Psychedelics have showed tremendous potential in treating neurological conditions such as major depressive disorder, PTSD, ALS, and generalized anxiety. Investors jumped on the opportunity, sending market values skyrocketing. It’s not just a retail pastime, institutional backing is on the rise.

The increased uptake of big money is most recently illustrated by Stephen Jurvetson announcing he would split his fortune and give approximately half of his net worth to fund the research of psychedelics and its application in mental health therapy.

Yet little is known about psychedelics’ specific role in healing and questions are being raised about the influx of investment by hedge funds and high net worth individuals like Jurvetson. Let’s start with the challenges, then touch on some companies addressing the issues.

Big money and the accompanying quandary

Psychedelics plays, like most pharmaceutical ventures, are capital intensive as clinical trials don’t come cheap and drug development timelines can extend for years. Companies involved in drug R&D require a large war chest and patient financiers to survive the path to regulatory approval, so I am not against raising the necessary capital, but there is a limit.

Canopy Growth Corporation is just one example of a zombie unicorn created by rampant private equity and ridiculously unhinged public market optimism. The cannabis monstrosity is currently valued at $5.13 billion CAD. Canopy only managed to bring in $145.65 million in Q2 2022 while simultaneously reporting a net loss of $11.05 million. The company hasn’t made a profit since it was founded in 2013. How is this acceptable?

CGC is a result of a corporate entity more concerned with short-term S/P growth for its shareholders rather than long-term sustainable performance geared toward the sector and the public. Basically, the company is nothing but a speculative money suck.

Atai Life Sciences (ATAI.Q), Compass Pathways (CMPS.Q) and GH Research (GHRS.Q) lead the psychedelics pack in enterprise value. Atai is a rollup, not a pharmaceutical company. It puts money into the research efforts of other entities for a piece of the action, illustrated by its recent upping of its equity stake in Compass Pathways.

Performance-wise, the company is still in “growth” stage. Atai reported $40.8 million in comprehensive losses for quarter ending September 30, 2021, and $89.98 million for the nine-month period ending the same time. I must admit that six insiders seem confident share price will improve as they paid themselves an aggregate 768,000 stock options in September expiring in 2031 at a strike price of $16.46.

Now before you get excited, there are no performance conditions that I can see attached to these benefits, just public market gullibility.

Compass Pathways’ lead drug candidate COMP360 is prepping to enter Phase III clinical trials for treatment resistant depression. The total global market for treatment resistant depression will be $1.13 billion USD by 2024. Compass is currently valued at $1.24 billion. To meet the average price to sales ratio on the S&P 500, the company would have to seize at least 47% of that global market with a high profit margin.

Among the points made in research done by the RAND Journal of Economics, two stand out:

“…in many pharmaceutical markets there is competition between products that are at least partial substitutes. There is no “winner-take-all” process by which the best product captures all or almost all of the market…”

“…there is evidence that the more products there are available for treatment of a particular clinical condition, the lower are the margins on each product.”

Since nearly every psychedelics market entrant is seeking to provide therapeutic solutions for treatment resistant depression, the chances of Compass capturing the required market share and profit margin to justify its capitalization aren’t great.

Therefore, institutional money and high net worth individuals such as Jurvetson entering the psychedelics sphere carry a serious degree of danger of creating more over-stuffed non-performers like Canopy. Also, Jurvetson’s motives in the psychedelics sector are questionable at best.

Jurvetson, founder and former managing director of one of the best-known capital venture firms in Silicon Valley, Draper Fisher and Jurvetson, was canned in 2017 for lying about what the company considered serious allegations of inappropriate behaviour toward female entrepreneurs. He ended up taking leave from the boards of SpaceX and Tesla following this.

There is no breakdown of Jurvetson’s net worth and no deadline for his donation so no one knows when or how much will be given to psychedelics researchers until Jurvetson makes good on his announcement slash PR stunt.

Vagueness of the science

There is no general consensus on what component of the psychedelics assisted psychotherapy “does the job”. Is it the trip, the neurological reformation, the psychotherapeutic guide, or the mental fortitude of the patient?

There is a problem with the research as well. Clinical trial test subjects typically represent certain segments of the user population, so no reliable data exists on the general long-term effects of psychedelics use.

According to a research report for the Nordic Studies on Alcohol and Drugs in 2020, the author, Petter Grahl Johnstad, stated most psychedelics-assisted psychotherapy studies employ intermittent or new users of psychedelics, while individuals with substance use disorders aren’t included in the trial process, tipping the scales toward beneficial outcomes and benign long-term impacts.

So, despite popular media’s optimism, there are no potential psychedelic panaceas for neurological conditions and current efficacy results are limited to certain population segments. Does that mean psychedelics are a waste of time? No but change needs to happen in the pursuit of empirical truth.

According to an article penned for Frontiers in Psychology in 2020, the authors contend that due to psychedelics’ complicated past with regulators, the historical science is spotty and anecdotal; while current research has been plagued by potentially perverted incentives provided by private equity. Not to mention preclinical trials in medical science have been called into question due to sizeable replication problems as illustrated by a recent article in Science News regarding cancer research.

