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Hi Friend,

Happy Labor Day weekend. It's here. It's been a marathon week, and I'm excited to get to the weekend. Here we go.  

Today's Contents:

  • Burning Down the Market
  • Psychedelics Go Public
  • Reading/Links

Weekly Song: Burning Down The House

 

Say it is 1990. You’re a man in your early thirties. Two kids. You LOVE the Talking Heads. They are your favorite band. Your wife? She’s more of a Van Morrison or Hootie and the Blowfish type. Not a fan of David Byrne. What do you do? 

You wait until she has a late shift as a nurse in the intensive care unit. The instant she leaves, you bee-line for your records. Kids: It’s not bedtime yet. We're going to “stay up late.” 

‘Burning down the house’, the anthem of my childhood, is a fun song. I wouldn’t call the lyrics meaningless, but they are certainly lacking a narrative arc. The album is called Speaking in Tongues, and the promotional tour was called Stop Making Sense. Songwriter-singer David Bryne has said his creative process is writing down fragments he likes and then stringing pieces together that just sound good. 'Burning Down The House' just sounds good.

There is one thing that won't be burned down this weekend. And that's the man at Burning Man. Nope, Burning Man 2020 is a casualty of Covid-19 as with so many other things. So, in its place, I share with you one of my favorite Burning Man stories: The Old Man at Burning Man. Written brilliantly by Wells Tower and featuring my college economics thesis advisor and avid Declarative Statements reader. Enjoy. 

Burning Down The House by The Talking Heads

Watch out, you might get what you're after
Cool babies, strange but not a stranger
I'm an ordinary guy
Burning down the house

Hold tight
Wait 'til the party's over
Hold tight
We're in for nasty weather
There has got to be a way

Burning down the house

Declarative Statements Spotify Playlist

Burning Down the Market


Yes, yes. We know that stock prices on a daily basis do not matter. But it's still fun to follow along. Does the late week Nasdaq meltdown matter? Who knows. No one can time the market. Here are a couple of notable markets stories from the week. 

What was a large factor contributing to the run-up of the Nasdaq in August? As reported by the FT, SoftBank is the “Nasdaq whale” that has bought billions of dollars worth of US equity derivatives in a series of trades that stoked the fevered rally in big tech stocks before a sharp pullback on Thursday and Friday, according to people familiar with the matter. 



Will Tesla be included in the S&P Index? No! Late afternoon post-market close ruling by the S&P Index committee. Tesla out. Online retailer Etsy, semiconductor equipment manufacturer Teradyne, and medical technology firm Catalent were added, replacing H&R Block, Coty and Kohl’s. There's a committee? It's a friendly reminder that these indices are not as rules-based as they may appear. Why wasn't Tesla included this quarter? Might have something to do with the fact that the net profits come 'regulatory credit revenue'. What's that? Explained here.


IPO Facts.


SPACs dominate the IPO pipeline. Of 27 IPOs that joined the pipeline last week, nine of them were SPACs.  A third. In this case, that's a lot. 

Tech IPO performance is complicated. Check out this cool infographic from Visual Capitalist. Their bottom line: Even when adjusting for the broader market performance, tech IPOs have been solid in comparison to the offer price. The challenge is that if investors are buying stock after that first-day market bump, they may have already missed out on meaningful gains.  As you can see below: 2019 wasn't a great year cumulatively for Tech IPOs (thanks mostly to ride sharing)



Not all Tech IPOs work out. In fact, Rocket Internet, the German conglomerate, delisted this week. I was wondering why I was being shown promoted images of their Nasdaq IPO a few weeks back. Advertising on Twitter? Always do your research, friends. 

Rocket Internet to buy shares at €18.57 (56% below IPO price of €42.5 in 2014) in delisting offer. Rocket entered into qualified non-tender agreements w/ Global Founders, which holds 45.11% and w/Oliver Samwer who holds 4.53% so that Rocket shares held by them will not be acquired.

Psychedelics Go Public

 

S-1 COMPASS Pathways "We are a mental health care company dedicated to accelerating patient access to evidence-based innovation in mental health."

