Business

Suddenly, Psychedelics are Big Business

By Dan Mitchell Sep 23, 2020
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Dan Mitchell is a veteran journalist based in Oakland, Calif. He has written for The New York Times, Fortune, Wired, National Public Radio, the San Francisco Chronicle, the Chicago Tribun...
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Dan Mitchell is a veteran journalist based in Oakland, Calif. He has written for The New York Times, Fortune, Wired, National Public Radio, the San Francisco Chronicle, the Chicago Tribune, Leafly, and many other publications.
See my articles
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Cannabis researchers can barely do their work because weed remains a Schedule 1 narcotic under the federal Controlled Substances Act. They can’t even work directly with the plant unless they’re willing to use sub-standard pot from the federal government.

So why are researchers at prestigious institutions like Johns Hopkins University’s Center for Psychedelic and Consciousness Research free to study the effects of MDMA and psilocybin relatively free of restrictions? Just a few years ago, those two schedule 1 drugs were widely considered to be “hard drugs,” much more dangerous than cannabis.

That was before the notion of hallucinogens as potential therapies for mental disorders took hold in the popular consciousness. One major tipping point was the 2018 book How to Change Your Mind: What the New Science of Psychedelics Teaches Us About Consciousness, Dying, Addiction, Depression, and Transcendence by Michael Pollan. The book dives into the science of psychedelics and found that there were far more promising therapeutic uses for hallucinogens than most people realized.

An even bigger event came the same year, when the Food and Drug Administration (FDA)  declared that psilocybin — the psychoactive substance found in “magic mushrooms” — was a “breakthrough therapy” for treatment-resistant depression, from which about 6M Americans suffer. It granted another such designation to psilocybin last November, this time for treatment of major depressive disorder, which affects about 17M Americans.

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Thanks to such developments, pharmaceutical companies and investors are showering money and attention on psilocybin and other hallucinogens like MDMA (ecstasy), and ibogaine.  Even LSD is getting some investor interest.

Crucially, virtually none of the investments are for the “recreational” market. It’s all about therapy. It’s estimated that about one in five adults in the United States suffers each year from some kind of mental disorder. That’s nearly 47 M people. Meanwhile, research is increasingly indicating that “traditional” drugs prescribed for depression — mainly, serotonin reuptake inhibitors like Prozac — are less effective than scientists once believed, especially for milder forms of the malady. The time seems ripe for alternatives.

Raining Money

Compass Pathways is among the better-known companies developing drugs from psilocybin, in part because controversial billionaire Peter Thiel is a major investor. Compass was the firm that won the FDA’s first “breakthrough” declaration” in 2018. It is currently running clinical trials in both Europe and North America.

Since its founding in 2016, the U.K.-based company had raised what most observers say is the most money in the space: $117M, before it went public this week. Compass also recently landed an investment from Otsuka, a large Japanese pharmaceutical company.

On Monday, Compass roared out of the gate with a wildly successful initial public offering on the Nasdaq. After opening at $17 a share (above its previously set range of $14-$16) the shares returned more than 70 percent on their first day of trading and kept climbing from there. They closed Wednesday at $36.75, more than double their opening price. 

Mind Medicine (usually shortened to “MindMed”)  is another company to get lots of attention thanks to celebrity. Its backers include Kevin O’Leary of Shark Tank fame, and Blake Mycoskie of Tom’s Shoes. MindMed is studying the effects of ibogaine on opioid addiction. It has raised more than $30M.

MindMed and another firm, Champignon Brands, both began trading over the counter in Canada last March. Both companies’ stocks trade for under a buck. MindMed’s market cap is $182M, while Champignon’s is $34M.

Champignon is developing therapeutic drugs from a range of hallucinogens. Like other companies in the space, it generally prefers terms like “functional mushrooms” to “hallucinogens.” The company is also researching ketamine, a legal anesthetic which is used recreationally for its hallucinogenic properties. It can be dangerous when used recreationally, but may have potential as a therapy for depression and anxiety.

The oldest company in the space, MAPS Public Benefit Corp. launched in 2014, but it has roots going back to the 1980s. It’s the for-profit arm of the Multidisciplinary Association for Psychedelic Studies, a non-profit that researches and promotes psychedelic therapies. MAPS Public Benefit Corp. is now conducting clinical trials of MDMA  therapy for post-traumatic stress disorder, for which it hopes to win FDA approval  by 2022.

Besides the newfound respectability of hallucinogens as therapeutic drugs, and the increasing acceptance of them by the FDA, there’s another driver behind the money and attention these firms and many smaller startups are getting, according to some observers: the Covid-19 pandemic. In explaining the rocket-ride of Compass shares the other day, Sarah Smith of InvestorPlace cited the recent rise in reported mental-health issues. “Clearly, this has not been a good time for mental health,” she wrote.

That might be the case, but Covid will hopefully be long gone by the time any of these therapies are market-ready, let alone earning returns for investors. And that’s assuming they work: in most cases, nobody is sure of that at all.

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Dan Mitchell
Business columnist