5 Steps to Starting Your Own Psychedelics Drug Company

You’ve read the predictions, you’ve heard the buzz—psychedelics are about to change the world of mental health treatment. 

They promise no more mental health pharmaceuticals that numb out the brain, or that help mask the side effects. No more taking chemicals for the rest of your life that are not body-friendly, with the caveat that psychedelics can also cause brief, uncomfortable events during treatment on their way to profound, life-changing results.

Want to jump into these turbulent waters of starting up and building a psychedelics business developing drugs for treating mental health conditions? Here are five ways to go about it.

  1. First, get a million dollars. Or even $2 million dollars. Or better yet, $5 million. Yes, this business is expensive. Getting startup money from a venture capital investor is no simple matter because the payoff for them is still relatively uncertain and, at best, years away. They have to be informed gamblers, and you have to have a convincing business plan or model for your business where you can show all the expected results of what their money is buying—which for now, is simply the research and development structure for your company, including clinical trials which can take years and cost millions of dollars to complete. Clinical trials follow a typical series from early, small-scale, Phase 1 studies to late-stage, large scale, Phase 3 studies. The FDA can put a hold on a clinical trial if they don’t like how it’s proceeding. That being said, the top 11 VC firms invested about $139.8 million in 2020-2021, according to Business Insider. So apparently, even among the clinical trial uncertainty and the sometimes slow-moving FDA approval process, they clearly see a path to profitability.
  2. Find and sign up the best medical minds you can afford. It’s all about the molecule, man. Identifying and developing small molecules and macromolecules that might help cure illnesses and diseases is the core activity of pharmaceutical companies. There are good scientists out there who see the possibilities of psychedelics for treating mental health. What you want is a scientist with a serious pedigree who you can afford. Someone who has done a lot of work already in psychedelics through some academic facility. Someone who still has a good working relationship with that institution. You need a name to hang your expectations on, and a molecule your medical team can find and patent. And yes, the medical team people are not cheap either. You may be able to work out a sort of shared development deal with the medical director or their team where they continue on with their work at a university but still provide you the name and assistance you want as you build your company. One example is Matthew Johnson, the professor of Psychiatry and Behavioral Sciences at Johns Hopkins University, who is one of the world’s most published scientists on the human effects of psychedelics; was 2019 president of the Psychopharmacology and Substance Abuse Division of the American Psychological Association; and is currently president of the International Society for Research on Psychedelics, an organization he founded with colleagues. He is a clinical advisor for MindMed (NASDAQ: MNMD), a clinical-stage biopharmaceutical company developing novel products to treat brain health disorders that is one of the top five psychedelics companies to watch this year.
  3. Understand your risks as a startup in an emerging industry. There are more and more startups getting into psychedelics now. Some will succeed. Most will fail. The failure rate is high for any small business, let alone one in a challenging emerging market. As of 2021, 20 percent of small businesses failed in the first year, 50 percent within five years, and 65 percent within 10 years. Some fail after multiple clinical trials that didn’t quite work out. But their research has been done and maybe another startup can buy that company’s research as a sort of jump start for their new business. Do your research about strategies for success in this industry. And remember: Many mainstream pharmaceutical companies are still sitting on the sidelines waiting out more regulatory approvals when it comes to psychedelics. If these guys are hesitant, that may be your clue to wait out developments as well before jumping in.
  4. Carefully decide if and when you want to go public. Once a company decides to move forward with an IPO, it must work with an underwriter (typically a bank or multiple banks) to create a prospectus, according to The Motley Fool. A prospectus is a detailed financial report designed to help potential investors make informed decisions. One of the disadvantages of going public is that it takes six to nine months to go through the process, and it costs money to go through with an IPO from financial service and underwriting fees to filing fees. Then once it goes public, the company has to publish their unvarnished financial information, and answer to shareholders, which can create different management headaches.
  5. Don’t give up. It’s a bumpy road. You are going to experience failures. You are going to experience poor management decisions. This is just the way it goes with a novel therapeutic based on an illegal substance in an emerging market. There are many different state and federal laws to work with, and a developing regulatory environment that could take an unexpected turn and put your business at risk. You will need to prepare for these and other growing pains that are common in emerging industries. Seek legal help to build in a safety net. And always, always protect your patent and any related intellectual property which is easier said than done. Some psychedelics were criminalized for decades, the U.S. Patent Office does not have the personnel with expertise in the field, increasing the likelihood of granting meritless psychedelic patents, according to an essay in the Harvard Law Review. And because Indigenous communities pioneered many aspects of modern psychedelic therapies, their patenting by Western corporations may promote biopiracy, or the exploitation of Indigenous knowledge without compensation. Plus, the control of psychedelics by a small number of companies may stifle innovation and reduce access to these therapies.

Dave Hodes

David Hodes is a business journalist based in the Washington D.C. metropolitan area. He has contributed feature articles to several cannabis and psychedelics publications, as well as general business/lifestyle publications, on a variety of topics. Hodes was selected as 2018 Journalist of the Year by Americans for Safe Access. He is a member of the National Press Club, and the deputy booking agent for the National Press Club Headliners Committee.

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