It’s common knowledge that new businesses in emerging industries face significant obstacles. That’s never been truer than for startup psychedelics companies working with novel formulations within the biotech industry.
Financial documents for nearly every publicly traded psychedelics company confirm that they are up against a lot of significant risk factors, as they first must focus on spending millions on research and development that may or may not work out.
But MindMed (Nasdaq: MNMD), a clinical stage biopharmaceutical company developing novel products to treat brain health disorders with a particular focus on psychiatry, addiction, pain, and neurology, seems to be particularly troubled.
Since its founding on May 30, 2019, the company has been immersed in turmoil, much of which happened this year.
The company is running a $173.1 million deficit as of June 2022, though management said it still has enough working capital for the next year.
It also experienced serious management changes in the last nine months, including a new CEO, CFO, and board chairman, plus the resignation of both founders.
In March, the company fired its accounting firm, Ernst and Young (EY), according to SEC filings after EY identified “an instance of a material weakness in the company’s internal controls over financial reporting in connection with the company’s accounting for contracts.”
Then voila, MindMed stock jumped 52% in July after Jake Freeman, a key Bed Bath and Beyond investor, bought 5 million shares. Jake Freeman is the nephew of Dr. Scott Freeman, the co-founder and chief medical officer of MindMed from 2019 to 2020.
The stock roller coaster really kicked into gear for the company this year. From Aug. 11 to Sept. 26, the closing price of MindMed’s shares ranged from a low of $5.74 to as high as $15.30, according to SEC filings. Daily trading volume ranged from approximately 154,224 to 15,472,494 shares on Nasdaq.
On Tuesday, Oct. 18, Senator Corey Booker (D-NJ) tweeted updates on his Right to Try Bill, asking to expedite it – and apparently setting off a firestorm of stock activity for MindMed.
Booker’s tweet came after he and Rand Paul (R-KY) introduced legislation in July to clarify that the Right to Try Act should allow terminally ill patients to have access to Schedule I drugs for which a Phase 1 clinical trial has been completed.
That Booker tweet prompted more than 2.6 million shares of MindMed stock to be traded. To put that in perspective, the company’s daily average trading volume is closer to 1.3 million shares. MindMed stock was up 9.9% as of Tuesday morning.
Today, Friday, it’s fallen 13% from its Tuesday peak.
Now there is a pending breach-of-contract lawsuit filed by Scott Freeman against Stephen Hurst, Carey Turnbull, and other defendants in the Nevada District Court, related to an agreement between Freeman and Hurst to form Savant, a research and development company focused on incorporating psilocybin, LSD, and other psychoactive medicines into mental health treatment.
The complaint alleges that after Savant purchased shares of MindMed, Hurst and Turnbull carried out a scheme to exercise control over MindMed through their own separate companies at the expense of Freeman and other members of Savant.
The wildly swinging stock performance and ugly pending lawsuit are just part of the ongoing MindMen melodrama.
In August, in a letter from a group of investors, FCM MM Holdings, which included Scott and Jake Freeman, called on the MindMed board to adopt a new strategic plan they proposed, including refocusing on its core drugs, cutting cash burn, and terminating MindMed’s at-the-money equity offering.
MindMed saw it coming: “Shareholder activism, which could take many forms or arise in a variety of situations, has been increasing recently,” they wrote in the risk factors section of their SEC filing. “Volatility in the stock price of our common shares or other securities or other reasons may in the future cause us to become the target of securities litigation or shareholder activism.”
The FCM group said in their letter that they just wanted to help: “We desire to work hand-in-hand with the MindMed Board of Directors to unlock the Company’s full potential,” the letter states.
FCM is directed and managed by Scott Freeman, who owns at least 19 million shares of the company’s stock (or 4.51%). He has offered to provide MindMed his expertise as a director on MindMed’s board.
According to the letter, FCM believes MindMed has underperformed operationally, financially, and strategically as a direct result of management’s lack of focus on its core drugs: MM-110 (18-MC) and MM-120 (LSD). FCM contends that MindMed can bring MM-120 to market in four years rather than seven to eight years, by reclassifying MindMed’s Phase IIb study on MM-120 to a Phase III study.
“We have seen the value of our investments in MindMed plummet as the stock has fallen from its highs of around $5.77 to $0.70 per share,” the letter stated.
In the proposed strategic plan, MindMed’s cash burn would be cut from $45 million per year to under $25 million per year, and MindMed would be able to deploy its $120 million cash reserve adequately over the next three years while substantially investing in their key drugs.
Other points the FCM letter brought up about their proposed strategic plan to help MindMen include:
- Reduce the workforce. MindMed has 22 full time employees focused on research and development. Prorating based on costs implies that 11 employees would be removed. Adjusting for stock compensation and amortization of intellectual property, this would result in an approximate cash savings of $1.85 million per year.
- Change compensation. Executives received a total of more than $2 million in salary and bonuses as the stock price dropped approximately 60% from Feb. 10, 2022, to Aug. 9, 2022. The FCM strategic plan calls for the reduction in all aggregate cash-based executive compensation by 50%, saving MindMed close to $1 million dollars per year in cash burn.
- Sell an acquisition. On Feb., 26, 2021, MindMed acquired HealthMode, Inc. for $27.5 million in an attempt to expand its market offering under the banner of digital medicine. HealthMode is a developer of technologies using artificial intelligence-enabled digital measurement to increase the precision and speed of clinical research and patient monitoring. Given the adverse market conditions and that HealthMode does not align with the FMC strategic plan, the FCM plan is to sell HealthMode for approximately $10 million-$15 million.
And there’s more: MindMed flirted with being delisted by Nasdaq in May, according to SEC documents, when their stock price tumbled to less than $1, spooking investors. It has since recovered.
But the company drama is likely to continue until MindMen’s pipeline of drug development begins to pay off – and nobody’s saying when, exactly, that could happen.