets, with an aggressive growth curve. And FTRP is also devoting substantial energies to its own lead drug initiative, FT-104.

Field Trip has raised over CAD$100 million since going public and is also well-capitalized for its current operational strategy.

Market cap: ~US$240 million.

Both Cybin and Field Trip are also seeking to uplist to the NASDAQ.

Several other smaller pubcos in this industry are also relatively advanced and/or diversified operationally (much like atai’s research partners). Obviously, these companies aren’t nearly as well capitalized as atai. But all have successfully raised capital and have no near-term financing needs.

After its initial day of trading, atai Life Sciences sits with a market cap of ~$3 billion.

The combined market cap of Cybin, Field Trip and all these other smaller players is less than one-third that of atai. Would investors rather have a piece of atai, or a much bigger piece of all these other companies?

Pre-IPO, many investors would have answered “atai”, with little hesitation. But what about this week, after the dust has settled from atai’s less-than-inspiring IPO?

Keep in mind that most of these other public companies are priced at only a fraction of previous highs.

Given the value opportunities in these other psychedelic stocks, atai’s $3 billion market cap simply looks a little bloated.

A dynamic sector still in need of a catalyst

Investors in psychedelic stocks were eagerly anticipating the atai IPO not simply because of direct interest in atai. Many investors (including Psychedelic Stock Watch) expected the atai Life Sciences IPO to be a major catalyst for the whole sector – as was the Compass Pathways IPO.

Those hopes were well-founded.

Valuations in psychedelic stocks today are arguably even more compressed than prior to the CMPS IPO. This is despite the massive flows of institutional capital into the sector and the increasingly robust and enthusiastic coverage of this industry in the media.

There are even positive signs on the regulatory front.

A state bill currently before the California Senate would legalize the possession of several psychedelic drugs. Oregon has already legalized psilocybin for medicinal use. Several other states are at least investigating reform of their drug laws on psychedelics.

A bill just introduced into Congress proposes decriminalizing all drugs and transferring jurisdiction over psychedelic drugs from the Department of Justice to the Department of Health and Human Services. A path to the normalization of these substances (for medicinal use).

Canada’s national government (via Health Canada) has begun granting medical exemptions for the legal use of psilocybin – with increasing frequency. Canada appears to be on the road to legalization here.

Psychedelics R&D originally focused on the Mental Health Crisis, stress-related mental health disorders that (now) affect as many as 1 in 4 people globally. However psychedelic drug research is also aggressively expanding laterally – into many other major treatment markets.
The IPO for atal Life Sciences was hoped (expected?) to be the catalyst that opened the eyes of more market analysts to the incredible potential of this opportunity in life sciences.

Instead, not only are those analysts still sleeping but so are many investors.

DISCLOSURE: The writer holds shares in MindMed Inc and Cybin Inc.
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