Valuations of publicly traded psychedelics companies have plummeted in the past two years as the long wait for federal approval on more drug treatments has stalled somewhat, and that has in turn thrown the sector into a downward financial spiral that may not be relieved anytime soon, several financial experts said Thursday during the Psychedelic Science 2023 conference in Denver.
Public psychedelics companies have raised almost $3 billion as a sector, said Andrew Chomer, managing partner at New York-based venture capital fund Integrated. But that’s almost all been spent on drug development, with most public companies still awaiting the green light from the U.S. Food and Drug Administration to bring their services to market.
That means they need even more capital to complete the process, which Chomer said is a “major hurdle” at a time when investor enthusiasm has cooled significantly.
“We’re in this period of time where the markets have gone down, and these companies still require a lot of funding,” Chomer said. “$140 million, that’s only a fraction of what you actually need for one company to get through the entire drug approval process. … There’s still an absolute ton of work to do.”
That doesn’t mean there isn’t reason for optimism, other experts said, despite the sector needing billions in investment dollars.
Patrick Trucchio, managing director at New York-based H.C. Wainwright & Co., said that about two years ago, just the top four public psychedelics companies were worth roughly $8 billion, and though that number has shrunk, he said all of the research data produced in recent years has backed up the original investment reasoning: that psychedelic treatments work.
“Nothing has changed. The data has been positive throughout,” Trucchio said. As a result, he said, “We still see the space as being worth something around $15 billion.”
But Trucchio, Chomer and other financial experts reiterated time after time that companies need more funding in order to eventually become profitable psychedelics businesses, given the years-long and often multi-billion-dollar expense of getting the FDA to sign off on new drugs.
And that may mean enlisting the help of large pharmaceutical companies, a few experts suggested tentatively, despite the traditional bad blood between natural medicine activists and “Big Pharma.”
“I don’t think we’re going to see valuations pop back up,” said Daniel Goldberg, managing partner of Chicago-based Palo Santo.
“We have to really listen, bring in inter-disciplinary talent … from life science funds, from pharma. Dare I say Big Pharma? I think it’s like a really dirty word,” Goldberg said. “Big Pharma does some good things. They do some terrible things. And really listen to them and not just be in our own bubble. That’s super important.”
Trucchio also noted that large biopharma companies already have both the funding and the infrastructure necessary to both obtain FDA approval for new drugs and to get them to market, in order to help the broadest number of patients suffering from ailments such as depression and post-traumatic stress disorder.
And Lindsay Hoover, managing partner of the California-based JLS Fund, said that “Big Pharma” is already part of the psychedelics industry conversation.
“We do talk to Big Pharma, and Big Pharma actually is here,” Hoover said, adding that finance and investment is how the psychedelics trade will eventually become more mainstream.
Hoover also said that the “elephant in the room” is that many psychedelics advocates seem to be taking for granted that the Multidisciplinary Association for Psychedelic Studies (MAPS), which sponsored this week’s Denver conference, will be successful in its upcoming attempt to get the FDA to sign off on its proposal for MDMA-assisted therapy. But, Hoover said, that’s not a foregone conclusion, and it’s one of the reasons investors are hedging.
“I’m so thrilled we are all very confident and believe that’s going to happen. It’s a risk factor … to traditional investors,” Hoover pointed out. “Once that’s happened … it’s going to be a big sigh of relief. There are lots of other obstacles. But that’s something that has to be resolved.”
Chomer agreed with Hoover and gave audience members during his panel a dose of financial reality, and said his firm has hit pause on even raising new capital for psychedelics companies, but is instead focused on partnering closer on operations and execution with its existing investments.
“This year, our primary goal is to get more intimate with each of our companies, as opposed to raising more funds,” Chomer said. “We told our investors, we’re going to wait.”
The reality right now, Chomer said, is that “since there’s not a clear path to success in psychedelics … this is just pure risk in a lot of ways. We all want it to happen, and we’re all still figuring it out.”