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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________

Commission File Number: 001-39522
COMPASS Pathways plc
(Exact name of registrant as specified in its charter)
England and WalesNot Applicable
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
33 Broadwick Street
London W1F 0DQ
United Kingdom
(Address of principal executive offices, zip code)

+1 (716) 676-6461
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol Name of each exchange on which registered
American Depositary Shares, each representing one ordinary share, par value of £0.008 per share
 
CMPS
 
Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

The registrant had 61,896,535 shares of common stock outstanding as of October 30, 2023.



TABLE OF CONTENTS
Condensed Consolidated Balance Sheets As of September 30, 2023 and December 31, 2022
Condensed Consolidated Statements of Operations and Comprehensive Loss for The Three and Nine Months Ended September 30, 2023 and 2022
Condensed Consolidated Statements of Shareholders’ Equity for The Three and Nine Months Ended September 30, 2023 and 2022
Condensed Consolidated Statements of Cash Flows for The Nine Months Ended September 30, 2023 and 2022
Notes to Condensed Consolidated Financial Statements
30
Item 1A.
Risk Factors
127
128



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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the “Securities Act,” and Section 21E of the Securities Exchange Act of 1934, as amended, or the “Exchange Act”. Forward-looking statements generally relate to future events or our future financial or operating performance. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q, including regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions. The forward-looking statements and opinions contained in this Form 10-Q are based upon information available to our management as of the date of this Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
the timing, progress and results of our investigational COMP360 psilocybin treatment, including statements regarding the timing of initiation and completion of trials or studies and related preparatory work, including our expectations regarding the amendments we made to the protocols for our Phase 3 clinical program, results of discussions with the Food and Drug Administration, or FDA, regarding our trial design and the timing of the completion of our Phase 3 clinical program for treatment-resistant depression, or TRD, the period during which the results of the trials will become available and our research and development programs;
our estimates regarding our expenses, capital requirements, the sufficiency of our cash resources, our expected cash runway and needs for and ability to raise additional financing;
the potential for all of the warrants issued in our recent private placement financing, or the PIPE Warrants, to be exercised in full for cash, and any expected proceeds from the exercise of the PIPE Warrants;
our reliance on the success of our investigational COMP360 psilocybin treatment;
the timing, scope or likelihood of regulatory filings and approvals;
our expectations regarding the size of the eligible patient populations for COMP360 psilocybin treatment, if approved for commercial use;
our ability to identify third-party clinical sites to conduct our trials and our ability to identify and train appropriately qualified therapists to administer COMP360 psilocybin treatment in our clinical trials;
our ability to implement our business model and our strategic plans for our business and our investigational COMP360 psilocybin treatment;
our ability to identify new indications for COMP360 beyond our current primary focus on TRD, anorexia nervosa, and post-traumatic stress disorder, or PTSD;
our ability to identify, develop or acquire digital technologies to enhance our administration of our investigational COMP360 psilocybin treatment;
our ability to leverage our technology and drug development candidates to advance new psychedelic compounds in other areas of unmet mental health need;
our ability to successfully establish and maintain Centers of Excellence and our ability to achieve our goals with respect to the Center for Mental Health Research and Innovation;
our commercialization, marketing and manufacturing capabilities and strategy;
the pricing, coverage and reimbursement of our investigational COMP360 psilocybin treatment, if approved;
the scalability and commercial viability of our manufacturing methods and processes;
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the rate and degree of market acceptance and clinical utility of our investigational COMP360 psilocybin treatment, in particular, and psilocybin-based treatments, in general;
our ability to establish or maintain collaborations or strategic relationships or obtain additional funding;
our expectations regarding potential benefits of our investigational COMP360 psilocybin treatment and our therapeutic approach generally;
our expectations around feedback from and discussions with regulators, regulatory development paths and with respect to Controlled Substances Act designation;
the scope of protection we and any current or future licensors or collaboration partners are able to establish and maintain for intellectual property rights covering COMP360;
our ability to operate our business without infringing, misappropriating, or otherwise violating the intellectual property rights and proprietary technology of third parties;
regulatory developments in the United States, under the laws and regulations of England and Wales, and other jurisdictions;
developments and projections relating to our competitors and our industry;
the effectiveness of our internal control over financial reporting;
our ability to attract and retain qualified employees and key personnel;
our Loan and Security Agreement, or the Loan Agreement, with Hercules Capital, Inc., or Hercules, contains milestones that must be achieved in order to draw down additional amounts under our Loan Agreement on our term loan facility and also contains operating and financial covenants that restrict our operating activities;
the effect of global financial and economic conditions and geopolitical events, including instability in the banking system, fluctuating interest rates and inflation, and foreign exchange fluctuations, particularly the Pound Sterling to U.S. Dollar, the risk of economic slowdown or recession in the United States, overall market volatility in the United States or the United Kingdom, including as a result of, among other factors, the ongoing war between Russia and Ukraine, the Israel-Hamas war, a potential government shutdown in the United States or similar events, on our business;
the effect of public health crises, pandemics or epidemics such as the COVID-19 pandemic, and any future mitigation efforts, and current or future economic effects, on any of the foregoing or other aspects of our business or operations;
whether we are classified as a controlled foreign corporation, or CFC, or a passive foreign investment company, or PFIC, under the Internal Revenue Code of 1986, as amended, for current and future periods; and
the future trading price of the American Depositary Shares, or the ADSs, and impact of securities analysts’ reports on these prices.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events, which speak only as of the date made. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcomes of the events described in these forward-looking statements are subject to risks, uncertainties and other factors described in the section titled “Risk Factors” in Part II, Item 1A, of this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission, or the SEC. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements. Except as otherwise required by the securities laws of the United States, we disclaim any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. 
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SUMMARY OF THE MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS
Our business is subject to numerous risks and uncertainties that you should be aware of in evaluating our business. These risks and uncertainties include, but are not limited to, the following:
We are a clinical-stage biotechnology company and have incurred significant losses since our inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability;
We will need substantial additional funding to complete the development and commercialization of our investigational COMP360 psilocybin treatment. Our ability to raise additional funds may be adversely impacted by macroeconomic conditions and disruptions to and volatility in the credit and financial markets in the United States and worldwide, including instability in the banking system, fluctuating interest rates and inflation and the risk of credit-rating downgrades and economic slowdown or recession in the United States. Failure to obtain additional funding when needed or on favorable terms may force us to delay, limit or terminate certain or all of our product discovery, therapeutic development, research operations or commercialization efforts or grant rights to develop and market products or therapeutic candidates that we would otherwise prefer to develop and market ourselves;
Raising additional capital through the sale of equity securities, including through the exercise of the PIPE Warrants, may cause significant dilution to holders of our ordinary shares and ADSs, and raising additional capital through debt financings or strategic partnerships or collaborations may restrict our operations or require us to relinquish rights to COMP360 or any future therapeutic candidates;
We are dependent on the successful development of our investigational COMP360 psilocybin treatment. We cannot give any assurance that COMP360 will successfully complete clinical trials or receive regulatory approval, which is necessary before it can be commercialized;
COMP360 is, and any future therapeutic candidates we may develop may be, subject to controlled substance laws and regulations in the jurisdictions where our products, if approved, may be marketed, and failure to comply with these laws and regulations, or the cost of compliance with these laws and regulations, or changes in these laws and regulations may adversely affect the results of our business operations, both during clinical development and post approval, and our financial condition. In addition, during the review process of COMP360, and prior to any approval, the FDA and/or other regulatory bodies may require additional data, including with respect to whether COMP360 has abuse or misuse potential, which may delay approval and any potential rescheduling process;
COMP360 contains controlled substances, the use of which may generate public controversy. Adverse publicity or public perception regarding COMP360, in particular, and psilocybin-based treatments, in general, or our current or future investigational treatments using psilocybin may negatively influence the success of these treatments;
Clinical drug development is a lengthy and expensive process with uncertain timelines and uncertain outcomes. If clinical trials of COMP360 psilocybin treatment or any future therapeutic candidates are prolonged or delayed, we or our current or future collaborators may be unable to obtain required regulatory approvals, and therefore we will be unable to commercialize our investigational COMP360 psilocybin treatment or any future therapeutic candidates on a timely basis or at all, which will adversely affect our business;
COMP360 psilocybin treatment and any future therapeutic candidates we may develop may have serious adverse, undesirable or unacceptable side effects which may delay or prevent marketing approval. If such side effects are identified during the development of COMP360 psilocybin treatment or any future therapeutic candidates or following approval, if any, we may need to abandon our development of such therapeutic candidates, the commercial profile of any approved label may be limited, or we may be subject to other significant negative consequences;
Research and development of drugs targeting the central nervous system is particularly difficult, which makes it difficult to predict and understand why the drug has a positive effect on some patients but not others;
We have never commercialized a therapeutic candidate before and may lack the necessary expertise, personnel and resources to successfully commercialize our treatments on our own or with suitable collaborators;
The future commercial success of our investigational COMP360 psilocybin treatment or any future therapeutic candidates will depend on the degree of market access and acceptance of our potential treatments among healthcare professionals, patients, healthcare payors, health technology assessment bodies and the medical community at large;
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Our business and commercialization strategy depends on our ability to identify, qualify, prepare, certify and support third-party therapy sites offering any approved treatment. If we are unable to do so, our commercialization prospects would be limited and our business, financial condition and results of operations would be harmed;
We currently rely on qualified therapists working at third-party clinical trial sites to administer our investigational COMP360 psilocybin treatment in our clinical trials and we expect this to continue upon approval, if any, of COMP360 or any future therapeutic candidates. If third-party sites fail to recruit and retain a sufficient number of therapists or effectively manage their therapists, our business, financial condition and results of operations would be materially harmed;
Intellectual property rights of third parties could adversely affect our ability to develop or commercialize our investigational treatments, such that we could be required to litigate or obtain licenses from third parties in order to develop or market our investigational treatments. Such litigation or licenses could be costly or not available on commercially reasonable terms;
Others may claim an ownership interest in our intellectual property and our product candidates, which could expose us to litigation and have a significant adverse effect on our prospects;
Our failure to comply with the financial and other covenants or payment obligations under our existing Loan Agreement with Hercules could result in a default or an event of default, which may result in increased interest charges, acceleration of our repayment obligations or other actions by Hercules, any of which could negatively impact our business, financial condition and results of operations;
Enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our investigational COMP360 psilocybin treatment or any future therapeutic candidates and could have a material adverse effect on our business;
We rely on third parties to supply and manufacture the psilocybin and psilocin incorporated in COMP360 and expect to continue to rely on third parties to supply and manufacture any future therapeutic candidates, and we will rely on third parties to manufacture these substances for commercial supply, if approved. If any third-party provider fails to meet its obligations to manufacture COMP360 or our future therapeutic candidates, or fails to maintain or achieve satisfactory regulatory compliance, the development of such substances and the commercialization of any treatments, if approved, could be stopped, delayed or made commercially unviable, less profitable or may result in enforcement actions against us;
There are a number of third parties who conduct investigator-initiated studies, or IISs, using COMP360 provided by us. Any failure by a third party to meet its obligations with respect to the clinical development of our investigational COMP360 psilocybin treatment or any future therapeutic candidates may delay or impair our ability to obtain regulatory approval for COMP360. IISs of COMP360 or any future therapeutic candidates may generate clinical trial data that raises concerns regarding the safety or effectiveness of COMP360 and any data generated in IISs may not be predictive of the results in populations or indications in which we are conducting, or plan to conduct, clinical trials;
Unfavorable global economic conditions could adversely affect our business, financial condition or results of operations. Economic uncertainty and worsening or deteriorating global economic conditions and volatile financial market conditions in the United States or the United Kingdom, as a result of, among other factors, instability in the banking system, fluctuating inflation and interest rates, the risk of economic slowdown or recession or a government shutdown in the United States and the ongoing war between Russia and Ukraine, the Israel-Hamas war or similar events, may materially and adversely affect our business, including our ability to raise capital and our financial results;
A pandemic, epidemic, or outbreak of an infectious disease, or new variants of COVID-19, may materially and adversely affect our business, including our preclinical studies, clinical trials, third parties on whom we rely, our supply chain, our ability to raise capital, our ability to conduct regular business and our financial results;
We face substantial competition and our competitors may discover, develop or commercialize treatments before or more successfully than us, which may result in the reduction or elimination of our commercial opportunities;
Our business is subject to economic, political, regulatory and other risks associated with international operations; and
We may face business interruptions resulting from failures or significant downtime of our information technology systems resulting from cyber-attacks on such systems or otherwise.
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PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

