Psychedelics Investors Resetting Their Sights on the Sure Thing

The rush to get into the psychedelics industry is becoming a must-have for any bioscience operative, be that the research scientist with a novel therapeutic or the investor with a pile of cash hoping for the big payoff when a novel psychedelic drug becomes the next big thing for treating some of the untreatable or hard to treat human conditions like PTSD or depression. 

Psychedelics as the top-of-the agenda consideration for these operatives began with the promise of drug development using synthesized versions of psilocybin—a development that has ramped up significantly over the last two years with more psilocybin-related clinical trials (53) treating more human wellness conditions (113) than even the most optimistic investor could imagine just a few years ago. 

Every month, as more trials are added and more human health conditions are considered targets for more psychedelics research using a variety of different psychedelics, to an interested investor, the psychedelics industry is looking like a hot gold mine of good deals.

There is a catch, though. A wrench in the works, if you will. The unpredictable variable—and that’s the actual process of a psychedelic drug development.

Most drugs have to finish a Phase III clinical trial for consideration by the FDA, which is the first step to making them profitable. 

Unless a drug gets on an accelerated program at the FDA, such as fast track, breakthrough therapy, or priority review, getting a drug from test tube to market can take 10 months through the FDA review process, which begins after Phase III is complete.

Most companies working on psilocybin or other psychedelics are not that far along yet in their clinical trials—though the psychedelic world was rocked by the completion of a Phase IIb study by Compass Pathways (NASDAQ: CMPS), which promises to be in Phase III by the end of the year. 

It was the largest (233 patients), randomized, controlled, double-blind psilocybin therapy study ever completed.

That Compass Pathways announcement really got investors excited. Investment dollars poured into Compass and other psychedelic companies. Other more risk-averse investors began taking a look at the psychedelics. 

What they were seeing is a life science darling with great potential—but with a lot of back and forth on clinical trials, a flurry of patent applications to lock in their intellectual property (Eighteen psychedelic companies filed psilocybin product patents for formulations or methods of production in 2021; 19 patents were published in 2019 alone), and other basic life science groundwork which hinted at a fantastic earnings future complicated by hard-to-measure risk.

Intellectual property lawsuits are likely. Clinical trials could show that a certain formulation doesn’t work. A negative FDA review could kill a drug development, causing a psychedelics drug company to lose millions instantly.

What this new and growing wave of investors—Business Insider identified 11 firms investing about $139.8 million in psychedelics startups over the last few years—have found is that there are no promises of success in an industry that promises so much with products that take so long to get to market and become profitable.

They want a sure thing. A Plan B. They are finding it in psychedelics-industry services.

There is whole network of psychedelics startups focused on tech, delivery, and distribution that have risen up to lay the groundwork for what might become a $100 billion market, according to Business Insider.

One example comes from Cybin, sponsoring a study by Kernel Flow into a unique tech product. It’s a wearable helmet system that uses pulsed light instead of continuous wave light to increase measured brain information and help find out what is happening in the brain during a psychedelic experience.

Cybin doubled down on the value of their sponsorship, likely in part to lure investors to stick with them while their psilocybin clinical trial process continues. 

Cybin’s sponsorship agreement allows them to retain an exclusive interest in any innovations that are discovered or developed through its independent analysis of the Kernel Flow study findings. “We believe the results of this study will lead to future studies that will test the effectiveness of psychedelic treatments and will further support our mission to develop psychedelics into therapeutics,” Doug Drysdale, Cybin CEO, said in a press release about the study. 

Another example is Delica, Inc., with their digital health solution app, MyDelica, that charts an interested user’s psychological profile and its dynamics across time, and helps guide someone on a safer psychedelic journey. The objective of MyDelica is to capture the naturalistic use of psychedelics in ‘the wild’ and use that information to further guide scientific discovery. 

Delica, Inc, is a spinoff from the Centre for Psychedelic Research at the Imperial College of London.

And the evolution of the industry has also fired up exclusive help for psychedelics startups, another good sign for investors. Late in 2021, Woven Science formed a partnership with Founders Factory, a company that partners with companies to build, fund and scale startups worldwide, and launched one of the first startup business accelerators focused exclusively on mental wellness solutions that enhance the value of psychedelic treatments. They have identified four key pillars of investment: compounds, clinics, community and technology.

Yet another way that psychedelics companies are presenting themselves as a good investment is by simply expanding their lab services for contract work by other companies, as is the case with Numinus Wellness, Inc., through its research vertical, Numinus Bioscience. The expanded lab services include bioanalytical testing, bioassay and in-vitro studies, and small batch manufacturing, all of which the company hopes will be new revenue drivers. Numinus already provides services to several psychedelics organizations for analytic testing, product development and ancillary services.

Another company is using technology to proactively search for new chemicals to develop. Atai Life Sciences, a clinical-stage biopharmaceutical company, launched TryptageniX, a new platform company that will specialize in the discovery of new chemical entities for the Atai pipeline through bioprospecting (which is the search for natural products from which medicines can be developed), and on biosynthesis of Atai’s naturally derived development candidates. 

This platform is viewed as a good match for Atai, which in November, 2019, launched a joint venture with Cyclica, Inc., makers of an artificial intelligence-augmented end-to-end drug discovery platform that allows researchers to visualize the complete polypharmacological profile of a compound and specially tailor drugs to target specific disease pathways related to mental health. 

Cyclica, Inc., describes its system as a sort of work-around for the trouble that drug developers experience today—and what gives investors cold feet. It’s designed to “revolutionize a system troubled with attrition and costly failures” and “accelerate the drug discovery process” and “develop medicines with greater precision.”

There are also a host of other artificial intelligence companies for life science businesses that are designed to speed up clinical trials and reduce costs, such as Datavant, Cloud Pharmaceuticals, and Denovicon Therapeutics. And that’s just the equation investors like to count on: More certainty plus more predictability plus targeted development equals faster track to market.

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.

One comment

  • h.hefner

    February 23, 2022 at 10:56 am

    I agree with your thesis that the risk inherent in clinical trial psychedelic plays was initially underestimated and is now driving investor interest into safer alternatives. On paper, 10% FDA approval, millions of dollars and years of clinical trials and getting approval of schedule 1 drugs without the DEA disrupting the process sounds like a long shot. I would only add to your list of “alternatives”, companies which are focused on functional mushrooms and other sources of current revenue which allow easy entry if psilocybin mushrooms go legal more similar to cannabis. A solid argument can be made that the momentum if you look at legislation state by state is actually moving faster towards selling psilocybin outside of a real pharmaceutical model but in a less sophisticated manner with poorly defined treatment centers or even like weed without a moat of IP/patents as theoretically “classic psychedelics” cant really be patented anyways. Furthermore, natural magic mushrooms going legal like cannabis actually makes sense as psilocybin mushrooms are noted for their: 1) extreme safety relative alcohol , cannabis and a host of drugs (even other psychedelics), 2) non addictive nature, 3) inexpensiveness and 4) lack of emergency room visits. Its simply that the general population is not as familiar with magic mushrooms relative to weed but by all measures, its really a plant that should have never been made illegal in the first place. History of weed legalization suggests that once GW pharma and others proved the medical value of cannabis, more open access to legalization quickly followed as average citizens became less fearful of these drugs being available when they realized their uncle is fine after having some CBD pill. One can reasonably expect the same outcome with psilocybin as folks realize how harmless these plants are.


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