Compass Pathways faces major challenges: what this means for the psychedelic industry

Economic pressures and shifting public perceptions signal a turning point for for-profit psychedelic companies like compass pathways.

In a dramatic turn of events for the burgeoning psychedelic therapy industry, compass pathways, a for-profit biotech company, has announced a series of significant setbacks. The company is laying off 30% of its workforce and delaying phase 3 trials for its flagship drug, comp360, a synthetic psilocybin treatment for treatment-resistant depression. This announcement caused compass pathways’ shares to plummet by 35%, sending shockwaves through the psychedelic sector and raising concerns about the sustainability of its economic model.

The setbacks follow a broader trend in the industry, with the fda’s earlier rejection of mdma-assisted therapy applications highlighting the growing scrutiny these treatments face. The question now arises: has the hype bubble surrounding psychedelic medicine burst, leaving companies like compass pathways grappling with investor skepticism and operational challenges?

Compass pathways emerged as a trailblazer in the psychedelic field, developing comp360 to address severe cases of depression. The company gained attention in 2018 when it became the first to secure “breakthrough therapy” designation from the fda for psilocybin—a significant milestone that fast-tracked its drug development process.

However, its journey has not been without controversy. Critics from the grassroots psychedelic movement have accused compass of monopolistic practices, citing its broad patent applications that aimed to control everything from psilocybin use in mental health treatments to specific therapy settings involving “mood lighting” and “soft furniture.”

Prominent figures in the industry, such as david bronner, ceo of dr. bronner’s, publicly criticized compass for allegedly opposing oregon’s measure 109, a landmark initiative that legalized psilocybin-assisted therapy. In a 2021 blog post, bronner condemned the company’s attempts to “lock up psychedelic therapy inside the fda medical pharma model,” arguing that such actions undermined the spirit of the movement.

Despite its early promise, compass pathways has struggled financially. By september 2024, the company had accumulated losses of $491.4 million, including a $38.5 million loss in q3 alone. In response, the company announced a strategic reorganization, focusing exclusively on completing its comp360 phase 3 trials while halting all other projects.

Key components of this restructuring include:

• Delaying phase 3 trial results to the second quarter of 2025.
• Exploring the sale of digital technologies and intellectual property.
• Laying off senior management, including the chief legal officer and chief communications officer.

Compass’ financial struggles underscore the broader challenges of developing novel treatments within a high-cost, heavily regulated industry.

A significant obstacle compass faces is the issue of functional unblinding, where participants in clinical trials can discern whether they received a placebo or the active drug. This issue contributed to the fda’s recent rejection of mdma-assisted therapy applications from another psychedelic company, lykos therapeutics.

To address these concerns, compass has incorporated safeguards into its trial design:

• Using three dose levels of psilocybin (25mg, 10mg, and 1mg).
• Recruiting participants with no prior psychedelic experience, minimizing potential biases.

Nonetheless, the company’s decision to delay its phase 3 trials signals ongoing difficulties in meeting the fda’s stringent requirements.

Compass pathways’ struggles highlight a critical juncture for the psychedelic field. As one of the first for-profit companies to embrace psychedelic drug development, compass helped pave the way for mainstream acceptance. However, its current challenges reflect broader issues:

• Investor sentiment: early enthusiasm for psychedelic medicine is giving way to skepticism, with investors demanding clearer evidence of efficacy and profitability.
• Regulatory hurdles: the fda’s heightened scrutiny underscores the complexities of bringing psychedelic treatments to market, particularly regarding trial design and placebo control.
• Economic pressures: the high costs of drug development are forcing companies to streamline operations, raising questions about the viability of large-scale commercialization.

The setbacks experienced by compass pathways may also signal a changing public perception of psychedelic medicine. Once heralded as a revolutionary solution to mental health crises, these therapies are now viewed with increasing caution. Critics argue that for-profit companies risk prioritizing profits over accessibility and ethical considerations, undermining the transformative potential of psychedelics.

However, there remains hope that lessons learned from compass’ challenges could inform future efforts to balance innovation with integrity.

While the road ahead for compass pathways is fraught with uncertainty, its journey offers valuable insights for the broader psychedelic industry:

• Transparency and collaboration: engaging with grassroots movements and addressing public concerns about monopolistic practices could rebuild trust.
• Focused innovation: by concentrating resources on resolving regulatory hurdles, companies can demonstrate their commitment to developing safe, effective treatments.

Sustainable models: exploring non-profit or hybrid approaches may align more closely with the values of the psychedelic movement, ensuring these therapies remain accessible to those in need.