COMPASS PATHWAYS PLC
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except share and per share amounts)
(expressed in U.S. Dollars, unless otherwise stated)
September 30,December 31,
20232022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$248,038 $143,206 
Restricted cash331 175 
Prepaid income tax427 575 
Prepaid expenses and other current assets36,010 47,695 
Total current assets284,806 191,651 
NON-CURRENT ASSETS:
Investment469 469 
Property and equipment, net309 617 
Operating lease right-of-use assets4,165 2,006 
Deferred tax assets3,406 2,224 
Long-term prepaid expenses and other assets5,878 327 
Total assets$299,033 $197,294 
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable$4,248 $4,761 
Accrued expenses and other liabilities8,998 9,325 
Operating lease liabilities - current2,104 1,510 
Total current liabilities15,350 15,596 
NON-CURRENT LIABILITIES
Long-term debt28,431  
Operating lease liabilities - non-current1,997 418 
Total liabilities$45,778 $16,014 
Commitments and contingencies (Note 11)
SHAREHOLDERS' EQUITY:
Ordinary shares, £0.008 par value; 61,884,785 and 42,631,794 shares authorized, issued and outstanding at September 30, 2023 and December 31, 2022, respectively
634 440 
Deferred shares, £21,921.504 par value; nil and one share authorized, issued and outstanding at September 30, 2023 and December 31, 2022, respectively
 28 
Additional paid-in capital617,165 458,825 
Accumulated other comprehensive loss(17,466)(16,867)
Accumulated deficit(347,078)(261,146)
Total shareholders' equity253,255 181,280 
Total liabilities and shareholders' equity$299,033 $197,294 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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COMPASS PATHWAYS PLC
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
(in thousands, except share and per share amounts)
(expressed in U.S. Dollars, unless otherwise stated)
Three Months ended September 30,Nine Months ended September 30,
2023202220232022
OPERATING EXPENSES:
Research and development$21,526 $13,977 $60,379 $45,259 
General and administrative12,536 11,559 38,135 32,953 
    Total operating expenses34,062 25,536 98,514 78,212 
LOSS FROM OPERATIONS:(34,062)(25,536)(98,514)(78,212)
OTHER INCOME, NET:
Other income, net1,127 3,206 2,463 3,580 
Interest expense(1,080) (1,080) 
Foreign exchange (losses) gains
(1,997)1,096 2,064 4,387 
Benefit from R&D tax credit2,685 2,983 9,521 9,982 
    Total other income, net735 7,285 12,968 17,949 
Loss before income taxes(33,327)(18,251)(85,546)(60,263)
Income tax expense(62)(120)(386)(316)
Net loss(33,389)(18,371)(85,932)(60,579)
Other comprehensive (loss) income:
Foreign exchange translation adjustment(738)(15,156)(599)(39,483)
Comprehensive loss(34,127)(33,527)(86,531)(100,062)
Net loss per share attributable to ordinary shareholders—basic and diluted$(0.67)$(0.43)$(1.81)$(1.43)
Weighted average ordinary shares outstanding—basic and diluted49,633,10442,525,85547,355,99242,377,895

The accompanying notes are an integral part of these condensed consolidated financial statements.
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COMPASS PATHWAYS PLC
Condensed Consolidated Statements of Shareholders’ Equity
(unaudited)
(in thousands, except share and per share amounts)
(expressed in U.S. Dollars, unless otherwise stated)
ORDINARY SHARES £0.008
DEFERRED SHARESADDITIONAL PAID-IN CAPITAL
ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
ACCUMULATED DEFICITTOTAL SHAREHOLDERS' EQUITY
PAR VALUE
£21,921.504 PAR VALUE
SHARESAMOUNTSHARESAMOUNTAMOUNTAMOUNTAMOUNTAMOUNT
Balance at December 31, 202142,019,874 $435 1 $28 $444,750 $8,840 $(169,641)$284,412 
Exercise of share options376,158 4 — — 393 — — 397 
Vesting of restricted stock units68,534 1 — — — — — 1 
Share-based compensation expense— — — — 3,128 — — 3,128 
Unrealized loss on foreign currency translation— — — — — (7,193)— (7,193)
Net loss— — — — — — (21,171)(21,171)
Balance at March 31, 202242,464,566 $440 1 $28 $448,271 $1,647 $(190,812)$259,574 
Exercise of share options55,727 — — — 4 — — 4 
Vesting of restricted stock units2,104 — — — — — — — 
Share-based compensation expense— — — — 3,178 — — 3,178 
Unrealized loss on foreign currency translation— — — — — (17,134)— (17,134)
Net loss— — — — — — (21,037)(21,037)
Balance at June 30, 202242,522,397 $440 1 $28 $451,453 $(15,487)$(211,849)$224,585 
Exercise of share options29,887 — — — — — — — 
Vesting of restricted stock units2,100 — — — — — — — 
Share-based compensation expense— — — — 3,504 — — 3,504 
Unrealized loss on foreign currency translation
— — — — — (15,156)— (15,156)
Net loss— — — — — — (18,371)(18,371)
Balance at September 30, 202242,554,384 $440 1 $28 $454,957 $(30,643)$(230,220)$194,562 





