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On Monday, Rodman & Renshaw maintained a Buy rating on Compass Pathways (NASDAQ:CMPS) but significantly reduced the 12-month price target from $30 to $9 per share. The adjustment follows the company's announcement of a financing plan that could raise up to $355 million, earmarked for completing its COMP360 pivotal trials in treatment-resistant depression (TRD).
The financing initiative led to a recapitalization of Compass Pathways, which included issuing 24,014,728 American Depositary Shares (ADSs) and, for certain institutional investors, pre-funded warrants to purchase up to 11,044,720 ADSs. Each ADS and pre-funded warrant comes with a warrant to buy one more ADS at an exercise price of $5.796, which is a 40% premium over the last sale price and will become exercisable after a certain data milestone is reached.
Compass Pathways set the offering price at $4.275 per ADS and accompanying ADS Warrant, and $4.2649 per pre-funded warrant and accompanying ADS Warrant. This offering could double the company's share count from 68 million to over 140 million shares, with the potential limitation to the stock's upside since half of the outstanding shares could be purchased at prices ranging from $4.26 to $5.8 per share.
Despite this dilution, Rodman & Renshaw sees a silver lining as Compass Pathways is expected to have around $400 million in cash reserves by the end of the second quarter of 2025. This financial security comes ahead of the anticipated announcement of results from the first Phase 3 trial of COMP360. However, the firm has adjusted the projected timeline for the commercial launch of COMP360 in the United States from 2027 to 2029 due to enrollment delays.
The revised price target reflects a decrease in the estimated risk-adjusted net present value of cash flows for COMP360, which has been adjusted from $2.6 billion to $1.3 billion. Despite the reduced price target, the firm's Buy rating indicates a continued positive outlook on Compass Pathways' prospects. Based on InvestingPro's Fair Value analysis, the stock appears fairly valued at current levels. Discover detailed valuation metrics and access the comprehensive Pro Research Report, available for CMPS and 1,400+ other US stocks, to make more informed investment decisions.
In other recent news, Compass Digital Acquisition Corp. has issued a $2.5 million promissory note to its sponsor, HCG Opportunity (SO:FTCE11B), LLC, to cover working capital expenses. The note carries no interest and is set to be repaid upon the completion of the company's initial business combination or liquidation. In related news, Compass Pathways has faced significant developments, with Canaccord Genuity, H.C. Wainwright, and RBC Capital Markets adjusting their price targets on the company's stock due to delays in the expected launch of its COMP360 product. Despite the delays, all three firms maintain a positive outlook on the stock. Compass Pathways also reported a cash burn of $35.8 million for Q3 2024, despite a $13.6 million R&D tax credit. These are recent developments that have significant implications for the respective companies and their investors.
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