Right now, analysts up and down Wall Street are pounding the table on a little-known biotech company called MindMed (MNMD 4.72%). Based on the price targets they've set, the average analyst thinks it can rise around 543% from its recent price of around $8 per share.
So is now a good time to buy MindMed stock or should you keep it on your watch list instead?
Reasons to buy MindMed now
As you can probably imagine, the lofty price targets on MindMed are based on the potential of the treatments it has in development. In this case, those drugs are ones you're probably already familiar with. MindMed's lead candidate is MM-120, a proprietary formulation of lysergic acid diethylamide, better known as LSD.
MindMed is developing MM-120 for the treatment of generalized anxiety disorder (GAD). In August, it began dosing patients in a phase 2 trial expected to read out top-line results in late 2023. If patients receiving MM-120 fare better than those given a placebo, the stock will soar.
The odds of success for MM-120 as a treatment for GAD look much better than average. Earlier this month, an independently sponsored study of 42 GAD patients measured significant improvements among those who were treated with 200mg of LSD. The differences compared to the placebo group were so wide that a failure from MM-120 would be shocking.
The addressable market for MM-120 as a GAD treatment is enormous. A study from the National Institute of Mental Health found that around 2.7% of adults experienced GAD over the past year and roughly one-third reported serious impairment.
In addition to the large GAD population, MindMed is researching MM-120 as a treatment for attention-deficit/hyperactivity disorder (ADHD). The company is also developing a derivative of ibogaine called MM-110 as a treatment for opioid use disorder. For patients with autism spectrum disorder, MindMed is developing a formulation of MDMA -- more commonly known as the party drug Molly or Ecstasy.
Image source: Getty Images.
A big reason to remain cautious
I'm relatively confident that regulators will eventually approve MM-120. It's what comes next that concerns me. This isn't a bottle of pills that patients receive from the pharmacy every month. Treatment with MM-120 is more of a drug-assisted therapy experience that patients aren't expected to repeat on a regular basis.
In 2020, Johnson & Johnson received FDA approval for Spravato, a derivative of ketamine, as a therapy for treatment-resistant depression. Spravato is another powerful drug that requires medical supervision when it's taken. Sales of Spravato still weren't strong enough to mention in J&J's second-quarter earnings report.
Marketing a new drug that pharmacies can dispense in the usual ways is difficult on its own. Marketing a drug that patients receive just once is a greater challenge, and one that MindMed might not be ready to handle when the time comes.
A buy now?
Shares of MindMed have collapsed by more than 80% from their peak late last year. Now, the company sports a minuscule $232 million market cap. Given that it's starting from a small base, enthusiasm for MM-120 following a phase 2 trial readout could push the stock way up after the company delivers those results next year.
Before you buy this stock, though, you should understand that the company will need to raise capital again long before it has a chance to start marketing MM-120. MindMed finished June with $106 million in cash after burning through $36 million in the first half of 2022.
Further ahead, a deep-pocketed pharmaceutical company willing to take a risk could buy MindMed in an attempt to revolutionize the treatment of GAD and related disorders. Betting on a big-pharma rescue package, though, doesn't seem like a great long-term investment strategy. This is an interesting stock to watch, but probably not the best place to put your money right now.