Psychedelics path forward

All is not lost, if scientists within the field adhere to the recommendations made in the Frontiers of Psychology piece previously mentioned:

• Pre-registration: This is a comprehensive process that includes the detailed description of all hypotheses, planned analyses and sample size. The information is uploaded to a reputable repository such as Open Science Framework before human observation of data. This would limit career, ideological, financial, or other perverse incentives.
• Open materials and open data: One of the biggest problems in study replication is the unavailability of data or method descriptions. Researchers could provide their study materials and collected data so that reviewers and peers can evaluate, reproduce, replicate, and explore methods and data to determine research findings.
• Replication: Vitally important to the creation of a community of confirmed research findings allowing for accurate drug development proposals and research expansion. It is also the only way to effectively test for Type-I errors (false positives).
• Constraints on generality: Researchers already provide a limitations section on study papers, but a constraints on generality (COG) section, is a far more structured and detailed replacement. As explained in the article, the COG should explicitly identify qualities of participants, materials, procedures and context that the researchers consider necessary and/or sufficient for observing the reported effects; they should also explicitly identify qualities thought to be irrelevant i.e. over which the results are generalizable.
• Commitment to scientific rigor and transparency: High quality psychedelic research must protect itself from both overzealous institutional safety concerns and from private interests that wish to skirt regulation in favor of fast results or market advantage.

Companies making the effort

I spoke with two psychedelics industry leaders to get their take on what they are doing to protect and verify their science.

Filament Health (FH.NEO) is a company developing naturally derived psychedelics medicines. Filament possesses strong IP related to the novel extraction and purification of botanically derived psilocybin.

The idea is to embrace the potential entourage effect from the collection of compounds within the hallucinogenic fungi known as magic mushrooms. However, the company counters the known inexact properties of natural extractions in its 3,200 square foot manufacturing, research and development facility located on the British Columbia Institute of Technology (BCIT) Campus.

With a patented proprietary process, Filament removes target compounds from collected biomass, purifies it, standardizes concentrations, and utilizes novel delivery forms for optimal efficacy. All of this is done adhering to pharmaceutical lab standards.

The company currently trades at $0.245 CAD per share with a market cap of $44.48 million and 164.69 million issued and outstanding shares. Access the company’s website here.

When asked about what safeguards are in place to bolster the company’s IP and protect the science from conflict of interests, CEO Benjamin Lightburn, commented:

“At Filament, we are committed to not only advance our drug candidates through the FDA approval process, but also to advance the state of psychedelic research in general. One of the ways in which we are doing this is by supporting investigator-initiated studies which ensures academic and scientific independence because the academic institution (in our case UCSF) has many relevant procedures and processes in place. This also ensures full publication of results. As another example, we are planning to employ ketamine as an active placebo in our upcoming phase 2 trial. Even though this comes at significant cost and risk to us, we think it’s valuable in order to set a new standard for the quality of placebo control in psychedelic studies.”

MYND Life Sciences (MYND.C) is a British Columbia-based neuro-pharmaceutical drug development company advancing its current patents and research that link depression and inflammation at the genetic and cellular level to create clinical therapeutics.

This basically means MYND’s science contends it isn’t the trip, the guide or the neurological pathway reformation that is the main ingredient for treating depression, it is the anti-inflammatory qualities of psychedelics that directly impact the neuroinflammation created by these mental health indications, relieving the pressure, thus treating the biologically based condition. If you would like to learn more about neuroinflammation and depression, check out Edward Bullmore’s The Inflamed Mind.

MYND has multiple proprietary patents for the development of treatment for major depression disorder using psilocybin and holds 38 licenses for 38 different analogues of psilocybin to determine which is best for modulating the Human Mycogene. It carries out this research at the globally renowned Michael Smith Laboratories at the University of British Columbia.

The company currently trades at $0.24 per share with a market cap of $11.02 million and a tight count of 45.93 million issued and outstanding shares. Access the company’s website here.

I spoke with company co-founder, CEO and director, Dr. Lyle Oberg, for his take:

“We operate with the highest standards at MYND Life Sciences. Our researchers focus on building strong data and solid pre-clinical trials before moving forward with clinical studies. That means a drug candidate must show what we predicted in terms of safety and efficacy in animals and show good reason to progress to clinical stages. When it comes to conflicts of interests, our team at UBC are academic professionals whose careers are based on reputation. They wouldn’t risk that for anything.”

With the present legislative and social climate regarding psychedelics-assisted psychotherapy, I was interested in Dr. Oberg’s opinion on the state of psychedelics research and where he saw the industry heading, Dr. Oberg had this to say:

“The results from our studies have proven very positive, which is exciting as the mental health industry is at an important inflection point; there’s been no new class of depression drugs since the development of SSRIs in the 80s. However, despite the need for advancing new treatment solutions, there’s a high barrier to research due to stringent regulation. That needs to be loosened. Considering this, it may take a while before we see broad implementation of prescribed psychedelics in mental health. A study in Boston showed it took 13 years for public adoption of a drug therapy after it had been proven. That said, the introduction of AI drug discovery could propel the process where we have nationally recognized psychedelics therapies within two to three years. Regardless, we continue to follow a natural, tried-and-true progression for bringing drugs to market. We won’t be skimping; our science must be strong and replicable.”

Both Lightburn and Dr. Oberg strongly voiced their commitment to the science of medical psychedelics. Even though this is a small sampling of the space, their dedication gives me hope for the sector and the reliability of its science. If you are interested in contributing to this conversation, I would love to hear from you in the comments. Where do you see the sector in three years?

–Gaalen Engen