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ORDINARY SHARES £0.008
DEFERRED SHARESADDITIONAL PAID-IN CAPITALACCUMULATED OTHER COMPREHENSIVE LOSSACCUMULATED DEFICITTOTAL SHAREHOLDERS' EQUITY
PAR VALUE
£21,921.504 PAR VALUE
SHARESAMOUNTSHARESAMOUNTAMOUNTAMOUNTAMOUNTAMOUNT
Balance at December 31, 202242,631,794 $440 1 $28 $458,825 $(16,867)$(261,146)$181,280 
Exercise of share options3,790 — — — — — — — 
Issuance of ordinary shares under ATM facility, net of issuance costs113,420 1 — — 1,187 — — 1,188 
Issuance of ordinary shares to settle vested restricted stock units30,481 1 — — (1)— —  
Shares tendered for withholding taxes— — — — (109)— — (109)
Share-based compensation expense— — — — 4,071 — — 4,071 
Unrealized loss on foreign currency translation— — — — — (578)— (578)
Net loss— — — — — — (24,208)(24,208)
Balance at March 31, 202342,779,485 $442 1 $28 $463,973 $(17,445)$(285,354)$161,644 
Exercise of share options125,079 1 — — — — — 1 
Issuance of ordinary shares under ATM facility, net of issuance costs2,824,202 28 — — 26,904 — — 26,932 
Vesting of equity awards under the employee purchase plan23,843 — — — 189 — — 189 
Cancellation of deferred share— — (1)(28)28 — —  
Issuance of warrant to purchase ordinary shares— — — — 687 — — 687 
Issuance of ordinary shares to settle vested restricted stock units7,641 — — — — — — — 
Share-based compensation expense— — — — 4,561 — — 4,561 
Unrealized gain on foreign currency translation— — — — — 717 — 717 
Net loss— — — — — — (28,335)(28,335)
Balance at June 30, 202345,760,250 $471  $ $496,342 $(16,728)$(313,689)$166,396 
Exercise of share options33,691 — — — — — — — 
Issuance of ordinary shares under PIPE offering, net of issuance costs
16,076,750 163 — — 116,452 — — 116,615 
Issuance of ordinary shares to settle vested restricted stock units14,094 — — — — — — — 
Shares tendered for withholding taxes— — — — (76)— — (76)
Share-based compensation expense— — — — 4,447 — — 4,447 
Unrealized loss on foreign currency translation
— — — — — (738)— (738)
Net loss— — — — — — (33,389)(33,389)
Balance at September 30, 202361,884,785 $634  $ $617,165 $(17,466)$(347,078)$253,255 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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COMPASS PATHWAYS PLC
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
(expressed in U.S. Dollars, unless otherwise stated)
Nine Months ended September 30,
20232022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss$(85,932)$(60,579)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization344 234 
Non-cash interest310  
Loss on disposal of property and equipment40  
Non-cash (gain) loss on foreign currency remeasurement
(1,820)3,842 
Non-cash share-based compensation13,079 9,810 
Non-cash lease expenses1,494 1,610 
Changes in operating assets and liabilities
Prepaid expenses and other current assets12,433 (30,141)
Deferred and prepaid tax assets(1,035)(1,813)
Long-term prepaid expenses and other assets(5,825)(306)
Operating lease liabilities(1,428)(1,571)
Accounts payable(567)20,018 
Accrued expenses and other liabilities(687)(1,253)
Net cash used in operating activities(69,594)(60,149)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment(66)(489)
Proceeds from disposal of property and equipment 2  
Net cash used in investing activities(64)(489)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of ordinary shares, net of issuance costs144,976  
Proceeds from issuance of shares under the employee share purchase plan189  
Payments of withholding tax on stock award
(185) 
Net proceeds from issuance of long term debt29,585  
Payment of issuance cost of long term debt(778) 
Proceeds from exercise of share options2 401 
Net cash provided by financing activities173,789 401 
Effect of exchange rate changes on cash, cash equivalents and restricted cash857 (39,879)
Net increase (decrease) in cash, cash equivalents and restricted cash104,988 (100,116)
Cash, cash equivalents and restricted cash, beginning of the period143,381 273,347 
Cash, cash equivalents and restricted cash, end of the period$248,369 $173,231 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Right of use assets obtained in exchange for new operating lease liabilities$3,675 $796 
Issuance of warrants together with the long-term debt$687 $ 
Issuance of warrants together with the issuance of ordinary shares$2,011 $ 
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The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances as of each of the periods, shown above:
Nine Months ended September 30,
20232022
Cash and cash equivalents$248,038 $173,076 
Restricted cash331 155 
Total cash, cash equivalents and restricted cash$248,369 $173,231 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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COMPASS PATHWAYS PLC
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Nature of Business
COMPASS Pathways plc, or the Company, is a biotechnology company dedicated to accelerating patient access to evidence-based innovation in mental health. The Company is developing its investigational COMP360 psilocybin treatment through late-stage clinical trials in Europe and North America for patients with treatment-resistant depression.
The Company is subject to risks and uncertainties common to clinical stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary intellectual property and technology, compliance with government regulations and the ability to secure additional capital to fund operations. Therapeutic candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s therapeutic development efforts are successful, it is uncertain when, if ever, the Company will realize revenue from sales.
The Company has funded its operations primarily with proceeds from the sale of its convertible preferred shares, the issuance of convertible notes, and through the sale of American Depository Shares, or ADSs, in connection with the Company’s initial public offering, or the IPO, in September 2020, and its May 2021 follow-on offering. On October 8, 2021, the Company entered into a Sales Agreement with Cowen and Company, LLC, or Cowen, under which the Company may issue and sell from time to time up to $150.0 million of its ADSs, each representing one ordinary share, through Cowen as the sales agent. Sales of the Company’s ADSs, if any, will be made at market prices. Through September 30, 2023, the Company sold 2,982,038 ADSs under the Sales Agreement, resulting in $28.6 million in net proceeds. On June 30, 2023 (the “Effective Date”), the Company entered into a Loan Agreement with Hercules, which provided for aggregate maximum borrowings of up to $50.0 million, including a term loan of $30.0 million, which was funded on the Effective Date. On August 16, 2023, the Company entered into a Securities Purchase Agreement, pursuant to which the Company agreed to sell and issue in a private placement transaction (the “PIPE”) (i) 16,076,750 ADSs and (ii) PIPE Warrants to purchase up to 16,076,750 ADSs, at a purchase price of approximately $7.78 per ADS and accompanying PIPE Warrant to purchase one ADS. Each PIPE Warrant has an exercise price of $9.93 per ADS and is exercisable for a three year period beginning in February 2024. The PIPE Warrants may be exercised on a cashless basis if there is no effective registration statement registering the shares underlying the PIPE Warrants.

The Company has incurred recurring losses since its inception, including net losses of $85.9 million and $60.6 million for the nine months ended September 30, 2023 and 2022, respectively. In addition, as of September 30, 2023, the Company had an accumulated deficit of $347.1 million. The Company expects to continue to generate operating losses for the foreseeable future. The Company believes the cash and cash equivalents on hand as of September 30, 2023 of $248.0 million will be sufficient to fund its operating expenses and capital expenditure requirements into late 2025. The future viability of the Company is dependent on its ability to raise additional capital to finance its operations. The Company’s inability to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies. There can be no assurance that the current operating plan will be achieved or that additional funding will be available on terms acceptable to the Company, or at all. The Company may raise additional capital through a combination of equity offerings, debt financings, collaborations, and other strategic transactions, including marketing, distribution or licensing arrangements. The failure of the Company to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the Company’s business, results of operations, and financial conditions.

Market volatility, instability in the banking system, geopolitical tensions resulting from the ongoing war between Ukraine and Russia, the Israel-Hamas war, fluctuating inflation and interest rates and the related impact on U.S., U.K. and global economies, the risk of economic slowdown or recession or a potential government shutdown in the United States or other factors could adversely impact our operations, financial results and ability to raise additional funding.




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2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, or U.S. GAAP.
The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements as of and for the year ended December 31, 2022, and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2023, the results of its operations and comprehensive loss for the three months and nine months ended September 30, 2023 and 2022 and its cash flows for the nine months ended September 30, 2023 and 2022.
The results for the three months and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023, any other interim periods, or any future years or periods. These interim financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2022, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K that was filed with the U.S. Securities and Exchange Commission (the “SEC”), on February 28, 2023. The condensed consolidated balance sheet at December 31, 2022, was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated on consolidation.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of income and expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the prepayment and accrual for research and development expenses, share-based compensation and the research and development tax credit. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ materially from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments that have maturities of three months or less when acquired to be cash equivalents. The Company does not currently have any material cash equivalents.
Restricted Cash
Restricted cash as of September 30, 2023 and December 31, 2022 represents a collateral deposit for employee credit cards.
Investment
The investment does not have readily determinable fair value and it is carried at cost, less impairment, adjusted for subsequent changes to estimated fair value up to the original cost, in circumstances where the Company does not have the ability to exercise significant influence or control over the operating and financial policies of the investee.
Concentration of Credit Risk
Financial instruments that subject the Company to credit risk consist primarily of cash and cash equivalents. The Company places cash and cash equivalents in diversified and established financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. The Company has cash and cash equivalents in excess of the FDIC insured limit. The Company has no significant off-balance-sheet risk or concentration of credit risk, such as foreign exchange contracts, options contracts, or other foreign hedging arrangements.

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Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the respective assets, which are as follows:
Estimated Useful Life
Lab equipment5 years
Office equipment
3-5 years
Furniture and fixtures3 years
Leasehold improvementsShorter of useful life or remaining lease term
Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the condensed consolidated statements of operations and comprehensive loss. Expenditures for repairs and maintenance are charged to expense as incurred.
Impairment of Long-Lived Assets
The Company evaluates assets for potential impairment when events or changes in circumstances indicate the carrying value of the assets may not be recoverable. Recoverability is measured by comparing the book values of the assets to the expected future net undiscounted cash flows that the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the book values of the assets exceed their fair value. The Company has not recognized any impairment losses or had triggering events related to its underlying assets for the nine months ended September 30, 2023 and 2022.
Segment Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker in deciding how to allocate resources and assess performance. The Company and the Company’s chief operating decision maker, the Company’s Chief Executive Officer, view the Company’s operations and manage its business as a single operating segment; however, the Company operates in two geographic regions: the United Kingdom, or UK, and the United States. The Company’s fixed assets are primarily located in the UK. The Company’s singular concentration is focused on accelerating patient access to evidence-based innovation in mental health.
Research and Development Costs
Research and development costs are expensed as incurred. Research and development expenses consist of costs incurred in performing research and development activities, including salaries, share-based compensation and benefits, travel, and external costs of outside vendors engaged to conduct clinical development activities, clinical trials and the cost to manufacture clinical trial materials.
Research Contract Costs, Prepayments and Accruals
The Company has entered into various research and development-related contracts with research institutions and other companies. These agreements are generally cancellable, and related payments are recorded as research and development expenses as incurred. The Company records prepayments and accruals for estimated ongoing research costs and receives updated estimates of costs and amounts owed on a monthly basis from its third-party service providers. When evaluating the adequacy of the prepayments and accrued liabilities, the Company analyzes progress of the studies or clinical trials, including the phase or completion of events, invoices received and contracted cost estimates from third-party service providers. Estimates are made in determining the prepaid and accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical prepayments and accrual estimates have not been materially different from the actual costs.
Share-Based Compensation
The Company accounts for all share-based payment awards granted to employees and non-employees as share-based compensation expense at fair value. The Company grants equity awards under its share-based compensation programs, which may include share options and restricted share units. The measurement date for employee and non-employee awards is the date of grant, and share-based compensation costs are recognized as an expense over the requisite service period, which is the vesting period, on a straight-line basis. Share-based compensation expense is classified in the accompanying condensed consolidated statements of operations and comprehensive loss based on the function to which the related services are provided.
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The Company recognizes share-based compensation expense for the portion of awards that have vested. Forfeitures are recorded as they occur.
On October 1, 2021, the Company launched the Share Incentive Plan, or the SIP, and Employee Share Purchase Plan, or the ESPP, through which employees can purchase shares at a discounted price. The Company estimates the fair value of stock options and shares to be issued under the SIP and ESPP using the Black-Scholes option-pricing model on the date of grant. The fair value of shares to be issued under these plans are recognized and amortized on a straight-line basis over the purchase period, which is generally six months.
There have been no performance conditions attached to the share options granted by the Company to date. The fair value of each share option grant is estimated on the date of grant using the Black-Scholes option pricing model. See Note 8 for the Company’s assumptions used in connection with option grants made during the periods covered by these condensed consolidated financial statements. Assumptions used in the option pricing model include the following:
Expected volatility. The Company lacks sufficient company-specific historical and implied volatility information for its ordinary shares. Therefore, it estimates its expected share volatility based on the historical volatility of publicly traded peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded share price.
Expected term. The expected term of the Company’s share options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options.
Risk-free interest rate. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods that are approximately equal to the expected term of the award.
Expected dividend. Expected dividend yield of zero is based on the fact that the Company has never paid cash dividends on ordinary shares and does not expect to pay any cash dividends in the foreseeable future. In addition, the Loan Agreement with Hercules currently prohibits dividends that may be declared or paid on our ordinary shares.
Fair value of ordinary shares. The fair value of ordinary shares is determined by reference to the closing price of ADSs on the Nasdaq Global Select Market on the day prior to or day of the grant.
Leases
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and current and non-current lease liabilities, as applicable. Entities may elect not to separate lease and non-lease components. The Company has elected to account for lease and non-lease components together as a single lease component for all underlying assets and to allocate all the contract consideration to the lease component only. All the Company’s leases are classified as operating leases.
Lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received. The interest rate implicit in lease contracts has historically not been readily determinable. As a result, the Company utilizes its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. As the Company does not have a rating agency-based credit rating, quotes were obtained from lenders to establish an estimated secured rate to borrow based on Company and market-based factors as of the respective lease measurement dates. The Company has elected not to recognize leases with an original term of one year or less on the balance sheets. The Company typically only includes the non-cancelable lease term in its assessment of a lease arrangement unless there is an option to extend the lease that is reasonably certain of exercise. Prospectively, the Company will adjust the right-of-use assets for straight-line rent expense or any incentives received and remeasure the lease liability at the net present value using the same incremental borrowing rate that was in effect as of the lease commencement or transition date.
Operating lease costs are recognized on a straight-line basis over the lease term, and they are categorized within research and development and general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss. The operating lease cash flows are categorized under net cash used in operating activities in the condensed consolidated statements of cash flows.
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Foreign Currency Translation
The functional currency is the currency of the primary economic environment in which an entity’s operations are conducted. On January 1, 2023, COMPASS Pathways plc and its wholly owned subsidiary COMPASS Pathfinder Holdings Limited changed their functional currency to the U.S. dollar. COMPASS Pathways plc and COMPASS Pathfinder Holdings Limited have no operating activities and their primary functions are to serve as a financing vehicle to fund the operations of the Company’s operating entities, to serve as the listing company needed to access U.S. capital markets, and to hold investments. Therefore, its financing source is the primary indicator of its cash flows and its functional currency. The change in functional currency from the British Pound Sterling is due to a change in the source of the Company’s financing and cash flows going forward, which will now primarily be U.S. Dollars (“USD”).
The functional currency of COMPASS Pathfinder Holdings Limited’s wholly owned non-U.S. subsidiary, COMPASS Pathfinder Limited, is British Pound Sterling and the functional currency of its U.S. subsidiary, COMPASS Pathways Inc. is USD. The functional currency of these subsidiaries is the same as the local currency.
The translated balances of monetary and non-monetary assets and liabilities recorded in the reporting entity’s condensed consolidated financial statements as of the end of the prior reporting period become the new accounting basis for those assets and liabilities in the period of the change. To the extent that the distinct and separable operation has monetary assets and liabilities denominated in the old functional currency, such balances will create transaction gains and losses subsequent to the change in functional currency. The balance recorded in the cumulative translation adjustment account for prior periods is not reversed upon the change in functional currency.
The Company translates the assets and liabilities of COMPASS Pathfinder Limited into USD at the exchange rate in effect on the balance sheet date. Income and expenses are translated at the average exchange rate in effect during the period. Unrealized translation gains and losses are recorded as a cumulative translation adjustment, which is included in the condensed consolidated statements of shareholders’ equity as a component of accumulated other comprehensive (loss)/income.
Income Taxes
The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the condensed consolidated financial statements or in its tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that deferred tax assets will be recovered in the future to the extent management believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.  
The Company accounts for uncertainty in income taxes in the condensed consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed as the amount of benefit to recognize in the condensed consolidated financial statements. The amount of benefit that may be used is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate, as well as the related net interest and penalties. As of September 30, 2023 and December 31, 2022, the Company has not identified any uncertain tax positions.
The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying condensed consolidated statements of operations and comprehensive loss. As of September 30, 2023 and December 31, 2022 no accrued interest or penalties are included on the related tax liability line in the condensed consolidated balance sheets.

