Big ass IPO? Not really…
‘Shares soar as Atai Life Sciences IPO’s on the Nasdaq’ is the story being spun around Atai’s (ATAI.Q) first crack at going public last week. But this line of thinking only takes into account the rise in share price, up roughly 33% since IPO. However, there are more factors at play when evaluating the success of Atai’s liquidity event.
The IPO was poised to generate gross proceeds of $225 million USD from the sale of 15 million Atai shares priced at $15 USD. Raising capital is not new to Atai. Since 2018, they have raised a total of $362.3 million USD through the sale of common stock and convertible notes, while remaining a private company. Peter Thiel is heavily involved. Impressive. But Atai still didn’t reach its IPO goal.
On IPO day last week, the volume on Atai’s stock was only 8.8M million shares traded. Considering the hype around the sector and the previous IPO’s done by the likes of MindMed (MNMD.Q) and Compass Pathways (CMPS.Q), I expected this thing to be like the Tilray (TLRY.Q) Nasdaq IPO where people were scratching and clawing for those few precious shares, ultimately driving the price to insane levels like $300 CAD back in 2018, seemingly out of nowhere. Tilray still retained 93% of their shares, with 75% of them owned by its founder Brendan Kennedy and his fund Privateer Holdings, they landed on a $2.5 billion USD valuation and made 5% of its shares available on IPO. The numbers are almost identical to Atai, minus the volume. For Atai, 8.8 million shares account for roughly 6% of the total 150 million shares outstanding at a valuation hovering around $2.3 billion USD.
Word of mouth
Atai relied on one of the oldest marketing tricks in the book, word of mouth. But I was surprised there wasn’t a bigger marketing push from the company to raise awareness about the IPO. I follow this sector closely and I felt like I was one of the last to know, even though hints from Atai CEO and crypto fanatic Christian Angermeyer have been dropping on social media, there wasn’t anything official until last week. It’s not like they don’t have enough cash in the bank for some widespread campaigns, and maybe give us more than 48 hours’ notice.
But the long-term outlook of the company likely won’t be affected by a substandard IPO, the company has had enough support from its current investors to build one of the largest psychedelics companies in the world in less than 3 years. Atai believes that several of their therapeutic programs target indications that have potential market opportunities of at least $1 billion USD in annual sales if FDA approved. Atai will probably be fine financially, the investors they already acquired have some deep pockets. On the retail side, I know a lot of people are sitting back, waiting for things to play out a bit, IPO’s can be risky and volatile. t’s also a pretty sizable valuation from a company that doesn’t really have anything distinguishable from the other big players in the space, and they aren’t leading the pack in terms of clinical trials by any means. Seasoned investors know they are paying a premium to put money behind a company with a much weaker R&D pipeline than the likes of Cybin, MindMed, and Compass Pathways. And, just like any other emerging sector, newer companies with smaller market caps usually allow retail investors to get more equity with less money, with a higher upside than a big name.
I really thought this IPO was going to be huge given how big of a deal the company is to people who are in the know. But that may have been both a feature and a bug as it appears Atai was somewhat banking on Gandalf coming over the hill with armies of hungry retail investors. Or, they wanted to play it cool and low-key? Yes, Atai has that Peter Thiel money, but, retail investors are a great way to diversify an investor base. Say something goes wrong with Thiel, it’s possible – the connection between Atai and Compass Pathways is enmeshed with Atai owning nearly a quarter of Compass, with multiple R&D agreements in place as well. And if you have read the book Conspiracy by Ryan Holiday, you know that Peter Thiel is a legitimate psychopath, and not in the cute playful way.
Getting retail investors through the turnstiles means spreading the risk around to more people, usually more toward the retail investor as they tend to buy at higher prices than insiders and institutional investors. But for those bullish on psychedelics stocks who want their investments to get bought out by big pharma, aka Kevin O’Leary’s fantasy – Atai is a company staying away from clinics, mushroom powders, truffles, or anything recreational, so for a big pharma M&A opportunity, Atai is a pure-play with a target already on its back
Atai’s share price rose from $19.45 USD to $21.11 USD over the weekend and is now back down to $19.97 CAD mid-Monday morning. I didn’t think the low float Tilray effect would happen just yet, but I thought there would be more fighting over those 15 million shares, even this early on. So did their IPO fall short? Sure, when you shoot for 15 million and get 8.8 it does not exactly cause for celebration, and it didn’t pop like their competitors’ Nasdaq introductions. I hope Field Trip (FTRP.T) is paying close attention because they’re likely next in line.