Psychedelic stocks take a really bad trip

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Convincing friends who were considering an expensive divorce to try psychedelic drug therapy may have been the most valuable financial advice German billionaire investor Christian Angermayer has ever given, he recently told an audience of peers. finance and technology. It won’t be long before politicians come together to resolve their differences, he says.

When he’s not advocating for the therapeutic effects of psychedelics (sometimes with fellow actress Uma Thurman), Angermayer tries to take them himself once a year (only where legal). He even convinced his parents to participate.

Such disarming openness has made the founder and chairman of Berlin-based drug development company Atai Life Sciences NV an effective advocate for the potential mental health benefits of psychedelics such as psilocybin, the active ingredient in magic mushrooms. Although these compounds are still illegal in most places, they have benefited from an extraordinary boom in medical research and financial investment in recent years.

Angermayer has also put its money where it belongs: After Atai raised $260 million last year in a $3 billion IPO, its family office promised not to sell its Anchor participation before at least two years. Earlier this month, it doubled down on spending a modest amount on financial derivatives that pay off if Atai’s share price doubles in the next three years.

QuicktakeThe boom in psychedelics

Right now, however, the charm offensive isn’t working very well. An exchange-traded fund that tracks psychedelic stocks has lost two-thirds of its value since peaking last year. Although some of these companies haven’t suffered as much – GH Research Plc’s enterprise value is still nearly $730 million, for example – retail investors who bought into the hype often suffered heavy losses. . The comedown also put a dent in Angermayer’s wealth. Factoring in its cash flow, investors now value Atai’s drug pipeline at $470 million.

Nearly $1.8 billion was raised by psychedelic startups from public and private investors in 2021, according to research firm Psilocybin Alpha. But while clinical trial results have been generally encouraging, the dozens of companies that have popped up in this space are mostly still a long way from getting regulatory approval and therefore having a marketable product.

Rising interest rates have also made providers of capital less tolerant of companies that won’t turn a profit for years, and psychedelic companies are no exception. Those who don’t already have a strong cash reserve have a harder time getting financing.

Angermayer told me that investors are partly responsible for funding “absurd” companies that tout psychedelics but have “no clearly defined strategy or viable business model.” (It does not include Atai or its psilocybin holding company Compass Pathways Plc in this installment.) I think capital providers will need more assurances about regulation, scalability of psychedelic drug treatments, and defense intellectual property rights before they tiptoe back. in.

There is no doubt that attitudes towards psychedelics have changed in recent times. Aided by popular books like “How to Change Your Mind” by food writer Michael Pollan and support from influencers like Tim Ferris, psychedelics are quickly shedding their countercultural baggage.

The excitement is shared by many in the medical and psychiatric community due to growing evidence that psychedelics can help treat depression, anxiety, addiction and other mental health conditions. The need is greater than ever, as the isolation and stress caused by Covid has left countless people struggling with these issues when existing drug treatments are not always effective.

For some, the wait may be almost over. Oregon is preparing to authorize psilocybin for therapeutic use starting next year, while Canada has begun allowing doctors to request the substances for treatment-resistant conditions. After gaining fast-track status to test methylenedioxymethamphetamine (MDMA) for treating post-traumatic stress in 2017, the Multidisciplinary Association for Psychedelic Studies, a nonprofit organization, may gain Food and Drug Administration approval of the United States by 2023.

At the risk of overgeneralizing, it appears that psychedelics help calm the ego, break negative thought patterns, and help some patients deal with trauma better. By stimulating neuroplasticity – the brain’s ability to change and make new connections – patients may experience a positive shift in perspective. There is some evidence that these antidepressant effects can last quite a long time.

Although not generally known to be addictive, psychedelic trips can be frightening and impair judgement, which is why therapists stress the importance of “set and setting” – creating the right expectations before therapy and the right physical and sensory environment to conduct it. Patients may need hours of clinical supervision during travel, as well as psychological support to prepare and process what they are experiencing.

Obtaining federal approval for psychedelic therapies will therefore only be half the battle. Government health programs and private health insurers must also be persuaded to take over the check. Companies don’t typically disclose costs for psychedelic therapies, but analysts at Cowen estimate $3,000 per treatment, compared to the roughly $700 annual cost of daily antidepressants.

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Reimbursement issues are one reason some investors doubt psychedelics will ever become a lucrative business. Another, somewhat ironic, hurdle is the potential effectiveness of drugs. If a few psilocybin trips cure a patient, how will a pharmaceutical industry accustomed to repeat prescriptions make money?

Yet companies have found ways to convince investors that they will enjoy a return on their capital. One approach is to acquire a broad portfolio of psychedelic and non-psychedelic compounds, as Atai does, to be less exposed to clinical setbacks with a particular drug.

Others like Field Trip Health Ltd and Numinus Wellness Inc. combine drug development with the operation of therapeutic clinics, which have a more immediate revenue stream. In the United States, the club drug and anesthetic ketamine, as well as a related FDA-approved compound, esketamine, developed by Johnson & Johnson as a nasal spray, are already available in these facilities.

The startups also hope to develop shorter-acting psychedelics, such as DMT (the active ingredient in the Amazonian drink ayahuasca), which potentially offers a more cost-effective experience with the same therapeutic benefits. (It’s an open question whether the up to eight hour duration of a psilocybin trip, or 12 hours for LSD or acid, is fundamental to the healing process.)

Unlike the cannabis industry, companies active in this field often do not push to legalize the recreational use of psychedelics. And by synthesizing and modifying existing psychedelic compounds (which are either of natural origin or whose patents have expired), they hope to obtain better intellectual property protection, which reassures investors but annoys purists.

Some of the private capital that rushes into psychedelics will end up being wasted, but much will help advance our understanding and regulatory acceptance of these molecules and ultimately alleviate the suffering of people with mental health issues. . It would not be the first time that a financial bubble has destroyed the wealth of short-term investors, leaving behind a legacy of innovation and societal change.

More Bloomberg opinion writers:

• Psychedelic drugs will go the way of legalizing pot: Noah Feldman

• Antidepressant drug similar to ketamine is not a surefire success: Max Nisen

• Ketamine seems to relieve depression. We’ll soon see what else he does: Faye Flam

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.

More stories like this are available at bloomberg.com/opinion

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