Mental illnesses are tough to treat, and modern medicine can't guarantee relief for many patients. New therapies derived from psychedelic compounds, however, are offering hope, not to mention a slew of opportunities for forward-thinking investors.
Since ATAI Life Sciences' (ATAI -3.14%) outsize initial public offering (IPO) on June 22, it's flush with an estimated $225 million in cash. And with a market cap of $2.81 billion, it's the largest of the biotechs focusing on making psychedelic therapies thus far. Importantly, Atai's telehealth-heavy approach to psychedelics is significantly different from its competitors'. So, if you're looking to invest $1,000 in a speculative but promising stock, I think Atai is a good option. Let's explore why.
Image source: Getty Images.
There's more to Atai than meets the eye
At first glance, Atai looks more or less like every other psychedelics biotech.
Its pipeline includes programs covering most of the common psychedelics with therapeutic potential, such as psilocybin, ketamine, and ibogaine, to address disorders like treatment-resistant depression and opioid addiction. Most of its wholly owned programs are in phase 1 of clinical trials or preclinical testing, which means Atai is on pace with the other companies in the psychedelics space.
So far, Atai has expanded its pipeline by acquiring smaller drug developers rather than cultivating its in-house development capabilities directly. It's likely that it will keep gobbling up promising projects and technologies for its future use, as it did with its purchase of a majority stake in brain-computer interface (BCI) therapy business Psyber in April. If this strategy is successful and these bets pay off, Atai's portfolio of capabilities will be formidable.
Furthermore, Atai is currently working on a drug development platform to make new psychedelic molecules that are shorter in therapeutic duration and more effective than their naturally occurring counterparts. These molecules might also be non-hallucinogenic, which would make them preferable for many patients and capable of grabbing a larger market share as a result.
Will it be able to scale?
Overall, Atai doesn't seem to have any obvious edge on the basis of its development plans alone. But the company has something huge that the competition doesn't: a cogent plan for cheaply distributing its therapies should they eventually get approved for sale.
The problem with psychedelic therapies as they are currently envisioned is that patients need to be under the influence of a drug's effect for many hours. All the while, they need close clinical supervision to ensure an optimal therapeutic outcome and to avoid unpleasant side effects. So, psychedelics might be difficult to deploy profitably at scale.
To mitigate this issue, Atai is making a digital health system through which it can administer psychedelic therapies remotely rather than in-person. With its Introspect platform, clinicians will be able to monitor patients and guide them through the therapeutic process from afar. And after a patient receives their guided therapy, the platform could potentially continue to provide them with automated support afterward to promote further improvements.
While details on the program remain vague, it has immense potential. Providing psychedelic therapy via telehealth services would head off the need for the company to spend on overhead like clinics, as its competitors may need to. It'd also enable Atai to scale its operations far more aggressively if its therapies receive regulatory approval, as its therapists could serve patients in any location where the treatments are legal. So, building a digital therapy platform could also give Atai a head start on grabbing market share if certain regions permit medicinal psychedelics before others.
This stock is worth a speculative investment
Like many other biotech stocks, Atai has a long way to go before its drugs or digital platform will yield revenue. In the meantime, it isn't profitable, and it has no recurring cash inflows. Still, the company is rapidly becoming the player to beat within the sector thanks to its work toward its ambitions of long-distance psychedelic therapy.
If you're looking for a surefire bet, steer clear -- the drug development process is too risky, as is Atai's unproven business model. On the other hand, if you want exposure to growth from the long-term development of the psychedelic segment of the biotech industry, Atai is a great choice right now.
