Countdown To The atai IPO Begins: atai Files For $100m IPO Financing

  • atai Life Sciences has filed with the SEC to do a $100 million IPO financing
  • atai is likely to commence trading some time around the middle of May
  • We look at how far that rally might go – and when it will begin


For investors in battered psychedelic stocks, it may have seemed like this day would never arrive. On April 21, 2020, atai Life Sciences filed for a $100 million IPO financing, as it prepares to commence trading on the NASDAQ.

We don’t need to tell investors in these companies what this means for both atai and the sector. Psychedelic Stock Watch has already done that.
 
What investors are more interested in – now that the IPO is imminent – is when will stocks start to rally in this sector, and how far can they run?

Will the atai IPO rally surpass the CMPS IPO rally?

When Compass Pathways (US:CMPS) commenced trading in September 2020, it kick-started a strong and immediate rally in psychedelic stocks.

Two of the highest flyers were leading companies in this space, MindMed Inc (CAN:MMED / US:MMEDF) and Numinus Wellness (CAN:NUMI / US:LKYSF).

At its 2020 high, Numinus generated a post-IPO ten-bagger. MindMed did even better. It registered a whopping 15X gain at the peak of the rally.

Will the atai IPO spark an even bigger rally?

There are two schools of thought here. Glass half-empty investors would point to the much less robust conditions in the broader markets today. More headwinds for stocks.

Glass half-full investors can counter with a couple of bullish arguments.
 
  1. Psychedelic stocks are arguably much cheaper today than in September 2020.
  2. The atai IPO is an even bigger event than the CMPS IPO as atai is destined to become the new industry leader.

Public companies took advantage of the big run in share prices last fall to fill their coffers. Numerous large financings closed.

Of the more than US$700 million that has flooded into this sector since the Compass Pathways IPO, most of that has been raised by public companies. And these companies have also been very busy advancing operations – in drug development, mental health clinics, and IP development.

The result is that when new investors look at the public companies in this industry today, there are not only a lot more pubcos, there is a lot more to like about these companies.

Then there is atai itself. There is unquestionably more pent-up investor enthusiasm for the atai IPO than with Compass Pathways.

While atai will go public with a valuation of ~$1.2 billion, few retail investors will be able to get in anywhere near that price level. As large numbers of investors get priced out of the atai IPO, the other cash-rich pubcos in this space will look increasingly attractive.

When will the atai IPO rally start?

Compass Pathways filed for its IPO financing approximately three weeks before commencing trading. If atai follows a similar timetable, that would place its own IPO date somewhere between May 10th – 14th.

The Compass Pathways IPO rally didn’t begin until CMPS had actually commenced trading.

It’s unlikely that investors are going to wait until IPO day this time around to start bidding up stocks.
 
a)  Having seen the post-IPO rally for CMPS, more investors will be anticipating a new rally in psychedelic stocks.
b)  With psychedelic stocks cheaper today than in September 2020, investors will be tempted to start buying sooner.

With many psychedelic stocks having been hammered to new lows in recent weeks, short-selling has also been a factor in stocks getting to current price levels.

Many of those short-sellers will now be looking to cover – so they don’t get steamrolled by the atai IPO. Those traders definitely won’t want to wait until IPO day to get out.

Momentum is a two-way street.

Psychedelic stocks arguably ran too far in the 2020 rally. Now they are ridiculously over-sold. As the pendulum starts to swing back, stocks could put in their bottom and start advancing at any time now.

atai IPO investing strategy

We don’t need to tell investors what strategy they should have as the atai IPO approaches. Psychedelic Stock Watch has already offered its own views on how investors can reap the biggest gains from this IPO.
 
That article was written on February 5th, when the share prices of most psychedelic stocks were at significantly higher levels. With these other stocks much cheaper today, this strategy now looks like a no-brainer.

Psychedelic Stock Watch is a strong supporter of atai’s big-tent business model in the psychedelic drug industry. And we were one of the first to point investors in psychedelic stocks in that direction.
 
But drug development is a long game. Becoming an investor in atai doesn’t mean you have to buy in on IPO day.

Compass Pathways soared off its own IPO. Few investors got in near the IPO price.

CMPS was quickly bid up to a triple and reached a high of $61.69. But then the initial excitement wore off. Investors have been able to enter CMPS at much more attractive price levels – after already reaping multi-bagger returns with other public companies. Today, you can buy into CMPS at $33.59.

There is no reason to believe that approach won’t work with the atai IPO as well.

The 2021 slump in psychedelic stocks may not be officially over. But the countdown to the atai IPO has officially began.





DISCLOSURE: The writer holds shares in MindMed Inc and Numinus Wellness.
 
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