Years before Sean Roth underwent ketamine-assisted psychotherapy — an early hint of what a fully legal psychedelic-drug industry might look like — he’d gotten out of a relationship. As he went through more traditional therapy, he decided to go on a 10-day silent retreat. But the meditative process, known as Vipassana, pulled the lid off his past and left his ego bruised. His therapist, with whom he’d become close, died. So Roth took antidepressants. As a side effect, he began obsessing over things.
Then Roth, a 38-year-old owner of a tattoo and piercing studio in the Los Angeles area, early last year tried ketamine therapy, which combines psychotherapy — sofa and all — with the legal anesthetic also used as a party drug. In the days that followed, he lost unwanted weight. He went deeper emotionally with his new therapist. He ran two marathons. Roughly a year into the ketamine treatment, Roth was off traditional, prescription antidepressants.
“It’s just being mindful that you’re a person in this world,” he said of the therapy’s effects. “People care about you. They love you. And they need your love in return.”
With similar testimonials emerging, psychedelic drugs have been recast as possible solutions to a range of emotional problems. Scientists are revisiting hallucinogens like mushrooms, LSD and others as possible therapeutics for depression, addiction, PTSD, obsessive-compulsive disorder and anxiety. And as the coronavirus pandemic fries away the population’s mental health, the possibilities are attracting more money.
Now, psychedelic startups, backed by investors dangling money and stock listings, are jumping in. As they do, they’re also bringing capitalism’s competitive drive to substances rooted in cultures that often avoided it.
On Friday, London-based Compass Pathways, which is backed by PayPal (PYPL) and Palantir co-founder Peter Thiel, filed for a U.S. IPO to trade on the Nasdaq Global Market under the ticker CMPS. It plans to use proceeds to research a depression therapy that uses psilocybin, the psychoactive compound found in “magic mushrooms.”
Hopes For Legalization
Those companies are betting on wider legalization and new research that suggests psychedelics can succeed where traditional medications have failed or, at best, merely narrowed the emotional sine wave. And like the cannabis industry, the hype around psychedelic drugs – and everything that comes with it – is building.
Regulators, too, are showing signs of openness. Johnson & Johnson (JNJ) thudded into the space with a ketamine-derived nasal spray after an FDA approval. The FDA has also fast-tracked some forms of therapy that use magic mushrooms and MDMA, also known as ecstasy or Molly.
But even in a fully legal world — not exactly on the horizon — the risks and rewards will be similar to any other legal drug. And questions remain about how big the psychedelics industry can actually get and how it can get there.
Psychedelic Drug Investors
Michael Auerbach, founder of Subversive Capital, which has invested in psychedelic drug companies, said they have the potential to develop multibillion-dollar drugs. But he’s not expecting concrete financial results anytime soon.
“These are all pre-revenue, development pharmaceutical companies,” he said. He added later: “In the pipeline of psychedelic drugs, we’re pretty far out from having a number of approved psychedelic compounds for treatments and medications by the FDA.”
Still, investors are starting to turn on the spigot. The nonprofits Multidisciplinary Association for Psychedelic Studies (MAPS) and the Psychedelic Science Funders Collaborative raised $30 million toward research into a PTSD treatment that mixes psychotherapy with a dose of MDMA.
Bob Parsons, the founder of GoDaddy, and his wife Renee pitched in $2 million. A foundation run by hedge fund billionaire Steve Cohen and his wife Alexandria donated $5 million.
“The normal sources of government are the National Institute of Mental Health (and the Department of Veterans Affairs). They were all closed to us,” said Rick Doblin, MAPS’s founder.
Other big investors have taken notice. Germany-based Atai Life Sciences, a psychedelics research-and-development outfit that backs other companies, is in turn backed by billionaire investor Thiel. Atai is the largest shareholder of Compass Pathways, which just filed for the U.S. IPO.
MindMed, which wants to develop hallucinogenic and non-hallucinogenic drugs, has the backing of “Shark Tank’s” Kevin O’Leary and Bruce Linton, former CEO of Canadian cannabis giant Canopy Growth (CGC). However, MindMed loaned Linton $500,000 to buy part of his share in the company. Co-founder JR Rahn said the deal was structured that way to make the deal more attractive. Linton said he would have backed MindMed anyway.
First Psychedelic Drug Stocks Emerge
Some advisors have cautioned psychedelic drug companies against rushing to the public stock exchanges. In doing so, they hope psychedelics can avoid the landslide sell-off investors dealt the cannabis industry after executives overhyped its potential. Yet some have plowed ahead — often on the path carved by the pot industry.
MindMed in March debuted on the NEO Exchange, a small bourse in Canada. Toronto-based Field Trip Psychedelics, which has opened clinics in Toronto and New York, said in June that it was working out a deal to complete a reverse takeover that would put it on the Canadian Securities Exchange.
In conjunction, Field Trip plans a private placement to raise up to $14 million. Stifel Nicolaus Canada and Canaccord Genuity, a financial firm that served as a frequent dealmaker for the cannabis industry, led that fundraising round. In February, Field Trip raised $8.5 million.
A handful of other psychedelic drug stocks — Red Light Holland, Champignon Brands, Revive Therapeutics — have also appeared on the Canadian Securities Exchange.
Psychedelic Vs. Cannabis Markets
Many of the companies researching psychedelic drugs envision a tightly supervised industry. Regulators like the FDA and DEA both have to approve any research on psychedelic drugs in the U.S.