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Benefit from Research and Development Tax Credit
As a company that carries out extensive research and development activities, the Company benefits from the UK research and development tax credit regime under the scheme for small or medium-sized enterprises, or SME. Under the SME regime, in effect through September 30, 2023, the Company is able to surrender some of its trading losses that arise from qualifying research and development activities for a cash rebate of a portion of such qualifying research and development expenditure. Up until April 1, 2023 the rate was 33.3% on in-house expenditures and 21.7% on work that was contracted out. On and after April 1, 2023, the rates reduced to 18.6% and 12.1%, respectively. New rules were announced in the UK Parliament Finance Act 2023 for an enhanced rate of relief for loss making research intensive SMEs, which would be 27.0% for qualifying expenditure and 17.5% for qualifying subcontracted expenditure. The legislation is not yet final, and therefore the Company is unable to determine whether it would meet the criteria for the enhanced rate of relief until the legislation and more detailed guidance has been published.
The Company meets the conditions of the SME regime. A large portion of costs relating to research and development, clinical trials and manufacturing activities are eligible for inclusion within these tax credit cash rebate claims.
The Company is subject to corporate taxation in the UK. Due to the nature of the business, the Company has generated losses since inception. The benefit from research and development, or R&D, tax credits is recognized in the condensed consolidated statements of operations and comprehensive loss as a component of other income, net, and represents the sum of the research and development tax credits recoverable in the UK.
The UK research and development tax credit is fully refundable to the Company and is not dependent on current or future taxable income. As a result, the Company has recorded the entire benefit from the UK research and development tax credit as a benefit which is included in net loss before income tax and accordingly, not reflected as part of the income tax provision. If, in the future, any UK research and development tax credits generated are needed to offset a corporate income tax liability in the UK, that portion would be recorded as a benefit within the income tax provision and any refundable portion not dependent on taxable income would continue to be recorded within other income, net.
The Company may not be able to continue to claim research and development tax credits under the SME regime in the future because it may no longer qualify as a small or medium-sized company. In addition, the EU State Aid cap limits the total aid claimable in respect of a given project to €7.5 million which may impact the Company’s ability to claim R&D tax credits in future. Further, the U.K. Finance Act of 2021 introduced a cap on credit claims under the SME Program in excess of £20,000 with effect from April 2021 by reference to, broadly, three times the total Pay As You Earn, or PAYE, and National Insurance Contributions, or NICs, liability of the company, subject to an exception which prevents the cap from applying. That exception requires the company to be creating, taking steps to create or managing intellectual property, as well as having qualifying research and development expenditure in respect of connected parties, which does not exceed 15% of the total claimed. If such exception does not apply, this could restrict the amount of payable credit that we claim.
Unsurrendered UK losses may be carried forward indefinitely to be offset against future taxable profits, subject to numerous utilization criteria and restrictions. The amount that can be offset each year is limited to £5.0 million plus an incremental 50% of UK taxable profits.
Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in shareholders’ equity that result from transactions and economic events other than those with shareholders. For the nine months ended September 30, 2023 and 2022, the only component of accumulated other comprehensive loss is foreign currency translation adjustment.
Net Loss per Share
The Company has reported losses since inception and has computed basic net loss per share attributable to ordinary shareholders by dividing net loss attributable to ordinary shareholders by the weighted-average number of ordinary shares outstanding for the period, without consideration for potentially dilutive securities. The Company computes diluted net loss per ordinary share after giving consideration to all potentially dilutive ordinary shares, including unvested restricted shares, outstanding options and warrants. Because the Company has reported net losses since inception, these potential ordinary shares have been anti-dilutive and basic and diluted loss per share were the same for all periods presented.
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Derivatives
The Company enters into foreign currency contracts to reduce the risk that its cash flows and earnings will be adversely affected by foreign currency exchange rate fluctuations. The Company does not enter into foreign currency contracts for speculative purposes. The Company recognizes derivative instruments, which do not qualify for hedge accounting, as either assets or liabilities on the balance sheet at fair value. The Company records changes in the fair value (gains or losses) of the derivatives in the accompanying condensed consolidated statements of operations and comprehensive loss as other income, net. The Company did not enter into any contracts during the nine months ended September 30, 2023. During the three months ended September 30, 2022, the Company entered into and settled a foreign forward agreement, resulting in a positive fair value change of $2.3 million in other income.
Long-term Debt
On June 30, 2023, the Company entered into the Loan Agreement with Hercules. The Company assessed all terms and features of the Loan Agreement in order to identify any potential embedded features that would require bifurcation. As part of this analysis, the Company assessed the economic characteristics and risks of the debt. The Company determined that all features of the Loan Agreement are clearly and closely associated with a debt host and, as such, do not require separate accounting as a derivative liability.
Debt issuance costs consist of costs incurred in obtaining long-term financing. These costs are classified on the condensed consolidated balance sheet as a direct deduction from the carrying amount of the related debt liability. These expenses are deferred and amortized as part of interest expense in the condensed consolidated statement of operations using the effective interest rate method over the term of the debt agreement.
Warrants
On June 30, 2023, the Company entered into a warrant agreement with Hercules. The Company assessed all terms and features of the Warrant Agreement in order to determine accounting classification of the warrants as equity or liability. As part of this analysis, the Company determined it appropriate to account for the warrants issued under the Loan Agreement as equity.
On August 18, 2023, in connection with the PIPE, the Company issued and sold PIPE Warrants to purchase up to 16,076,750 ADSs, each representing one ordinary share, at an exercise price of $9.93 per ADS. The PIPE Warrants are exercisable for a three year period beginning in February 2024. The Company assessed all terms and features of the PIPE Warrant Agreement in order to determine accounting classification of the warrants as equity or liability. As part of this analysis, the Company determined it appropriate to account for the PIPE Warrants as equity.
The Company measures warrants at inception at fair value using the Black-Scholes valuation model. Assumptions used in the warrant pricing model include the following:
Expected volatility. The Company lacks sufficient company-specific historical and implied volatility information for its ordinary shares. Therefore, it estimates its expected share volatility based on the historical volatility of publicly traded peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded share price.
Expected term. The expected term of the Hercules warrants is ten years. The expected term of the PIPE Warrants is three and a half years.
Risk-free interest rate. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of the issuance for time periods that are approximately equal to the expected term of the warrant.
Expected dividend. Expected dividend yield of zero is based on the fact that the Company has never paid cash dividends on ordinary shares and does not expect to pay any cash dividends in the foreseeable future. In addition, the Loan Agreement with Hercules currently prohibits, and any future debt financing arrangements may contain terms prohibiting or limiting the amount of, dividends that may be declared or paid on our ordinary shares.
Fair value of ordinary shares. The fair value of the warrants is determined by reference to the closing price of ADSs on the Nasdaq Global Select Market on the day of issuance.
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Recently adopted accounting pronouncements
There have been no recent accounting pronouncements, changes in accounting pronouncements or recently adopted accounting guidance during the three or nine months ended September 30, 2023 that are of significance or potential significance to the Company.
3. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
September 30,December 31,
20232022
UK R&D tax credit$23,424 $13,972 
Prepaid insurance premium156 2,818 
Prepaid research and development8,744 28,211 
VAT recoverable1,371 1,652 
Vendor receivable240  
Other current assets2,075 1,042 
$36,010 $47,695 

