Norms and regulations in society can change in the span of a few generations. We’ve lived through this with the rise of the cannabis industry. A few decades ago, most people were against its use for recreational and medicinal purposes. Today, medical marijuana has nearly unanimous approval, while a majority are in favor of its legalization for recreational use.
We may be now going through the same process with psychedelic drugs such as LSD, psilocybin, and MDMA. There has been promising research and evidence that these substances can help with mental illnesses and anxiety in a much more effective way than traditional treatments with fewer side effects. Further, psychedelics have the power to help at a much more root-cause level than merely treat symptoms.
Research and clinical trials are being conducted using these substances, while state legislatures in more liberal enclaves are considering its legalization for medicinal purposes. Last year, Oregon became the first state to legalize its use for medical use. Investors are also starting to pay attention as there is significant commercial potential. 3 stocks that are working on developing treatments from psychedelics are ATAI Life Sciences N.V (ATAI), Compass Pathways Plc (CMPS), and Mind Medicine Holdings (MNMD).
ATAI Life Sciences N.V (ATAI)
ATAI is the latest psychedelic company to go public. It was able to raise $225 million at a $2.3 billion valuation, although shares are down by about 15% since opening. It has a variety of psychedelic-derived treatments that are in the clinical or research stage. The company has several impressive, high-profile investors with a track record of success like Peter Thiel, Mike Novogratz, and Apeiron Investment Group.
Currently, ATAI has 10 potential treatments in its pipeline, each in various stages of development. However, ATAI’s ambitions go beyond just developing treatments. The company sees itself as a drug development platform to acquire, incubate and develop psychedelics and other drugs that can be used to treat depression, anxiety, addiction, and other mental health conditions. Currently, it’s partnered with 14 companies on various joint ventures.
This makes ATAI a way for investors to get exposure to a wide swathe of the industry as it’s more of a holding company rather than a drug development company. This structure has appeal to investors as its IPO was oversubscribed by 12 times. Further, private investors are getting increasingly excited about the space which bodes well for public companies. So far this year, VCs have invested $329 million in psychedelic startups, which is close to the $345 million that was raised in 2020. In 2018 and 2019, less than $100 million was raised each year.
Compass Pathways Plc (CMPS)
CMPS was founded in 2020 in London but has expanded to the US. The company is currently focused on using psilocybin to treat depression. Currently, this treatment is in PhaseIIb trials. Its earlier trials showed better outcomes for its treatments compared to a placebo.
The company was also granted two new patents for an oral formulation of its synthetic psilocybin treatment. Given that it’s still in clinical trials, it’s not surprising that the company is not profitable with a net loss of $12.6 million in the first quarter. However, the company remains in a strong position with more than $300 million in cash. Additionally, its patents related to psilocybin have considerable value.
The company expects that its clinical trials on its psilocybin-derived treatment will be completed by the end of the year. This will likely be the next catalyst for the stock price as the depression treatment market is estimated to be worth $13 billion, and many of today’s treatments have unpleasant side effects.
Mind Medicine Holdings (MNMD)
MNMD is based in New York and is developing psychedelic-based treatments to treat anxiety, addiction, and mental illness. Recently, the company announced a tie-up with Datavant, a health IT company to connect clinical trial data with external data. It also closed the acquisition of HealthMode, a machine learning, and digital therapeutics company.
The company is working on treatments for a variety of different areas that are cumulatively worth $65 billion. Some of its most promising treatments are Project Lucy, its LSD experimental therapy, Project Flow for LSD microdosing, and Project Layla for opioid withdrawal. It also recently launched Project Angle which will investigate psychedelics for pain management. The company is also working on stripping these drugs of their hallucinogenic properties to isolate their medicinal use.
Its last earnings report showed that MindMeld continues to augment its R&D pipeline as it conducts clinical trials and prepares therapeutic candidates for clinical trials. It reported a net loss of $14 million, but the company has considerable cash holding of $160 million. Further, it’s demonstrated the ability to raise cash through private placements and debt issuance.
It’s still very early in this space as these companies still have to prove that psychedelic-derived treatments are safe and effective. However, they are attacking a big market and an area of major need as mental illness is becoming increasingly important especially with technology leading to increased isolation and anxiety among younger people.
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ATAI shares were unchanged in premarket trading Friday. Year-to-date, ATAI has declined -6.99%, versus a 17.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles. More...
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