Psychedelics - Opportunity or hype? Part 1
In this letter, I dive into the latest hot sector in the market: Psychedelics đ and explore the opportunities
Natural psychedelic compounds have been used for medicinal purposes going back thousands of years as early as the ancient Greeks and in early Hindu rituals. LSD was first synthesized in 1938 by Novartis and research into its positive psychological impact was being published throughout the 50s and 60s. After Nixonâs war on drugs in the 1970s research practically halted, but in the last decade, things have changed. We are now at the precipice of a homecoming for psychedelics and there is mounting evidence of its promise in helping us combat some of the worst mental health issue afflicting people today including depression, opioid addiction, anxiety and ADHD. If even partially successful, this will be a multi-billion dollar opportunity for investors but more importantly, we have the potential to help millions of people.
Psychedelics are a hallucinogenic class of drugs that trigger different states of consciousness by impacting the serotonin 2A receptor agonism (5-HT2A). These receptors are found in the âthinkingâ parts of the brain and used for cognitive functions. Sadly, for people with depression or anxiety, it is these receptors that are often overactive.
History
Psilocybin and other psychedelic drugs have been heavily regulated by the DEA since the 1970s and many of them listed under Schedule 1 of the Controlled Substances Act. This means they are in the same class of drugs as heroin. This makes it hard to run clinical trials and will need strong evidence from the drug companies to the FDA to get them to change the scheduling and allow the public to benefit.
Academic Studies
There have been numerous studies donât around the world in the last 10 years, all show consistently positive results.
Study by the University of California (2011) on anxiety in cancer patients showed positive trends
[Psilocybin was] capable of inducing an alteration of consciousness with potential therapeutic benefit âŚ.the study demonstrates that the careful and controlled use of psilocybin may provide an alternative model for the treatment of conditions that are often minimally responsive to conventional therapies, including the profound existential anxiety and despair that often accompany advanced-stage cancers.
Imperial College London (2016, 2018) on LSD showed a fundamental change on how your brain processes information and in how you âseeâ yourself. Patients found they reconnected to their sense of self which is useful for addition or depression.
research has shown that psilocybin â the active compound in magic mushrooms â may help to alleviate symptoms in patients with persistent depression by âresettingâ brain activity.
They show biological changes after receiving the therapy and actually show heightened emotional response which counters one of the side affects of being hooked on anti-depressants.
John Hopkins (2016, 2020) study corroborated these findings and showed significant clinical response in patients 6 months after treatment. In the 2016 study
a single dose of psilocybin produced substantial and enduring decreases in depressed mood and anxiety along with increases in quality of life and decreases in death anxiety in patients with a life-threatening cancer diagnosis. Ratings by patients themselves, clinicians, and community observers suggested these effects endured at least 6 months. The overall rate of clinical response at 6 months on clinician-rated depression and anxiety was 78% and 83%, respectively
and in the 2020 study
two doses of the psychedelic substance psilocybin, given with supportive psychotherapy, produced rapid and large reductions in depressive symptoms, with most participants showing improvement and half of study participants achieving remission through the four-week follow-up.
So the evidence is quite clear, despite most of these being small scale trials due to the nature of the restrictions around Psilocybin, the impact is clear and long lasting.
Market Size
Based on research from Data Bridge, the psychedelic drugs market is expected to reach $6.85 billion by 2027. However, the real prize is the size of the underlying markets that these drugs are trying to address.
Source: MindMed 2019 annual report
A few things to point out here:
(a) These drugs are not an ongoing treatment, they are supposed to be a cure. In theory, it should be a one-shot/two-shot therapy that is not a recurring cost to the patient.
(b) All the treatments have to be supervised. Typically it involves preparation that may need them to be weaned off whatever drug they are on currently before they can accept the treatment. There can also some preparation work that needs to occur the night before the treatment as well as post treatment analysis. The therapists have to be trained and also be with the patient throughout their experience which in some cases can last up to 12 hours. All of which are barriers to scaling, which some companies which we will discuss later are actually looking to fix
(c) Each company is going after very specific parts of these markets to maximise their chances of getting approval; once the molecule can be administered and handled safely, it will open the door to many more opportunities in the space.
FDA
The FDA is proactively helping companies that are doing research. They have launched a fast track approval process called Breakthrough therapy status (BTS). This allows for a much shorter approval process. So far, only two companies have been granted this status: (a) Compass Pathways (ticker: CMPS) for treatment-resistant depression (b) Usona Institute (non-profit) for Major Depressive Disorder.
Johnson & Johnson (ticker: JNJ) has also been given full FDA approval for its Ketamine based drug Spravato for suicidal cases.
State Regulation
As well as moves by the FDA, individual states have also been moving to decriminalise the use of Psilocybin. Colorado voted to decriminalize mushrooms in 2019 and Oregon voted this November to legalize their use for medicinal purposes. Several cities in California as well as Washington, D.C., have moved to end arrests over mushroom possession. California state will reintroduce a bill to decriminalise use and New Jersey is reconsidering its laws around it.
Companies
Part of the reason for initially looking at the sector has been a few IPOs in the space and applications to move some of these listings from OTC trading to Nasdaq. Below are some companies, some of whom we will examine in the next letter. The largest company is Compass Pathways with a $2bln market cap. So it is still very early in this sector.
Mindmed (Ticker: MMED) - Have a number of trials focussed on LSD and Ibogaine. Key trials are for 18-MC, their opioid use disorder (OUD), backed by Kevin O'Leary (Shark Tank) and Bruce Linton (former CEO of Canopy Growth)
Compass Pathways (Ticker: CMPS) - Backed by PayPal co-founder Peter Thiel . Company is focussed on treatment resistant depression. Their major drug is is called Comp360 and has been given breakthrough status by the FDA
Cybin (Ticker: CLXPF) - has developed an orally-dissolving film and is developing IP for psilocybin-based products targeting major depressive disorder (MDD).
I am in the process of resarching the companies in the space, as I do will write up some of findings soon.
Disclosure: I do not currently have any exposure to stocks mentioned in this piece.
Just finished this pod and came back to your article for a few ideas:)Thx Billy
Galloway w/ Sam Harris:
https://overcast.fm/+XutR4eD1w