As investment capital floods into the psychedelics sector, psychedelic drug companies are rapidly building out an industry – vertically and horizontally
While psychedelic stocks took a pause to start 2021, it’s easy for investors to forget that for the industry itself it’s full-speed ahead.
We see the psychedelic drug industry growing and evolving on practically a daily basis. It starts with capital.
Drug development is capital-intensive. One of the question marks for this emerging sector was whether it could attract capital in sufficient quantities to power this industry.
That question has been answered.
Capital flows increasing
In just the past four months, the psychedelic drug industry has raised $539.5 million in public offerings and private financing rounds.
Of that total, $371 million was raised by public companies who currently sit with a combined market cap of ~$3 billion. These are well-capitalized companies.
The latest financing from Cybin Inc (CAN:CYBN) was effectively priced at the bid. So, too, was Mydecine Innovation Group’s (CAN:MYCO / US:MYCOF) recent financing. MindMed Inc (CAN:MMED / US:MMEDF / GER:MMQ) was trading as much as 15% below its recent placement (at CAD$4.40) before regaining momentum last week.
Institutional investors are big believers in these companies – at current price levels.
Drug research advancing and diversifying
The capital that is entering this industry has no shortage of applications.
The headline with the Psychedelics Revolution is the potential of these drugs to conquer the Mental Health Crisis. Over 1 billion people are afflicted with stress-related mental health disorders like depression, anxiety, addiction and PTSD.
Clinical research on psychedelic drugs has been consistently generating amazing results – and is now well advanced.
The Multidisciplinary Association for Psychedelic Studies (MAPS) is moving into a Phase 3 clinical study using MDMA to treat PTSD. Compass Pathways (US:CMPS) is proceeding to a Phase 2b clinical trial using psilocybin-based therapy for treatment-resistant depression.
Cybin is moving into its own Phase 2 trial involving psilocybin-based therapy. But this is for major depressive disorder, an even larger treatment market. Mydecine is moving into a Phase 2 clinical trial also involving MDMA therapy for PTSD. MindMed is preparing to enter a Phase 2b clinical trial using LSD to treat anxiety.
But as this research advances, psychedelic drug R&D is also broadening into other fields of medical treatment – rapidly.
MindMed itself has two other clinical trials at a Phase 2 stage: one for adult ADHD and another for cluster headaches.
Psychedelic drugs are also demonstrating exciting potential to treat cognitive decline, the other “mental health crisis”, in a world with an aging population. Eleusis Ltd (a private company) is entering a Phase 2 clinical trial using microdoses of LSD to treat Alzheimer’s disease.
That’s just the tip of the iceberg, the most advanced research. A host of research initiatives are studying the potential of psychedelics (primarily ibogaine and ibogaine derivatives) to treat addiction.
In addition to headaches, psychedelics companies like Mind Cure Health (CAN:MCUR / US:MCURF) are researching the potential of psychedelics to treat other neurological disorders and chronic pain.
Potential applications seem almost limitless. Psychedelics-based research is being aimed at everything from anorexia nervosa to treating obesity.
Drug development provides the psychedelics industry (and psychedelic drug stocks) with home-run potential. Even a single drug success can represent as much as a nine-figure payday.
The foundation of the psychedelic drug industry is its potential to address the Mental Health Crisis. But as this foundation grows upward it is also expanding laterally.
Drug development is only one dimension of this emerging sector.
Treatment markets growing
Many of the drug research initiatives in the psychedelics sector require full supervision and expert therapy during treatment sessions. The psychedelic drug industry is already there.
Several public psychedelic drug companies are also mental health treatment companies.
Field Trip Health (CAN:FTRP / US:FTRP) and Numinus Wellness (CAN:NUMI / US:LKYSF) already have mental health clinics in operation and are expanding their networks. Mind Cure has announced it will be opening its first clinic in May 2021.
With an overall treatment market (world-wide) of 1+ billion people, the revenue potential is clear. Given the growing excitement in much of the medical community toward psychedelics-based medicine, there is no shortage of medical personnel seeking to be trained and accredited in such therapies.
Psychedelics-based medicine seems to be as efficient as it is effective. An economic study by MAPS on MDMA-assisted psychotherapy for PTSD estimated cost savings of $103,000 per patient versus existing therapy options.
With that sort of efficiency comes robust operating margins. The profit potential of this side of the industry is also visible.
