Advances in psychedelics could change investors’ minds
Cannabis legalization seems to monopolize the public policy debate – and get investors excited – but the small and rapidly growing market for psychedelic treatments for mental illness and addiction can be even more compelling.
The science behind the subject has burst into the mainstream in recent years. An excellent BBC documentary The psychedelic trial explored the implications of a major study at Imperial College. Michael Pollan’s 2018 book How to change your mind sparked a debate on the use of these substances to fight mental illness. And neuroscientist and podcaster Sam Harris has discussed the issues surrounding him in his Give sense program.
The substances at the heart of the debate remain banned: there is psilocybin, otherwise known as magic mushrooms, and lysergic acid diethylamide (LSD). Many researchers also include MDMA (ecstasy) and ketamine in a larger group, although they have different pathways in the brain.
What is generating excitement is the use of these substances to treat psychiatric illnesses and in particular “treatment-resistant depression” as well as post-traumatic stress disorder (PTSD). A record 17 trials were underway in 2021, mostly on psilocybin, according to scientific journal Nature.
The law on these drugs is called into question as academics from institutions as diverse as Imperial, Johns Hopkins, UCLA and New York University all begin to conduct trials which, while small, are mostly very promising. NGOs on both sides of the Atlantic have also done a lot to keep research ideas alive, while emphasizing that therapy is a crucial adjunct to any substance-based treatment.
Basically, public opinion is favorable. A 2017 study found that 72% of Americans surveyed supported the legalization of specific psychedelic therapies, with just 12% opposing the use of these substances under all circumstances. Voters in the District of Columbia have decided to decriminalize the use of psilocybin mushrooms by adults, while Oregon has already legalized their medical use.
Investors in the cannabis market have started to take a closer look at psychedelics, although the two niches remain very different. My view is that the opportunity in cannabis is the state-by-state growth of vertical integrated players.
Psychedelics are purely a medical research proposition – and a narrow proposition too, with only five companies of value for investors to research, although many much smaller companies are listed on Canadian stock exchanges in particular. Even among my top five companies, none exceed $ 20 million in daily transaction volumes.
Topping the list, however, has to be the UK-based, US-listed, pioneer Compass Pathways., which is conducting clinical trials of psilocybin treatment for refractory depression. This pharmaceutical company is focused on a patented treatment for depression and mental health, with Phase 2 trials underway.
then, we have MindMed, which was listed on the US Nasdaq Stock Exchange in April. Its shares got off to a chaotic start, down 29% on the first day of listing. Keep in mind, however, that this company has actually been listed on the Canadian Risk Exchange Neo for over a year and has more than increased tenfold during that time. This isn’t a bad comeback for a business with no income focused on treatments that use substances like MDMA, LSD, and psilocybin.
Leading investors include Kevin O’Leary of the American Entrepreneur Reality Show Shark aquarium and Bruce Linton, founder of cannabis company Canopy Growth – as well as a long list of day traders on the Reddit WallStreetbets forum who have been busy raising stock.
Many analysts also note Seelos Therapeutics, which offers two clinical-stage products focused on central nervous system (CNS) conditions. He uses SLS-002 (ketamine) to treat suicidal patients with major depressive disorder. There is also treatment for a few rare genetic diseases, including muscular dystrophy.
A mention must also go to Travel health in the field who registered in Canada late last year and is setting up clinics to administer low-dose ketamine as an antidepressant. It aims to have a Phase 1 trial for another psychedelic treatment by 2022.
In a detailed study of the market, London-based alternative investment house Ocean Wall identified another Canadian firm called Cybine, who is currently working on phase 2 clinical trials to study the use of psilocybin for major depressive disorders. The trial will include 120 patients taking four doses of psilocybin over four months.
The company has useful partnerships, including one with Kernel, a technology specialist in neuroimaging hardware and software that allows Cybin to record and quantify brain activity during a psychedelic experience in real time. The company also bought another company called Boston-based Adelia Therapeutics, which is expanding its access to new treatment and delivery methods. Cybin has raised nearly C $ 90 million from investors such as Janus Henderson and LifeSci Ventures.
There are also two US-listed exchange-traded funds in this space: the Gen Altered Experience ETF as well as the Horizons Psychedelic Stock Index ETF. However, they are both very small and inaccessible to UK investors. They include a well-known name in their portfolio: Johnson & Johnson, which has received FDA approval for Spravato, a form of ketamine delivered as a nasal spray.
I could give a much longer list of private companies emerging in this area, but I would keep an eye out for developments at Atai Life Sciences, a Berlin-based psychedelic company, which announced plans to raise more than $ 100 million in an IPO on the Nasdaq. It develops its own list of 10 compounds, owns a major stake in Compass Pathways, and its backers include billionaire investor Peter Thiel and New York hedge fund Falcon Edge Capital.