Businesses would focus on patient therapy and everything surrounding it — from preparing patients for what to expect from a mind-altering substance to other forms of support.
If the industry follows that mold, it could be narrower than the one for cannabis, which can be consumed daily without supervision after purchasing it from a dispensary. Some, however, argue that broader uses are still possible, given the potential to chip away at antidepressant use. MindMed, for instance, wants to develop psychedelic-based non-hallucinogenic drugs that could be picked up at a pharmacy.
The MDMA-therapy fundraising drive co-led by MAPS offers other hints of what a legal industry might look like.
With that money, MAPS is analyzing data from the first of two Phase 3 studies — later-stage trials on larger numbers of people — required by the FDA. MAPS will have to demonstrate it can develop a pure, stable medical-grade drug. The group also hopes to have 300 to 500 therapists trained once the medication can be prescribed.
That training would later have to expand to thousands of people. Doblin, during a conference to discuss the funding, said some therapists have expressed interest in being cross-trained across multiple psychedelic substances. MAPS is also exploring group therapy — an option that could lower the costs.
A small number of specialized pharmacies, Doblin said during an interview, would have a list of prescribers that have been through MAPS’ training program. Only those people would be able to order the MDMA and have it shipped to their offices. Doblin said MAPS had an arrangement worked out to manufacture the MDMA, and put the drug into capsules, in England.
Inching Toward Legalization
The FDA last year approved Johnson & Johnson’s nasal spray Spravato, which uses a derivative of ketamine, for treatment-resistant depression. The agency this summer approved Spravato for people who are actively suicidal.
The FDA in 2018 gave breakthrough status to the psilocybin therapy being developed by Compass Pathways. In 2017, it gave breakthrough therapy status to psychotherapy assisted by MDMA, the compound in ecstasy, for PTSD.
Magic mushrooms are still federally barred in the U.S. But Oregon in November will vote on a measure to legalize psilocybin therapy. Denver residents voted last year to decriminalize psilocybin mushrooms. The city council of Oakland, Calif., voted last year to decriminalize the substance as well.
In Canada, the government will allow four people with incurable cancer to use psilocybin therapy, said TheraPsil, a nonprofit group supporting the patients, recently. The therapy will be used for “the treatment of their end-of-life distress.”
But regulators haven’t always coalesced with businesses. The SEC temporarily suspended over-the-counter trading for Roadman Investments Corp., which owns a company focused on researching cedar leaf oil and has a joint venture to open a psychedelic treatment center in California if psilocybin is ever legalized. The SEC cited statements the company made about “cedar leaf oil as a promising treatment for COVID-19.” The company did not respond to a request for comment.
New Research May Expand Opportunities
Additional research could help make the case for more incremental legalization moves. Lesser-known psychedelics are also possibilities.
DemeRx is trialing an opioid addiction treatment based on ibogaine. Ibogaine is psychoactive substance found in the root of a plant in Africa believed to smother out addiction.
MindMed, in collaboration with researchers in Switzerland, acquired the rights to a trial looking at LSD’s effects on anxiety. In the fourth quarter, it plans to start trials in Switzerland and the Netherlands to look at LSD microdosing and its impacts on ADHD in adults.
The company is also looking at a compound based on ibogaine called 18-MC that it says is non-hallucinogenic and could be sold in drugstores. MindMed hasn’t yet begun trials of any drugs in the U.S., but has filed an investigational new drug application for 18-MC with the FDA. It also wants to eventually conduct trials of 18-MC and LSD in the U.S.
Meanwhile, Johns Hopkins University opened up a center for psychedelic research last year. Researchers there have published more than 60 peer-reviewed articles. The U.S. government cleared the university researching psychedelics in 2000.
Big Pharma Involvement Looms
Auerbach, of Subversive Capital, also said that the activists promoting the benefits of psychedelics over the decades aren’t likely to gel easily with big pharma. But the psychedelics industry might end up depending on it to get bigger.
“We are ultimately going to have to partner with other pharmaceutical companies to not only fund these programs, but also, I think, one day, deploy them,” Rahn said.
Whether big pharma will want to join forces is another matter. Developers can tweak the molecular makeup of existing drugs and turn them into new ones. But nobody owns substances like LSD, or psilocybin or MDMA.
“Big pharma can’t patent these substances because they’ve been around for a long, long time,” Alan Fournier, founder of Pennant Investors, an investor in MAPS’ MDMA therapy trial, said during the conference to discuss the therapy. “And they don’t have the monetary profit incentive to make this happen.”
Amy Emerson, CEO of the MAPS Public Benefit Corp., said that Big Pharma might still eventually express interest in psychedelics. But the therapy side of the treatment adds complications the pharmaceutical industry might prefer to avoid. The development of a dedicated therapist training program would bring extra costs. Psychedelic therapy, she said, tends not to be a regimen that puts people on daily doses of medications for years.
“This timeline doesn’t fit into the traditional machinations of pharma companies, which could mean that rather than advancing these treatments, they would get lost in the shuffle and/or potentially languish in the commercial process,” she said via email.
Big pharma companies, she said, were good at developing drugs. But that was a lot different from psychedelic treatments that tend to work best with a therapist.
“They’re about medicine,” Doblin said. “They’re not about psychotherapy.”
(Editor’s Note: this is the first in a three-part series. Check back next week for the second story on psychedelic drugs.)
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