4. Long-term Prepaid Expenses and Other Assets
Long-term prepaid expenses and other assets consisted of the following (in thousands):
September 30,December 31,
20232022
Prepaid research and development - long-term
5,712  
Other assets
166 327 
$5,878 $327 
5. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
September 30,December 31,
20232022
Accrued research and development expense$1,767 $1,684 
Accrued professional expenses1,285 1,284 
Accrued compensation and benefit costs4,769 5,534 
Payroll tax payable 167 
Other liabilities1,177 656 
$8,998 $9,325 



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6. Debt
On June 30, 2023, the Company entered into the Loan Agreement with Hercules, which provided for aggregate maximum borrowings of up to $50.0 million, consisting of (i) a term loan of $30.0 million, which was funded on the Effective Date, (ii) subject to the Company achieving certain performance milestones and available until December 15, 2024, an additional term loan of $10.0 million, and (iii) subject to the approval of Hercules’ investment committee in its sole discretion, and available during the interest-only period, an additional term loan of $10.0 million.
The term loan will mature on July 1, 2027. The outstanding principal balance of the term loan bears interest at an annual rate equal to the greater of either (i) the prime rate as reported in The Wall Street Journal plus 1.50% or (ii) 9.75%. Accrued interest is payable monthly following the funding of each term loan. In addition to accrued interest, payment-in-kind (PIK) interest of 1.40% will be added to the balance of the loan. Payments under the Loan Agreement are interest only until the first principal payment is due on July 1, 2025 (or if the Borrowers achieve certain performance milestones, the interest only period may be extended to January 2, 2026 and, upon the achievement of certain additional performance milestones, the interest only period may be extended to July 1, 2026), followed by equal monthly payments of principal and interest through the scheduled maturity date, July 1, 2027.
The Company incurred fees and transaction costs totaling $3.3 million associated with the initial term loan, which are recorded as a reduction to the carrying value of the long-term debt in the condensed consolidated balance sheet. These fees included $0.4 million of facility fees, $0.8 million of company fees, $0.7 million in warrants, and $1.4 million of end of term charges. The fees, transaction costs, and the end of term charge are amortized to interest expense through the maturity date using the effective interest method. The effective interest rate of the Loan Agreement was 15.8% as of September 30, 2023.
The Company issued warrants to Hercules to purchase the Company’s Ordinary Shares equal to the quotient derived by dividing (i) the amount equal to (a) 2.5% times (b) the aggregate principal amount of term loan advances made and funded under the Loan Agreement by (ii) the exercise price of the warrants. Upon receipt of the first term loan, 94,222 shares became exercisable to Hercules with a fair market value of $0.7 million.

The Loan Agreement includes a financial covenant requiring us to maintain a minimum level of $22.5 million of cash during the period commencing on July 1, 2024 (subject to adjustment if certain performance milestones are met). If the Company meets the performance milestones, the minimum cash covenant will not apply if its market capitalization is at least $750.0 million. The Company was in compliance with all covenants of the Loan Agreement as of September 30, 2023.
Long-term debt consisted of the following (in thousands):
September 30,
2023
Term loan payable
$30,000 
End of term charge
1,425 
Future principal payments and end of term charge
$31,425 
PIK interest payable
109 
Unamortized debt issuance costs
(3,103)
Carrying value of long-term debt
$28,431 
Future principal payments, including End of Term Charge, are as follows (in thousands):
December 31, 2023 
December 31, 2024 
December 31, 20256,572 
December 31, 202614,166 
December 31, 202710,687 
Total$31,425 
Interest expense associated with the Loan Agreement for the nine months ended September 30, 2023 was $1.1 million.

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7. Shareholders’ Equity
Ordinary Shares
On October 8, 2021, the Company entered into a Sales Agreement with Cowen and Company, LLC, or Cowen, under which the Company may issue and sell from time to time up to $150.0 million of its ADSs, each representing one ordinary share, through Cowen as the sales agent. Sales of the Company’s ADSs, if any, will be made at market prices. Through September 30, 2023, we sold 2,982,038 ADSs, resulting in $28.6 million in net proceeds.
During the nine months ended September 30, 2023, the Company issued in total 162,560 ordinary shares to settle share options exercised by employees and non-employees compared to 461,772 in the nine months ended September 30, 2022.
During the nine months ended September 30, 2023, a total of 65,563 restricted share units vested, of which 43,314 were issued and 22,249 were settled. During the nine months ended September 30, 2023, a total of 52,216 ordinary shares were issued in settlement of restricted share units, of which 8,902 were vested and not issued at December 31, 2022 and 43,314 vested and were issued during the nine months ended September 30, 2023.
During the nine months ended September 30, 2022, a total of 72,738 ordinary shares were issued in settlement of restricted share units, of which 57,875 were vested and not issued at December 31, 2021 and 14,863 vested and were issued during the nine months ended September 30, 2022.
Deferred Shares
Immediately prior to the completion of the Company’s IPO in September 2020, the different classes of issued share capital of COMPASS Pathways plc were reorganized by way of a reverse share split, which was retroactively restated in our consolidated financial statements. As part of this reverse share split, the nominal value of COMPASS Pathways plc’s ordinary shares changed from £0.001 per share to £0.008 per share and a single, non-voting deferred share with a nominal value of £21,921.504 in the capital of the Company was created and transferred to the Company. On June 28, 2023, the single deferred share was cancelled.
Warrants
On June 30, 2023, the Company entered into a Warrant Agreement with Hercules, which provides Hercules with the right to purchase a number of shares of the Company’s Ordinary Shares equal to the quotient derived by dividing (i) the amount equal to (a) 2.5% times (b) the aggregate principal amount of term loan advances made and funded under the Loan Agreement by (ii) the exercise price. Upon receipt of each term loan, the Warrant will automatically become exercisable and will expire in 10 years (on June 30, 2033). On June 30, 2023, with the receipt of the first term loan, 94,222 shares became exercisable to Hercules with a fair market value of $0.7 million.

On August 18, 2023, in connection with the PIPE, the Company issued and sold warrants to purchase up to 16,076,750 ADSs, each representing one ordinary share, at a purchase price of $9.93 per ADS. The PIPE Warrants will become exercisable for a three year period beginning in February 2024.
8. Share-Based Compensation
2017 Equity Incentive Plan
Under the Company’s historical shareholder and subscription agreements, the Company was authorized to issue restricted shares, restricted share units, as well as options, as incentives to its employees, non-employees and members of its board of directors. To the extent such incentives were in the form of share options, the options were granted pursuant to the terms of the 2017 Equity Incentive Plan, or the 2017 Plan. In July 2019, the Company’s board of directors adopted the 2017 Plan. The 2017 Plan provided for the grant of Enterprise Management Incentive, or EMI, options, to its UK employees, for the grant of options to its U.S. employees and non-employees of the Company. The 2017 Plan was administered by the board of directors.
As of September 30, 2023, the Company was authorized to issue a total of 1,441,493 ordinary shares underlying outstanding options granted under the 2017 Plan prior to the IPO.
Options granted under the 2017 Plan, typically vest over a three or four-year service period with 33.3% and 25% respectively, of the award vesting on the first anniversary of the commencement date and the balance vesting monthly over the remaining years. Options granted under the 2017 Plan generally expire 10 years from the date of grant. Restricted share units granted under the 2017 Plan typically vest over a four-year service period with 25% of the award vesting on the first anniversary of the commencement date and quarterly thereafter.
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The options granted on June 30, 2020 were subject to 25% vesting upon the earlier occurrence of (i) the one year anniversary of the date of grant, or (ii) the date of the listing of the Company's ordinary shares on any stock exchange, followed by straight line vesting for three years for the remaining 75% of the allocation until vested in full.
The restricted share units granted on June 30, 2020 are subject to 25% vesting upon the earlier of (i) the one year anniversary of the date of grant, or (ii) the first day following the six-month anniversary of the listing of the Company's ordinary shares on any stock exchange on which the closing price of the shares is 20% higher than the listing price for at least five consecutive trading days.
2020 Employee Share Purchase Plan
The Company’s 2020 Employee Share Purchase Plan, or the ESPP, was adopted by the Board in September 2020 and approved by shareholders in September 2020 and became effective upon the effectiveness of the Company’s Registration Statement on Form F-1 in connection with the IPO. The ESPP initially reserved and authorized the issuance of up to a total of 340,053 ordinary shares to participating employees. The ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2022 and each January 1 thereafter through termination of the 2020 Plan, by the lesser of (i) 1% of the outstanding number of ordinary shares on the immediately preceding December 31, (ii) 510,080 ordinary shares or (iii) such lesser number of ordinary shares as determined by the plan administrator. The number of shares reserved under the ESPP is subject to change in the event of a share split, share dividend or other change in capitalization.
On October 1, 2021, the Company launched the SIP and the ESPP, through which employees can purchase shares at a discounted price. At the end of six months, shares will automatically be purchased at the lower of the opening and closing price of the shares for the saving period minus a 15% discount.
2020 Share Option Plan
In September 2020, the Company’s board of directors adopted, and the Company’s shareholders approved, the 2020 Share Option and Incentive Plan, or the 2020 Plan, which became effective upon the effectiveness of the Company’s Registration Statement on Form F-1 in connection with the IPO. The 2020 Plan allows the compensation and leadership development committee to make equity-based and cash-based incentive awards to the Company’s officers, employees, directors and other key persons (including consultants).
Options granted under the 2020 Plan generally expire 10 years from the date of grant and typically vest over a 4 year service period with 25% of the options vesting on the first anniversary of the commencement date and the balance vesting monthly over the remaining years.
The Company initially reserved 2,074,325 of its ordinary shares for the issuance of awards under the 2020 Plan. The 2020 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2022, by up to 4% of the outstanding number of ordinary shares on the immediately preceding December 31, or such lesser number of shares as determined by the compensation and leadership development committee. This number is subject to adjustment in the event of a sub-division, consolidation, share dividend or other change in our capitalization. The total number of ordinary shares that may be issued under the 2020 Plan is 5,460,391 shares as of September 30, 2023, of which 90,282 shares remained available for future grant.
The options granted in 2023 under the 2020 Plan to employees generally expire 10 years from the date of grant. There are three potential vesting conditions for the 2023 grants including: (i) 25% per year over four year service period, (ii) four year service period with 25% of the vesting on the first anniversary of the commencement date and the balance vesting monthly over the remaining years; and (iii) monthly vesting over four year service period.
During the nine months ended September 30, 2023 and 2022, the Company granted options to purchase 2,512,166 and 1,217,818 ordinary shares to employees and non-employees, respectively.



