Over the weekend, President Donald Trump fast-tracked the approval process for psychedelic treatments for mental illnesses.
Trump signed an order that directs the Food and Drug Administration (FDA) to ease restrictions on and speed up reviews of certain psychedelic drugs, cutting their review times to one or two months from the previous six to 10 months.
The order will be a huge boost for makers of psychedelic-based therapies, as they have struggled to attract capital in the past because many investors considered the regulatory environment for such drugs to be too risky.
Three under-the-radar biotech firms in particular are expected to benefit from the new policy.
Compass Pathways (CMPS +1.69%), based in London, is evaluating one drug for treatment-resistant depression (TRD) in two Phase 3 studies. The company is also testing the drug for post-traumatic stress disorder and anorexia nervosa.
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AtaiBeckley (ATAI +1.32%) has three programs currently in clinical testing, two for TRD and one for social anxiety disorder. The New York City-based company is also a major stakeholder in Compass Pathways.
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Definium Therapeutics (DFTX +3.56%), also headquartered in New York City, is evaluating a psychedelic drug in two studies to treat anxiety disorder and another to treat major depressive disorder.
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Trump's weekend order on psychedelic treatments directs the FDA to issue expedited reviews of products with so-called "breakthrough therapy" designated status, which means the FDA believes there is evidence those products could offer substantial improvement over existing options for serious or life-threatening conditions. All three of the companies mentioned above have therapies with that FDA status.
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And all three stocks rose on Monday. Definium was up more than 4%, AtaiBeckley soared 32%, and Compass Pathways had climbed about 39% in midmorning trading.
The federal government will also add funding for research on psychedelic therapies
The new order also directs the Secretary of Health and Human Services to allocate $50 million to advance private sector research into psychedelic treatments.
The policy change on psychedelic therapies is a return to the past. There was significant progress in the 1950s on using psychedelics to treat addiction and other conditions, but research was curtailed significantly in the 1960s when recreational use of LSD and similar drugs became popular.
Psilocybin, a psychedelic compound found in certain mushrooms, and ibogaine, a psychoactive compound from the root bark of an African shrub, are currently classified as Schedule I drugs, which means they're considered to have no accepted medical use and high potential for abuse.
Trump said his order will expedite the reclassification of those drugs.
A new era has begun for psychedelic treatments for mental disorders. Companies that can bring those treatments to market first are poised to benefit the most.
