With a handful of publicly listed companies now competing in the space, psychedelic therapies are on track to be one of the hottest growth areas in biopharma over the next decade.
Thanks to a number of favorable trends, investors won't need to wait much longer for growth to take off. Let's take a look at four green flags for the psychedelics industry to get an idea about how they might drive further progress.
Image source: Getty Images.
1. Decriminalization is advancing
For psychedelics companies to have a ghost of a chance at being good investments, the tools of the trade -- psychedelic chemicals -- can't be illegal to use in a medical context. While prohibition has prevented significant research in the field of psychedelic therapies for the last few decades, in the last two years regulations have started to soften.
In Oregon, psychedelics are decriminalized for all purposes as of late 2020, and the state also specifically legalized psilocybin for medicinal use. A handful of cities like Washington D.C. and Denver have also recently moved forward with decriminalization of psychedelics. And, if a decriminalization bill moving through California's state legislature as of June 29 is made law, it'll soon join the group.
These are steps in the right direction. A federal legal framework for using psychedelics therapeutically with the aid of a licensed caregiver and a U.S. Food and Drug Administration (FDA)-approved drug product would be the next step, and it might happen in the next few years.
2. The stigma around psychedelics is fading
It's no surprise that decades of America's War on Drugs made many people hesitant about exploring the therapeutic merit of psychedelics. But, with the passage of time, enough promising research has been published to chip away at the taboo.
In fact, a study published in the prestigious New England Journal of Medicine earlier this year found that treatment with psilocybin performed at least as well as one of the first-line medications for depression, and with fewer side effects. With favorable results like that, even skeptics can agree that there's more than enough to justify further investigations.
Regulators are also loosening research restrictions in recognition of the potential benefits to patients. The FDA recently gave Breakthrough Therapy designations to MDMA (commonly known as ecstacy) and psilocybin to pave the way for faster drug development.
And people are more willing to talk about psychedelics in a scientific and professional context, too. In 2019, there were more than 20 different conferences across the U.S. dedicated to psychedelic medicine development and applications. As decriminalization proceeds, more are sure to come.
3. Key technologies are maturing
Treatment with psychedelic chemicals isn't fire-and-forget in the way that other psychiatric drugs often are. Psychedelics tend to have active effects that last for many hours. During that time, it's possible for patients to go down a dark path in their minds, which can in turn cause intense panic attacks or similarly traumatic experiences.
All medicines have risks, and good clinical management by a trained psychedelic facilitator can minimize the chance that patients have a "bad trip." But, to refine a psychedelic chemical into a fully predictable, controllable, and reproducible psychedelic medicine, it's necessary to make new biotechnologies to aid treatment.
And that's exactly what several companies have been working on. Mind Medicine (MNMD +0.39%) is making an "eject button" system that therapists can administer to patients who are in danger of spiraling into anxiety during their psychedelic treatment session. It's also developing new computational methods for accurately dosing its therapies, cutting down on the risk of a bad trip.
Likewise, Cybin (CLXP.F +2.60%) is building a brain monitoring system which will allow clinical trial researchers to take detailed measurements from patients during their psychedelic experiences. That'll pave the way for exquisite fine-tuning of its drug candidates, and it might even provide clues for how to maximize efficacy too.
The more these technologies mature, the lower the barriers to widespread use of psychedelic therapies will become, and early investors will reap the benefits.
4. Financing is getting easier to come by
Much like in the cannabis industry, psychedelics developers may have a hard time raising cash as a result of prohibition. Needless to say, it's hard to develop new technologies and new drug products on a shoestring budget. But the purse strings are already loosening when it comes to rising stars in the industry.
Take Atai Life Sciences (ATAI +2.43%) as a recent example. Even before its recent initial public offering (IPO) on the NASDAQ, it managed to raise around $362 million in funds from venture capital firms and private investors. That'd be quite a good haul for a normal biotech company at a similar stage of development.
And now, retail investors can buy shares of securities like the Defiance Next Gen Altered Experience ETF, (PSY +0.00%) which tracks a handful of companies in the space. That'll help to provide tailwinds to the ETF's components, making it easier for them to raise larger amounts of capital too. While resources may have been hard to come by in the past, it looks like the psychedelic therapy makers of the present and future will probably have it much easier.