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2022 Inducement Option Award
On August 1, 2022, the Company granted to its new chief executive officer a non-qualified share option to purchase up to 600,000 ordinary shares as an inducement grant. The non-qualified share option has a 10 year term and vests one-fourth on August 1, 2023 and the remaining three-fourths in equal monthly installments over the following 36 months. The non-qualified share option has other terms that mirror those of non-qualified share options granted under the Company’s 2020 Plan and the Company’s standard form of non-qualified share option agreement.

Restricted Share Units
A summary of the changes in the Company’s unvested restricted share units during the nine months ended September 30, 2023 are as follows:
Number of SharesWeighted Average Grant Date Fair Value
Unvested and Outstanding as of December 31, 2022271,135 $12.23 
Granted175,750 $10.85 
Vested(65,563)$12.03 
Forfeited(13,630)$11.76 
Unvested and Outstanding as of September 30, 2023
367,692 $11.62 
As of September 30, 2023 and December 31, 2022, there was $3.5 million and $2.6 million of unrecognized compensation cost related to unvested restricted share units, respectively, which is expected to be recognized over a weighted-average period of 2.8 years and 3.0 years, respectively. The exercise price of restricted share units is at a nominal value less than $0.01 per share.

Share Options
The following table summarizes the Company’s share options activity for the nine months ended September 30, 2023:
Number of SharesWeighted Average Exercise PriceWeighted Average Remaining Contractual Term (Years)Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2022
5,092,732 $13.55 8.38$13,013 
Granted2,512,166 $9.78 
Exercised(162,560)$0.01 
Forfeited(487,578)$15.55 
Outstanding as of September 30, 2023
6,954,760 $13.29 8.24$11,406 
Exercisable as of September 30, 2023
3,126,497 $12.44 7.40$10,085 
Unvested as of September 30, 2023
3,828,263 $13.98 8.95$1,320 
The aggregate intrinsic value of options exercised during the nine months ended September 30, 2023 and 2022 was $1.4 million and $5.5 million, respectively.
The aggregate intrinsic value of share options is calculated as the difference between the exercise price of the share options and the fair value of the Company’s ordinary shares for those share options that had exercise prices lower than the fair value of the Company’s ordinary shares.
The weighted average grant-date fair value of share options granted was $7.85 and $10.29 per share during the nine months ended September 30, 2023, and 2022, respectively.
As of September 30, 2023 and 2022, there was $35.0 million and $30.7 million of unrecognized compensation cost related to unvested share options, which is expected to be recognized over a weighted-average period of 2.7 years and 3.0 years, respectively.
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Share Option Valuation
The weighted-average assumptions used in the Black-Scholes option pricing model to determine the fair value of the share options granted to employees and directors during the nine months ended September 30, 2023, and 2022 were as follows:
Three Months Ended September 30,Nine Months ended September 30,
2023202220232022
Expected option life (years)5.51 years6.08 years5.81 years5.94 years
Expected volatility87.59 %81.40 %87.67 %80.72 %
Risk-free interest rate4.34 %2.70 %3.59 %2.15 %
Expected dividend yield % % % %
Fair value of underlying ordinary shares$8.88$14.41$10.40$14.48

Share-based Compensation Expense
Share-based compensation expense recorded as research and development and general and administrative expenses is as follows (in thousands):
Three Months Ended September 30,Nine Months ended September 30,
2023202220232022
Research and development2,303 1,936 6,745 5,558 
General and administrative2,144 1,568 6,334 4,252 
Total share based compensation expense$4,447 $3,504 $13,079 $9,810 









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9. Net Loss Per Share
Basic and diluted net loss per share attributable to ordinary shareholders was calculated as follows (in thousands, except share and per share amounts):
Three Months Ended September 30,Nine Months ended September 30,
2023202220232022
Numerator
Net loss$(33,389)$(18,371)$(85,932)$(60,579)
Net loss attributable to ordinary shareholders - basic and diluted$(33,389)$(18,371)$(85,932)$(60,579)
Denominator
Weighted-average number of ordinary shares used in net loss per share - basic and diluted49,633,104 42,525,855 47,355,992 42,377,895 
Net loss per share - basic and diluted$(0.67)$(0.43)$(1.81)$(1.43)
The Company’s potentially dilutive securities, which include unvested ordinary shares, unvested restricted share units, options granted and warrants have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average number of ordinary shares outstanding used to calculate both basic and diluted net loss per share attributable to ordinary shareholders is the same. The Company excluded the following potential ordinary shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to ordinary shareholders for the three and nine months ended September 30, 2023 and 2022 because including them would have had an anti-dilutive effect:
Three Months Ended September 30,Nine Months ended September 30,
2023202220232022
Unvested restricted share units367,692 226,395 367,692 226,395 
Vested restricted share units, for which shares are not in issue 17,112  17,112 
Share options6,954,760 5,035,923 6,954,760 5,035,923 
Warrants16,170,972  16,170,972  
23,493,4245,279,43023,493,4245,279,430
10. Right of use of assets
New York, NY
In August 2022, the Company entered into a membership agreement with WeWork for rentable office space. The membership is cancellable with 90 days’ notice. This agreement is accounted for as a short-term lease as the Company is not reasonably certain to extend the lease beyond twelve months and is therefore not recognized on the Company’s condensed consolidated balance sheets.
Soho, London, UK
In July 2021, the Company entered into a two-year operating lease with Fora Space Limited commencing on September 1, 2021. The noncancellable term was 24 months and there was no option to extend the lease. The residency fee per month was £136,200, and the Company paid a refundable deposit of £136,200 at the execution of the agreement, which was fully applied to the new leases refundable deposit at the end of the lease term.
In April 2023, the Company entered into a two-year operating lease with Fora Space Limited commencing on September 1, 2023. The noncancellable term is 24 months and there is no option to extend the lease. The recurring residency fee per month is £130,000, and the Company paid a refundable deposit of £156,000 at the execution of the agreement.
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Denmark Hill, London, UK
In March 2022, the Company entered into an agreement for a lease with South London and Maudsley NHS Foundation Trust for land and buildings at 5 Windsor Walk, Maudsley Hospital, Denmark Hill, London, UK. The lease commenced on June 21, 2022 and has a contractual term of five years. The rent is £180,000 per year, with no deposit payable, and payment dates occurring once per quarter.
The following table summarizes the Company’s costs included in its condensed consolidated statements of operations and comprehensive loss related to right of use lease assets we have entered into through September 30, 2023 (in thousands):
Nine Months ended September 30,
20232022
Lease cost
Operating lease cost$1,705$1,718 
Short-term lease cost247111 
$1,952$1,829 
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases$1,689$1,679 
Right of use assets obtained in exchange for new operating lease liabilities3,675796 
Weighted average remaining lease term (in years)2.21.5
Weighted average discount rate8.49 %4.96 %
The following table summarizes the future minimum lease payments due under operating leases as of September 30, 2023, (in thousands):
December 31, 2023547 
December 31, 20242,172 
December 31, 20251,489 
December 31, 2026220 
December 31, 202755 
Total future minimum lease payments$4,483 
Less: imputed interest$(382)
Total$4,101 
11. Commitments and Contingencies
Legal Proceedings
From time to time, the Company may be a party to litigation or subject to claims incident to the ordinary course of business. The Company was not a party to any material litigation and did not have material contingency reserves established for any liabilities as of September 30, 2023 or 2022.
Indemnification
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.
In accordance with its Articles of Association, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company’s request in such capacity. There have been no claims to date, and the Company has director and officer insurance that may enable it to recover a portion of any amounts paid for future potential claims.
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12. Subsequent Events
In September 2023, the Company entered into a lease agreement for office space located in New York, New York, that was undergoing construction to get the space ready for use. The required improvements were subsequently completed in October 2023 and the space was made available for use, resulting in the lease commencing on October 9, 2023. The stated lease term is three years. Lease payments will be made on a monthly basis and increase approximately 3.5% each year over the lease term. The total commitment for lease payments over the stated term is $0.7 million. The lease agreement has a noncancellable lease term of 2 years due to a one-time termination option, which becomes effective following the two-year anniversary of the commencement date. If exercised, the Company would pay the landlord a termination fee equal to three months of the lease payments in effect at the time of termination.
On October 31, 2023, the Company terminated the membership agreement with WeWork for rentable office space in New York, NY. The Company is not required to pay any membership fees, for any period, following the termination date.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the related notes to those statements included earlier in this Quarterly Report on Form 10-Q. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Important factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in Part II, Item 1A. “Risk Factors” and the section titled “Special Note Regarding Forward-Looking Statements.”
References to “we,” “our,” “us” and “the Company” refer to COMPASS Pathways plc.
Operating Results
Overview
We are a biotechnology company dedicated to accelerating patient access to evidence-based innovation in mental health. We are motivated by the need to find better ways to help and empower people suffering with mental health challenges who are not helped by existing treatments, and are pioneering the development of a new model of psilocybin treatment, in which COMP360 psilocybin is administered in conjunction with psychological support, which we refer to as COMP360 psilocybin treatment.

Our initial focus is on treatment-resistant depression, or TRD, comprising patients who are inadequately served by the current treatment paradigm. Early signals from academic studies, using formulations of psilocybin not developed by us, have shown that psilocybin treatment may have the potential to improve outcomes for patients suffering with TRD, with rapid reductions in depression symptoms and effects lasting up to six months, after administration of a single high dose. In 2018, we received Breakthrough Therapy designation from the FDA for COMP360 for the treatment of TRD. In 2019, we completed a Phase 1 clinical trial administering COMP360, along with psychological support, to 89 healthy volunteers. In this trial, we observed that COMP360 was generally well-tolerated and supported continued progression of Phase 2b studies. We also demonstrated the feasibility of administering COMP360 psilocybin to up to six healthy participants simultaneously, with 1:1 support.

