Why Conservative Investors Are Backing Psychedelic Medicine

As the industry surrounding psychedelic medicine slowly makes its way into the mainstream, comparisons between compounds and industries have become more prevalent. Are any of these comparisons warranted? Today, we aim to dissect the facts surrounding psychedelic medicine.

Go-to-Market Strategy: Conventional Regulatory Pathways & Breakthrough Therapy Acceleration

While comparisons between the psychedelic renaissance and the boom of the cannabis industry are often made, there are some very important distinctions.

Likely the largest differences revolve around the use cases and corresponding paths to market. While the cannabis market is centred around recreational use, new applications of psychedelics are almost entirely medical. As such the legalization path for cannabis hinges on political lobbying and fundamental changes to state and federal laws, while psychedelics primarily depend on successfully navigating a rigorous regulatory process spanning clinical trials all the way through to approval. Unlike cannabis, most psychedelic companies plan to administer their drugs in controlled settings by trained professionals. These sessions would be based on medical prescriptions and used to target specific physical and mental health indications.

Psychedelic treatments are medicine. The FDA and Health Canada have clear guidelines for approving new pharmaceutical medicines regardless of the recreational availability of the substance. Each drug must go through several levels of trials to ensure it is safe to use and has medical benefits. Most psychedelics are currently classified as “investigational” as they are at varying stages of this clinical process. Some of these treatments have even been designated as “breakthrough therapies,” a rare designation that expedites the approval process. This is given to drugs that treat a serious condition with promising preliminary results compared to available alternatives. The FDA/Health Canada then make their decision based solely on the scientific data from the clinical trials.

Psychedelics are able to use the same scientific system of approval as any other medicine. For psychedelic drug discovery and treatment approval, it isn’t necessary for psychedelic companies to lobby any government because the approval comes based on science, not the votes of politicians. Once FDA approval is received, it grants medical legitimacy which is recognized around the world.

For consumers, there is an assurance of safety as approval is legally required for direct-to-consumer advertising. It also becomes easier for medical professionals to prescribe because the approval process creates standardized data regarding benefits, dosage, etc. In turn, this scientific approach provides certainty and stability to a treatment that cannot be achieved through anecdotal evidence. Additionally, this approval allows the treatment to be covered by medical insurance. Overall, a strategy focused on regulatory approvals is a far more risk-mitigated approach than one dependent on legalization.

Will Psychedelics Suffer Similar Hurdles?

Since the psychedelic industry uses conventional regulatory pathways and focuses on using biotech to develop treatments for neurological diseases; the psychedelic market does not face the same hurdles present in the cannabis space.

Although cannabis is legal in a number of US states, it still remains federally illegal. So far, investing in the cannabis market involves a great deal of uncertainty since it fundamentally relies on the dynamic legal status of a scheduled substance. Crossing state lines is potentially problematic and congressional banking restrictions and legal barriers make it difficult for cannabis companies to access capital in the United States. As a result, many companies face capital constraints which can make expansion challenging.

Further, moving money across state, federal and international lines is complicated. The cannabis industry is starting to attract a number of big companies largely outside of the domain looking to invest in the space, however until cannabis is a federally legal substance these larger corporations and institutional investors will see their hands tied. Ultimately, the therapeutic psychedelic industry is not subject to the same negative stigma surrounding cannabis.

Psychedelic Medicine & Collaboration

As psychedelic medicine grows conservatively within its safe and regulated parameters; there is a real mental health crisis that continues to grow and has been expedited by a worldwide pandemic. The estimated cost to the global economy is approximately $16 trillion by 2030.

This industry is slowly growing into the anticipated $100 billion dollar market. With the world’s first psychedelic ETF debuting last month and an increasing handful of companies going public, psychedelic companies have gained hundreds of millions of dollars in financing. Since our inception in late 2019, we’ve noticed an increasing share of highly-regarded medical and research organizations, and leading financiers, backing the psychedelic industry to help it grow with a robust foundation.

Top organizations have raised large sums and are researching the benefits of psychedelic medicine: Johns Hopkins, DARPA, Imperial College London, and most notably MAPS, who are conducting trials using MDMA to treat PTSD in military veterans, firefighters, and police officers in a ground-breaking randomized, double-blind, dose-response, phase 2 clinical trial that showed a clinically statistically significant response to treatment. Additionally, several renowned research institutions like Johns Hopkins, Berkeley, University College London, NYU, and most recently Massachusetts General Hospital, have all established dedicated psychedelic medicine research centres.

The Department of Veterans Affairs reported 17 veteran suicides a day in 2019, and an estimated 20% of former military personnel suffer from PTSD in America alone. The Department of Veteran Affairs also spends about $400 million annually on treating PTSD and other mental health conditions. Interestingly, in a 2018 study, a single dose of ketamine rapidly reduced suicidal thoughts, within 1 day and for up to 1 week in depressed patients with suicidal ideation.

Institutional Investments

Many know the famed investors in this space: Peter Thiel, Y-Combinator, Mike Novagratz and Kevin O’Leary but few are familiar with the more conservative institutional investors backing some of these notable psychedelic companies.

Banks & investment advisors among others have been instrumental in the funding of the psychedelic space. The Canadian Imperial Bank of Commerce (CIBC) one of the big five banks in Canada along with Canaccord Genuity Group, the largest independent investment dealer in Canada that specializes in wealth management and brokerage in capital markets are behind investments in some of the largest firms in the sector to date including MindMed, Numinus, and Compass Pathways. Eight Capital, an investment bank that advises companies in industries like metals and mining, energy, and healthcare in North America have also been participating closely in the space.

It’s also important to make note of other major investment banks that have started to get involved. For example, when Compass Pathways went public in September, Cowen, Evercore ISI, Berenberg, Canaccord Genuity and H.C. Wainwright & Co all served as bookrunners for the offering.

Closing Thoughts

As with any emerging industry, psychedelic medicine is not without its risks. The coming years will be instrumental in determining the ultimate direction this space will take and we are still in the early innings. As new investors learn about opportunities in the space it is important for them to understand that while psychedelic medicine may have some parallels to other categories such as cannabis, at a fundamental level it is a very different space with its own unique set of underlying value drivers.

Psychedelic medicine and therapeutics hold a strong position as an emerging industry with its particular focus on proprietary, protected, and clinically-backed claims. These compounds are showing real results in neuromodulation, regeneration and rewiring, inciting entrepreneurs to develop exciting and promising companies & partnerships and attracting investors of all shapes and sizes. The future is bright.