 

Left-side is your normal brain. Right-side is your brain on psychedelics 

On the left is fMRI (functional magnetic resonance imaging) data from healthy volunteers to compare resting-state functional brain connectivity after intravenous infusion of placebo and psilocybin. Adapted from Petri et al, 2014.

This S-1 was a fascinating read. Here's what we got:
  • COMPASS Pathways is a clinical-stage pharmaceutical company with that high-risk, high-reward investment profile. As of June 30, 2020, Compass had an accumulated deficit of $62.4 million. There is no immediate business model or revenue source. 
  • They have "a big vision": We see a world of mental wellbeing, a world in which mental health isn’t simply the absence of mental illness, but the ability to flourish. We want to reduce the stigma surrounding mental health, to acknowledge that “everyone has a story”, and to create a system of care for all who are not helped by the existing system and existing therapies.
  • They have high hurdles: They have to push their compound Comp360 through trials, overcome regulatory barriers, and ensure their patents hold. One positive for them is that in 2018, the U.S. FDA gave Compass  “breakthrough therapy” status, expediting the development process
  • COMPASS's biggest pre-IPO investor is ATAI Life Sciences who owns 29% pre-IPO. Who runs ATAI? Several German men in their 30s who also sit on the board of COMPASS. Who invested in ATAI? Peter Thiel and Steve Jurvetson. 
  • This Fortune article interviews Christian Angermayer, CEO of ATAI, who says that they expect to partner with a Big Pharma company in the spring (the article is from Feb). Are they seeking an IPO as a last resort to raise additional cash after being turned down by Big Pharma? Maybe. 
  • Darth Vader? What does the rest of the psychedelic community think?: ATAI and the ventures it is backing have been aggressively trying to patent psychedelics-related intellectual property to establish exclusivity. For this reason, one source characterizes them as the Darth Vader of the psychedelics galaxy.
  • “You can see they’re hanging on by their fingernails,” he says. “I don’t object to COMPASS having patents or making profit. I object to their claiming ownership of IP that exists in the public commons rather than contributing to the public commons. COMPASS has shown almost no creativity. Their pitch sheet says, essentially, we’re going to establish exclusivity and make billions. But they’re entering a field that has been extensively researched by others.”
  • It's a 50-person team and has some classic family business/small company shenanigans: George Goldsmith, our Chief Executive Officer and Chairman of our board of directors, is married to Ekaterina Malievskaia, our Chief Innovation Officer and a member of our board of directors. On August 19, 2020, the son of Dr. Malievskaia, who is currently employed by ATAI, one of our largest shareholders, entered into a contract of employment with us as Stakeholder Engagement and Operations.
Bottom line: The problem of mental health and depression is gigantic. No question about that. Are psychedelics a solution to depression and mental illness? The evidence is pretty compelling that it could be (one of many, but still one). Will the regulatory environment allow for the use of psychedelics in medicine? I imagine that they will. On what time frame? I'm not sure. Is this the company to win if and when change transpires? TBD.  

Reading List: Links


Mental health is biological health

Why tackling “diseases of the mind” is an imperative for biological anthropology in the 21st century. Here is a new research paper for those that want to go deeper into the emerging science of mental health.  


How not to commit securities fraud

Marble Ridge Founder Arrested And Charged With Fraud, Extortion, And Obstruction Of Justice In Connection With Neiman Marcus Bankruptcy. Here's the charge from the DOJ. Here is the original court bankruptcy document that has the blow-by-blow. Why read fiction or watch Billions when it plays out right before you?
 

Book Review: Why We Sleep by Matthew Walker

I de-prioritized this book for years assuming I already knew most of the content. That was true, however, taking the time and going deep into a topic that is fundamental to your daily functioning is always worthwhile. Of course, there is always a counterpoint, and I was thus informed of how Why We Sleep is riddled with scientific and factual errors. I remain undeterred on the importance of sleep, exact research errors aside.

Thanks for reading, friends. Enjoy Labor Day weekend. The man won't burn this weekend but we can still, metaphorically, be burning down the house. 

Please always be in touch.  


Katelyn
 
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