In November 2021, we announced positive topline results from our Phase 2b clinical trial evaluating COMP360 in conjunction with psychological support for the treatment of TRD. On November 3, 2022, The New England Journal of Medicine, the world’s leading peer-reviewed medical journal, published the positive results from our Phase 2b trial. This is the largest, randomized, controlled, double-blind psilocybin treatment clinical trial completed to date. The objective of the phase 2b study was to evaluate the efficacy and safety of a single dose of investigational COMP360 psilocybin (25mg or 10mg), compared to 1mg, in patients with TRD. The topline results from the 233-participant trial showed a rapid and sustained response for patients receiving a single 25mg dose of COMP360 psilocybin administered with psychological support, with 29.1% of participants in remission by week 3 (p<0.002). The trial achieved its primary endpoint for the 25mg dose, with a 25mg dose of COMP360 demonstrating a statistically significant (p<0.001) and clinically relevant treatment difference against the 1mg dose of COMP360 in reducing depressive symptom severity after three weeks.

We are conducting our Phase 3 program evaluating our COMP360 psilocybin treatment in TRD. The Phase 3 program is composed of two pivotal trials, each with a long-term follow-up component. The pivotal program design is as follows:

Pivotal trial 1 (COMP005) (n=255): a single dose (25mg) monotherapy compared with placebo. This trial is designed to replicate the treatment response seen in the Company’s Phase 2b trial (n=233). We expect top-line data in summer of 2024.

Pivotal trial 2 (COMP006) (n= 568): a fixed repeat dose monotherapy using three dose arms: 25mg, 10mg and 1mg. This trial is designed to investigate whether a second dose can increase treatment responders and/or improve responses observed in our Phase 2b trial and explore the potential for a meaningful treatment response from repeat administration of COMP360 10mg. We expect top-line data by mid-2025.

The primary endpoint in both pivotal trials is the change from baseline in the Montgomery–Åsberg Depression Rating Scale (MADRS) total score at week 6.
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During the first quarter of 2023, we commenced a Phase 2 (n=102) study to investigate the safety and tolerability of COMP360 psilocybin treatment in patients with major depressive disorder, or MDD. In addition, pharmacokinetics and efficacy of COMP360 psilocybin treatment will be investigated. We expect to submit the results of this study as part of our submission package for approval of COMP360 psilocybin treatment in TRD.

Beyond TRD, we have ongoing Phase 2 trials in anorexia nervosa and PTSD.

Since our formation, we have devoted substantially all of our resources to conducting preclinical studies and clinical trials, organizing and staffing our company, business planning, raising capital and establishing our intellectual property portfolio. We do not have any therapeutic candidates approved for sale and have not generated any revenue. We have funded our operations to date primarily with proceeds from the sale of convertible preferred shares, convertible loan notes, our initial public offering, or IPO, and our follow-on offering, of American Depositary Shares, or ADSs, representing our ordinary shares in September 2020 and May 2021, respectively. Through September 30, 2023, we had received net cash proceeds of $116.4 million from sales of our convertible preferred shares and convertible loan notes, $132.8 million from sales of ADSs in our IPO and $154.8 million from sales of ADSs in our Follow-On Offering. In October 2021, we entered into a Sales Agreement with Cowen and Company, LLC, under which we may issue and sell from time to time up to $150.0 million of our ADSs at market prices, which we refer to as our ATM Facility. Through September 30, 2023 we sold 2,982,038 ADSs under our ATM Facility, resulting in $28.6 million in net proceeds. On June 30, 2023, we entered into the Loan Agreement with Hercules, which provided for aggregate maximum borrowings of up to $50.0 million, consisting of a term loan of $30.0 million, which was funded on June 30, 2023 and two additional tranches of $10.0 million each, which subject to certain conditions may become available to us.

On August 16, 2023, we entered into a securities purchase agreement, pursuant to which we agreed to sell and issue in the PIPE (i) 16,076,750 ADSs and (ii) (ii) PIPE Warrants to purchase up to 16,076,750 ADSs, at a purchase price of approximately $7.78 per ADS and accompanying PIPE Warrant to purchase one ADS. Each PIPE Warrant has an exercise price of $9.93 per ADS and is exercisable for a three year period beginning in February 2024. The PIPE Warrants may be exercised on a cashless basis if there is no effective registration statement registering the shares underlying the PIPE Warrants.

COMPASS received $116.9 million in net proceeds, and will receive up to an additional approximately $159.6 million in gross proceeds if the PIPE Warrants are fully exercised. The PIPE Warrants may be exercised on a cashless basis if there is no effective registration statement registering the shares underlying the PIPE Warrants.

We have incurred significant operating losses since our inception. We incurred total net losses of $85.9 million and $60.6 million for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, we had an accumulated deficit of $347.1 million. Our historical losses resulted principally from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. In the future, we intend to continue to conduct research and development, preclinical testing, clinical trials, regulatory compliance, market access, commercialization and business development activities that, together with anticipated general and administrative expenses, will result in incurring further significant losses for at least the next several years. Our operating losses stem primarily from development of our investigational COMP360 psilocybin treatment for TRD, and we expect they will continue to increase as we conduct our Phase 3 program in TRD for our investigational COMP360 psilocybin treatment candidate and conduct our Phase 2 studies for anorexia nervosa and PTSD and, potentially including expanding into additional indications, and initiating preclinical and clinical development of additional programs for different therapeutic candidates, as well as using digital technologies and solutions to enhance our therapeutic offering. Furthermore, since the completion of our IPO, we have incurred, and expect to continue to incur, significant costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from sales of therapeutic candidates, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements.

Our ability to raise additional funds may also be adversely impacted by macroeconomic conditions and disruptions to and volatility in the credit and financial markets in the United States and worldwide, such as those resulting from fluctuating interest rates and rates of inflation and foreign exchange fluctuations, instability in the banking system, a potential government shutdown in the United States, potential recessions in any of the regions or countries in which we operate, geopolitical tensions from the ongoing war between Ukraine and Russia and the Israel-Hamas war and changing conditions resulting from public health crises. Our inability to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies. There can be no assurances, however, that our current operating plan will be achieved or that additional funding will be available on terms acceptable to us, or at all.
As of September 30, 2023, we had cash and cash equivalents of $248.0 million. We believe that our existing cash and cash equivalents, will be sufficient for us to fund our operating expenses and capital expenditure requirements into late 2025.
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We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “—Liquidity and Capital Resources—Funding Requirements” below.
Macroeconomic Conditions
We continue to monitor current macroeconomic and geopolitical events, including, among others, fluctuating inflation and interest rates, instability in the banking system and the related impact on U.S. and global economies, fluctuations in foreign exchange rates, the potential for a government shutdown in the United States, the risk of economic slowdown or recession in the United States and geopolitical tensions from the ongoing war between Ukraine and Russia and the Israel-Hamas war, for any potential impact that these or other events or conditions may have on our business.
Components of Our Results of Operations
Revenue
To date, we have not generated any revenue and do not expect to generate any revenue from the sale of therapeutic candidates in the foreseeable future. If our development efforts for our investigational COMP360 psilocybin treatment are successful and result in regulatory approval of COMP360, we may generate revenue in the future.
Operating Expenses
Research and Development
Research and development expenses consist primarily of:
• development costs, including expenses incurred under agreements with contract research organizations, or CROs, and contract management organizations, or CMOs, investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services, as well as manufacturing scale-up expenses and the cost of acquiring and manufacturing materials for preclinical studies and clinical trials and laboratory and trial site supplies and equipment;
• personnel expenses, including salaries, related benefits and travel expense for employees engaged in research and development functions;
• non-cash share-based compensation expenses resulting from equity awards granted to employees engaged in research and development functions; and
• other expenses, including costs of outside consultants, including their fees and related travel expenses, allocated facility-related expenses such as direct depreciation costs, allocated expenses for rent and maintenance of facilities and other operating costs.
We expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our condensed consolidated financial statements as a prepaid expense or accrued research and development expenses.
Research and development activities are central to our business model. Product or therapeutic candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials and related product manufacturing expenses. As a result, we expect that our research and development expenses will continue to increase over the next several years as we: (i) seek to complete the clinical development for our investigational COMP360 psilocybin treatment for TRD; (ii) fund research for our investigational COMP360 psilocybin treatment in other neuropsychiatric indications, including anorexia nervosa and PTSD; (iii) seek to develop digital technologies to complement and augment our treatments, and seek to access other novel drug candidates for development in neuropsychiatric and related indications; (iv) improve the efficiency and scalability of our third-party manufacturing processes and supply chain; and (v) build our third-party or in-house process development, analytical and related capabilities, increase personnel costs and prepare for regulatory filings related to our potential or future therapeutic candidates.

