How did interest in psychedelic substances re-emerge among researchers after half-a-century of criminalization? And, what are the future prospects for this (re-)emergent space? We take a look at the Investment Prospect, and Risks, regarding pscyehdelic medicines.
After half a century of lying dormant, scientific research into the medicinal and therapeutic applications of psychedelic substances is showing signs of life once more.
What’s more, institutional backing appears to be emerging, most importantly from government authorities.
In October 2018 the U.S. the Food and Drug Administration (FDA) conferred a Breakthrough Therapy Designation to a psilocybin therapy for treatment-resistant depression, which is being developed by Compass Pathways. Just months later, the FDA recognised Usona Institute’s psilocybin therapy for major depressive disorder with the same Breakthrough Therapy Designation. These Designations allow researchers to expedite the discovery process of drugs that show early promise in treating serious conditions.
As the United States’ federal government signals a loosening of regulatory rules surrounding these substances, so do individual states and cities. Oakland (California), Denver (Colorado), and Santa Cruz (California) are the first U.S. cities to decriminalize magic mushrooms, and reports suggest that this move is being considered by many others. The state of Oregon has plans to vote on a similar ballot in 2020. Canadian authorities have a slightly more tolerant attitude toward magic mushrooms, turning a blind eye to some online dispensaries selling microdoses of psilocybin.
Why have we witnessed a renewed interest in psychedelic medicine in the U.S.? We believe that the positive experience of cannabis legalization, especially for medicinal purposes (e.g., cannabis-based medicines for severe childhood epilepsy, also approved in the UK), has inspired researchers to explore other compounds that were formerly off-limits even in research settings: such as psilocybin.
Other substances with hallucinogenic properties that are popularly regarded as ‘party drugs’, such as ketamine, have been demonstrated to have impressive medicinal efficacy. One of the most pertinent examples is Johnson & Johnson’s Spravato, a ketamine-based medicine for treatment-resistant depression, which is approved by the FDA (though, rejected by the UK’s Health and Care authorities).
Beyond pharmaceutical companies, world-renowned research institutions have demonstrated a similar interest in the application of psychedelic substances to the treatment of mental health problems. In September 2019 Johns Hopkins Medicine launched the Center for Psychedelic and Consciousness Research to study how compounds like LSD and psilocybin may be used to treat anorexia, addiction, depression, and other mental health issues. Their myriad lines of enquiry also include the treatment of smoking addiction and alcoholism. In a 2018 address, Hopkins researches recommended the reclassification of psilocybin to Schedule IV (from Schedule I).
NYU, meanwhile, reported “immediate, substantial, and sustained” reduction in anxiety and depression in cancer patients. These effects appeared to endure when participants in the study were followed-up at 6.5 months.
Note: see our Institutional Interest page for more information on which actors are taking an active interest in psilocybin.
The Investment Prospect
As scientists, researchers and governments become increasingly open to the use of psychedelics in the treatment of a variety of mental health disorders, psychedelic medicine emerges as a promising investment prospect for early investors. So-called ‘shroom stocks’ are generating an increasing buzz on Wall Street, with many looking to expose themselves to the potential upside over the coming months and years.
While investing in the few individual stocks and companies that exist at this early stage is certainly risky, the potential upside is equally enormous. New formulations that may address treatment-resistant forms of depression and patients who haven’t responded to conventional drugs, for example, are in huge demand; and a successful drug would likely see annual revenues in the billions of dollars, especially when protected by intellectual property regulations and the space’s high barriers to entry.
Given that approximately 300 million people across the world are thought to suffer from depression alone, the potential addressable market for such treatments is sizeable.
Compared to the Cannabis Industry
We should expect the financial dynamics surrounding the development of psychedelic medicines to be distinct from those seen before and during the legalization of cannabis. There are a number of important distinctions, of which these are two:
There is far less competition within the psychedelic medicine space. Due to the strict regulatory barriers involved in the research, development, and delivery of psychedelic substances and therapies, there will be less competition than in the medicinal marijuana space. The legalization of cannabis had a ‘flood gates’ effect, with relatively low barriers to entry. Compare this with the fact that the administering of psychedelic medicine will likely have to occur under the direct supervision of a healthcare provider, in line with Johnson & Johnson’s Spravato.
Intellectual Property. The specific formulations used to translate psychedelic compounds into effective treatments are being protected via intellectual property rights, with the purchase and sale of such rights already well-established. In ways similar to more conventional drug development, these protections will lower competition and allow individual companies to garner steady incomes from their formulations. Compare this with the legal cannabis industry, where the essential compounds (THC, CBD, etc.) are no subject to intellectual property claims.
In addition the inherent risks of investing in low market cap ‘penny stocks’, investing in this nascent space poses some broader risks. The most obvious risks are associated with the need for these substances to be rescheduled in most Western countries. In the United States, for example, nearly all psychedelic substances are Schedule I drugs, and as such cannot be used even in medical contexts and are deemed to have a very high propensity for abuse.
It’s not all doom-and-gloom, though. In 2018, the U.S. Drug Enforcement Administration (DEA) rescheduled Epidiolex, a cannabis-based epilepsy medicine developed by GW Pharmaceuticals, following its FDA approval. Assuming the appropriate regulatory hurdles are jumped, most notably rigorous clinical trial programmes, there is no reason to believe that other psychedelic medicines won’t follow suit.
Up Next: Institutional Interest
Looking to learn which actors are demonstrating an active interest in psilocybin and psychedelic medicines? From research institutes and government bodies, right through to private companies: we’ve tried to capture the headline players.