Dave HodesAugust 23, 2022
To talk about company resilience in the psychedelics industry is a bit premature. After all, most of the more prominent companies didn’t open their doors until 2016 or later.
But it’s the perfect time to build a foundation for resilience while they look to a future of opportunity. Established life science businesses can help show the way.
Challenges to Survival
The COVID-19 pandemic was one of those unplanned disruptors that forced many life sciences businesses to adapt quickly to a different business landscape and demonstrate not only their resilience but their ability to answer the call of duty during a health crisis.
Big, established pharmaceutical companies such Pfizer and Merck take disruptive events in stride, even when called on to put everything else on hold to address the outbreak of a deadly virus. But other life science companies emerging in the same space, such as psychedelics, are not so inclined.
As Pfizer’s billion-dollar revenues pile up year after year, it can adjust relatively easily to even unplanned change. For example, even with the pandemic disruption, Pfizer reported full-year 2021 revenue of $81.3 billion, reflecting a 92% growth in operations.
But nearly every one of the prominent psychedelic companies – Atai Life Sciences NV (Nasdaq: ATAI), Compass Pathways (Nasdaq: CMPS), Cybin (NYSE: CYBN), Mind Medicine (NEO: MMED, Nasdaq: MNMD), Seelos Therapeutics (Nasdaq: SEEL) – still have not shown any significant revenue. They are on the edge of failure already, and any disruption could swiftly kill the business.
One example of psychedelics’ tenuous grip on survival comes from Compass Pathways, founded in 2016. “Even if the company’s therapeutic development efforts are successful, it is uncertain when, if ever, the company will realize revenue from sales,” the company noted on page 13 of its quarterly financial filing with the SEC.
Most of these psychedelic companies look to be in serious financial trouble. Atai included these risk factors in its Form S-1 filed with the SEC:
- Our limited operating history may make it difficult to evaluate the success of our business and to assess our future viability; we have never generated revenue and may never be profitable.
- We are a clinical-stage biopharmaceutical company and have incurred significant losses since our inception. We anticipate that we will continue to incur significant losses for the foreseeable future.
- We expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control.
The unexpected can and will happen for clinical-stage development bioscience businesses, like psychedelics, working on novel drugs expected to have a multibillion-dollar earnings future.
Take Mind Medicine’s roller coaster ride this year. The company, founded in 2019, is a clinical stage neuro-pharmaceutical drug development company developing product candidates based on psychedelic substances. Its shares fell far and fast, from $2.86 a share in November 2021 to 58 cents on Aug. 9. It then surged an incredible 52% on Aug. 18 after news came out of a rich investor, Jake Freeman, jumping in.
According to the Financial Times (FT), Freeman and his uncle Dr. Scott Freeman, a former pharmaceutical executive, recently amassed an activist stake in the company. FT reported that Freeman is planning to have a “constructive” dialogue with the board alongside his study of complex analysis and mathematical statistics at the University of Southern California.
That’s not resilience for MindMed; that’s a lucky break that should begin an earnest discussion about resilience since there is so much more at stake.
Strategies for Resilience
There are signs of some psychedelics businesses maturing and adjustments being made, which could indicate more attention to resilience as a higher priority item.
For example, management at Atai Life Sciences reported in their recent quarterly financial report that it had enough money to operate into 2025 ($487 million).
To sustain that goal, the company “streamlined its pipeline by decelerating programs and discontinuing funding beyond our obligations to several programs.” The company said it will further review its pipeline and prioritize capital expenditures of research and development programs with the most potential – financially and for patients.
MindMed, on the other hand, appointed two new directors to its board, a move that is seen by industry observers as a sort of “special sauce” that makes the company more attractive as an investment. Specifically, the new directors add depth of business insight and life sciences value to MindMed’s management objectives.
This strategy of clearing the pipeline and beefing up expertise is probably the best way for any psychedelics company to continue to not just grow but lead the industry as a resilient operator.
Seelos Therapeutics, a company founded in 2016 advancing multiple late-stage therapeutic candidates for central nervous system disorders using ketamine and gene therapy, reported on page 7 of its quarterly report that it generated “limited revenues,” and that management believes that the company’s existing cash and cash equivalents as of June 30, 2022, “are not sufficient to satisfy its operating cash needs for the year.”
One of the 10 ways that Seelos management listed in which it could stay resilient against this somewhat dark and foreboding outlook was its ability to “maintain, expand and defend the scope of its intellectual property portfolio, including the amount and timing of any payments the company may be required to make, or that it may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights.”
A strategy centered around intellectual property could be just the thing to keep a company resilient in the face of any economic or competitive challenge.
Cybin, founded in 2019, continues to build its intellectual property portfolio, with one patent issued and 19 patents pending across six patent families, almost guaranteeing resilience against anything but cataclysmic economic collapse.
The company has completed more than 200 preclinical studies to date, supporting its growing portfolio of proprietary psychedelic molecules and has developed more than 50 novel compounds.
The good news is that the life science industry, which includes psychedelics, represents a steady economic growth driver, bolstering state, regional and national economies even during economic recessions, according to the June 2021 report by the Coalition of State Bioscience Institutes (CSBI). While this has held true during the last two recessions, 2020 was perhaps the ultimate test of the industry’s resilience.
“Despite the challenges of a global pandemic and the resulting economic shutdowns that led to a recession, and facing a corresponding seismic shift to remote operations, in 2020, the industry managed to grow its employment base by 1.4% while the overall private sector saw a 5.1% decline.”
Interviews with life sciences executives point to several emerging technology areas that are expected to take on increasing importance and have implications for talent needs both immediately and into the near future, according to the report. The technology and innovation areas most cited include data analytics and data sciences, automation of production and other processes and related robotics, and artificial intelligence.
Psychedelics businesses are beginning to settle into a more of a bioscience/life sciences business development routine, building on the quality of their clinical trial operations for now and guarding their intellectual property. Following a business plan to grow their workforce and stay resilient against the threats both internally and externally is really a higher priority agenda item today.
Results will play out over the next five years or so as clinical trials lead to final FDA drug approval. Then sales will begin, and they will realize some of their first revenue figures.
The promise of better human health and wellness using unique and novel drug therapies will, hopefully, keep the top psychedelics business today resilient and humming along, with only the usual bump in the road to deal with while fulfilling their destinies.