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The successful development and commercialization of our investigational COMP360 psilocybin treatment is highly uncertain. This is due to the numerous risks and uncertainties associated with development and commercialization, including the following:
successful enrollment in and completion of clinical trials and preclinical studies, including our Phase 3 clinical trials in TRD;
sufficiency of our financial and other resources to complete the necessary preclinical studies and clinical trials and our ability to raise capital on favorable terms or at all;
receiving regulatory approvals or clearance for conducting our planned clinical trials or future clinical trials;
receiving positive data from our clinical trials that support an acceptable risk-benefit profile of COMP360 psilocybin treatment and any future therapeutic candidates in the intended populations;
receipt and maintenance of regulatory and marketing approvals from applicable regulatory authorities;
establishing and scaling up, through third-party manufacturers, manufacturing capabilities of clinical supply for our clinical trials and commercial manufacturing, if any therapeutic candidates are approved;
entry into collaborations to further the development of our investigational COMP360 psilocybin treatment and our future therapeutic candidates;
obtaining and maintaining patent and trade secret protection or regulatory exclusivity for COMP360 and any future therapeutic candidates;
successfully launching commercial sales of our investigational COMP360 psilocybin treatment and any future therapeutic candidates, if approved;
acceptance of our current and future therapeutic candidates’ benefits and uses, if approved, by patients, the medical community and third-party payors; and
maintaining a continued acceptable safety profile of our investigational COMP360 psilocybin treatment and our future therapeutic candidates following approval.
A change in the outcome of any of these variables, amongst others, with respect to the development of our investigational COMP360 psilocybin treatment in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of our investigational COMP360 psilocybin treatment. For example, if the FDA, the European Medicines Agency, or EMA, the Medicines and Healthcare products Regulatory Agency, or MHRA, or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect, or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to commit significant additional financial resources and time on the completion of clinical development of that therapeutic candidate.
General and Administrative
General and administrative expenses consist primarily of:
personnel expenses, including salaries and related benefits, travel and other expenses incurred by personnel in certain executive, finance and administrative functions;
non-cash share-based compensation expenses resulting from the equity awards granted to employees engaged in certain executive, finance and administrative functions;
legal and professional fees, including consulting, accounting and audit services; and
facilities and other expenses, including depreciation costs, allocated expenses for rent and maintenance of facilities, director and officer insurance and other operating costs.
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We anticipate that our general and administrative expenses will continue to be significant in order to support our continued research activities and development of our investigational COMP360 psilocybin treatment.
We also anticipate we will continue to incur significant accounting, audit, legal, regulatory and compliance costs, as well as investor and public relations expenses associated with being a public company. Additionally, if and when we believe a regulatory approval of a therapeutic candidate appears likely, we anticipate an increase in payroll and other expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our therapeutic candidate.
Other Income, Net
Other Income, Net
Other income, net relates to interest earned on cash balances.
Interest Expense
Interest expense relates to interest paid on debt.
Foreign exchange (losses)/gains
Foreign exchange (losses)/gains consist of foreign exchange impacts arising from foreign currency transactions, primarily related to the translation of intercompany balances as a result of a change in our functional currency, as well as bank balances held in a foreign currency
Benefit from Research and Development Tax Credit
Benefit from R&D tax credit consists of the R&D tax credit received in the UK, which is recorded within other income, net. As a company that carries out extensive research and development activities, we seek to benefit from the Small and Medium Enterprise, or SME, Program. Qualifying expenditures largely comprise employment costs for research staff, consumables, a proportion of relevant, permitted sub-contract costs and certain internal overhead costs incurred as part of research projects for which we do not receive income.
Based on criteria established by His Majesty’s Revenue and Customs, or HMRC, a portion of expenditures being recognized in relation to our pipeline research and development, clinical trial management and third-party manufacturing development activities were eligible for the SME regime for the nine months ended September 30, 2023 and 2022. We expect such elements of expenditure will also continue to be eligible for the SME regime for future accounting periods.
The UK R&D tax credit is fully refundable to us and is not dependent on current or future taxable income. As a result, we have recorded the entire benefit from the UK research and development tax credit as a benefit which is included in our net loss before income tax and, accordingly, not reflected as part of the income tax provision. If, in the future, any UK R&D tax credits generated are needed to offset a corporate income tax liability in the UK, that portion would be recorded as a benefit within the income tax provision and any refundable portion not dependent on taxable income would continue to be recorded within other income, net.
Income Tax Expense
We are subject to corporate taxation in the United States and the UK. Due to the nature of our business, we have generated losses since inception and have therefore not paid UK corporation tax. Our income tax expense represents only income taxes in the United States.
Unsurrendered UK losses may be carried forward indefinitely and may be offset against future taxable profits, subject to numerous utilization criteria and restrictions. The amount that can be offset each year is limited to £5.0 million plus an incremental 50% of UK taxable profits. After accounting for tax credits receivable, we had accumulated trading losses for carry forward in the UK of $176.9 million and $144.0 million as of December 31, 2022 and 2021, respectively, which is offset by a full valuation allowance.
During the nine months ended September 30, 2023 and 2022, the Company recorded a tax provision of $0.4 million and $0.3 million, related to our income tax obligations of its operating company in the US, which generates a profit for tax purposes.
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Results of Operations
Comparison For The Nine Months Ended September 30, 2023 and 2022
The following table summarizes our results of operations for the nine months ended September 30, 2023 and 2022 (in thousands):
Nine Months ended September 30,
20232022Change
OPERATING EXPENSES:
Research and development$60,379 $45,259 $15,120 
General and administrative38,135 32,953 5,182 
Total operating expenses98,514 78,212 20,302 
LOSS FROM OPERATIONS(98,514)(78,212)(20,302)
OTHER INCOME, NET:
Other income, net2,463 3,580 (1,117)
Interest expense
(1,080)— (1,080)
Foreign exchange gains2,064 4,387 (2,323)
Benefit from R&D tax credit9,521 9,982 (461)
Total other income, net12,968 17,949 (4,981)
Loss before income taxes(85,546)(60,263)(25,283)
Income tax expense(386)(316)(70)
Net loss$(85,932)$(60,579)$(25,353)
Research and Development
The table below summarizes our research and development expenses incurred for the nine months ended September 30, 2023 and 2022 (in thousands):
Nine Months ended September 30,
20232022Change
Development expenses$32,540 $22,190 $10,350 
Personnel expenses16,997 12,265 4,732 
Non-cash share-based compensation expense6,745 5,558 1,187 
Other expenses4,097 5,246 (1,149)
Total research and development expenses$60,379 $45,259 $15,120 
Research and development expenses increased by $15.1 million to $60.4 million for the nine months ended September 30, 2023, from $45.3 million for the nine months ended September 30, 2022. The increase in research and development expenses was primarily attributable to:
an increase of $10.4 million in external development expenses, which primarily related to increases of $9.0 million in clinical trial expenses, $1.6 million in preclinical expenses and $0.1 million in drug development expenses, partially offset by a decrease of $0.3 million in digital expenses;
an increase of $4.7 million in personnel expenses, primarily as a result of hiring additional personnel in our research and development departments to support the expansion of our digital, preclinical and clinical teams; and
an increase of $1.2 million in non-cash share-based compensation expense due to increased staffing levels year over year; offset by:
a decrease of $1.1 million in other expenses, which was primarily related to decreases in external consulting fees compared to the prior period.
We expect research and development expenses to continue to increase substantially in the near future, consistent with our plan to continue to advance our Phase 3 program for COMP360 psilocybin treatment in TRD.
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General and Administrative
The following table summarizes our general and administrative expenses for the nine months ended September 30, 2023, and 2022 (in thousands):
Nine Months ended September 30,
20232022Change
Personnel expenses$14,219 $11,643 $2,576 
Non-cash share-based compensation expense6,334 4,252 2,082 
Legal and professional fees7,726 9,232 (1,506)
Facilities and other expenses9,856 7,826 2,030 
Total general and administrative expenses$38,135 $32,953 $5,182 
General and administrative expenses increased by $5.2 million to $38.1 million for the nine months ended September 30, 2023 from $33.0 million for the nine months ended September 30, 2022. The increase in general and administrative expenses was primarily attributable to the following:
an increase of $2.6 million in personnel expenses, primarily due to an increase in staffing levels related to the hiring of additional personnel in general, administrative and commercial departments to support our growth initiatives;
an increase of $2.1 million in non-cash share-based compensation expense due to increased staffing levels year over year; and
an increase of $2.0 million in facilities and other expenses, primarily attributable to an increase of $0.8 million in banking fees, $0.7 million in expenses associated with our Centers of Excellence, $0.6 million in subscription and membership expenses and $0.3 million in rent and office related expenses, offset by a decrease of $0.4 million in company insurance expenses, offset by:
a decrease of $1.5 million in legal and professional fees, primarily related to a decrease in advisory fees partially offset by increases in legal and accounting fees.
We expect to continue to incur significant general and administrative expenses as a result of ongoing requirements as a public company, in addition to ongoing general and administrative support for research and development growth initiatives.
Other Income, Net
Other income, net
Other income, net was $2.5 million for the nine months ended September 30, 2023 and $3.6 million for the nine months ended September 30, 2022. The decrease in other income primarily related to a gain on derivatives in the prior year, partially offset by increased interest income as a result of higher interest rates on cash deposits.
Interest expense
Interest expense was $1.1 million for the nine months ended September 30, 2023 and nil for the nine months ended September 30, 2022. The increase is related to the Loan Agreement with Hercules entered into on June 30, 2023.
Foreign exchange (losses)/gains
Foreign exchange gains decreased by $2.3 million to a gain of $2.1 million for the nine months ended September 30, 2023 from a gain of $4.4 million for the nine months ended September 30, 2022, primarily related to the translation of intercompany balances as a result of a change in functional currency and translation of bank balances held in a foreign currency. As our operating model and business develops we will continue to monitor and assess our legal entity structure, the predominant currency of our future cash outflows and the continuing impact of foreign exchange rates on our results of operations.
Benefit from Research and Development Tax Credit
During the nine months ended September 30, 2023 and 2022, we recognized an R&D tax credit in the UK as a benefit within other income, net of $9.5 million and $10.0 million, respectively. Research and development expenses increased, however, the tax credit receivable decreased by $0.5 million in 2023 compared to 2022 due to a reduction in the R&D tax relief rates. Up until April 1, 2023, the rate was 33.3% on in-house expenditures and 21.7% on work that was contracted out. On and after April 1, 2023, the rates reduced to 18.6% and 12.1%, respectively.
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Income tax expense
The income tax expense was $0.4 million for the nine months ended September 30, 2023 and $0.3 million for the nine months ended September 30, 2022. The income tax expense was related to income tax obligations of our operating company in the United States, which generates a profit for tax purposes.
Results of Operations
Comparison For The Three Months Ended September 30, 2023 and 2022
The following table summarizes our results of operations for the three months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended September 30,
20232022Change
OPERATING EXPENSES:
Research and development$21,526 $13,977 $7,549 
General and administrative12,536 11,559 977 
Total operating expenses34,062 25,536 8,526 
LOSS FROM OPERATIONS(34,062)(25,536)(8,526)
OTHER INCOME, NET:
Other income, net1,127 3,206 (2,079)
Interest expense
(1,080)— (1,080)
Foreign exchange gains(1,997)1,096 (3,093)
Benefit from R&D tax credit2,685 2,983 (298)
Total other income, net735 7,285 (6,550)
Loss before income taxes(33,327)(18,251)(15,076)
Income tax expense(62)(120)58 
Net loss$(33,389)$(18,371)$(15,018)

Research and Development
The table below summarizes our research and development expenses incurred for the three months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended September 30,
20232022