In the United States alone, mental health services eat up $300 billion in revenue each year – much of it currently directed toward therapies with marginal efficacy. The psychedelic drug industry is developing both the drugs and the treatment facilities to claim much of this revenue pie over the longer term.
Aiding the growth of the psychedelics treatment market, psychedelic drug companies are at the cutting edge of medicine when it comes to introducing digital therapy platforms as part of their treatment operations.
This not only adds even greater efficiencies in delivering psychedelics-based services. It greatly facilitates scaling up these treatment operations.
Road to legalization increasingly clear
Among psychedelic drugs, only ketamine is currently broadly legal. While ketamine-based psychedelics therapy has significant growth potential, it’s only a starting point for the industry.
For the psychedelic drug industry to reach its potential, the legalization of many of these other substances (for medicinal use) is necessary. Even a few years ago, that may have seemed like an insurmountable obstacle.
Times have changed.
Industry insiders now talk about the near-term legalization of psilocybin (for depression and related conditions) and MDMA (for PTSD). There are many reasons for such confidence.
For starters, the FDA itself has fast-tracked both Compass’s psilocybin-based research for depression and the MAPS clinical trial using MDMA-assisted therapy for PTSD.
Secondly, we’re already seeing regulatory movement toward legalization. In Oregon, psilocybin is fully legal for medicinal use. In Canada, Health Canada has been quickly expanding a program of medical “exemptions” for legalized psilocybin use.
Yet MDMA may still be first to the finish line when it comes to legalization.
Why? Ask the U.S. Department of Defense.
Post-traumatic stress disorder (PTSD) is at epidemic levels among first responders and military personnel. But it’s at crisis levels within the U.S. military.
PTSD (and related mental health problems) represents a horrendous attrition rate within the U.S. military. Existing treatment options are grossly inadequate.
Meanwhile, MAPS’ MDMA-based clinical trial has been reporting clinical progress for over 90% of the patients included in its study.
The Mental Health Crisis costs the global economy over $1 trillion per year in lost productivity alone. Our health care systems desperately need psilocybin (and other psychedelics) to not only improve treatment options but save precious healthcare dollars.
For the Department of Defense, its need for MDMA legalization is perhaps even more imperative.
With most young Americans unfit for military service and attrition within the ranks (from mental health-related causes) at a crisis level, the capacity of the U.S. military to sustain any major war effort is now seriously in question.
Psychedelic stocks attractively priced
Fifty years ago, psychedelic drugs were criminalized. They were deemed to (supposedly) have no valid medical uses.
Today, a Psychedelic Drug Revolution is rapidly expanding and gaining in momentum. The Department of Defense is now one of the world’s largest donors in funding medical research on psychedelic drugs.
This is an industry that is flashing the “green light” to investors from numerous directions.
Yet, as Psychedelic Stock Watch recently observed, psychedelic drug stocks are currently at “low tide”.
The presidential election in the United States in November has been more than contentious.
First there was the disputed results. More recently has come civil unrest and (now) the impeachment of former President Donald Trump.
For the media, it’s a ratings bonanza and a feeding frenzy. All U.S. politics, all of the time.
For pretty much anything else outside of the coronavirus pandemic (and COVID vaccines), there has been a media vacuum.
Investors, too, have been distracted – for obvious reasons.
Psychedelic drug companies have had no problem in filling oversubscribed private placements from eager institutional investors. Yet trading volumes among retail investors are anemic when compared to the feeding frenzy in this sector that took place in the Fall of 2020.
You snooze; you lose.
Valuations for these stocks are not going to stand still as the industry itself grows vertically and horizontally by leaps and bounds.
The current political circus in the U.S. has caused psychedelic stocks to go stagnant for the past several weeks. This has frustrated some current investors and likely caused concern among some executives of these psychedelic drug companies. But the circus will end.
What is frustration for some is opportunity for others. Most of these public companies are already cashed up to power operations through 2021 and beyond.
Potential for the industry is almost limitless. Growth to date exceeds expectations.
Investing in the Psychedelics Revolution is practically a no-brainer. Entry windows such as the current one may not come around again.
DISCLOSURE: The writer holds share in MindMed Inc, Cybin Inc, Numinus Wellness and Mind Cure Health. Mind Cure Health is a client of Psychedelic Stock Watch.