2022: Psychedelic Investment Landscape (PRO REPORT)

From the outside looking in, psychedelics had a monumental year. Mainstream media has been talking about it – telling stories and building momentum. The stigma is slowly breaking down due to this momentum.

But if you look beyond the surface, you’ll see that 2022 did not serve those that are participating in this industry. Valuations shot down as stock prices corrected. Overall, there is a sense that capital is drying up.

That said, there are still plenty of storylines to follow. There is growth as a whole, you just have to know where to look.

This section of the report is not quite as starry-eyed and exciting as many of the others. This year can be largely summed up as a shift from a bull to a bear market. 2022 has been a reality check for many investors in the psychedelic field. The excitement of psychedelics becoming widely accessible drove excitement in 2020 and 2021. There is a lot to be excited about regarding the progress of the psychedelic industry, especially this year. There have been regulation changes and clinical trial results that insinuate a bright future for psychedelic medicine. However, stocks and capital has been on more of a downslope than the rest of the industry. 

It has not been a positive year for the stock market, especially the psychedelic index. Investors are reacting to the bear economy and impending recession by decreasing their willingness for risk. The economy is slowing the growth of new businesses in the psychedelic field because capital has been more difficult, but not impossible, to come by. 

The companies that have been smart with their cash reserves and utilized 2022 to prepare for a potential recession will continue to make exciting progress throughout 2023. Companies that have not been able to secure their position may struggle to make it through another year. Investors know this and are looking to companies that offer minimal risk and a high potential for reward, despite the bear market. 

The psychedelic industry has a unique pool of investors. Many people have invested in psychedelic companies because they are passionate about their benefits. For anyone who has found healing growth through psychedelic medicines, the belief that they have incredible potential is a given. Many investors jumped into psychedelics believing that returns would be a straight shot. However, this is a long game. Retail investors and venture capitalists have both been victims of this mentality. 

As the stock market began to decline and capital dried up, investors were struck with the reality of investing in psychedelics. Many of the public psychedelic companies are in biotechnology. The biotech field is a risky investment in itself. In combination with the uncertainty of psychedelic regulations, the ups and downs become amplified. Despite a difficult year, there is still potential for high rewards for those who are able and willing to wait out the storm. Gold comes with patience.

The psychedelic index hit its all-time high when it spiked in February of 2021. It then remained relatively stable until November. Since then, it has been on a steady decline. The index was up in August and September of 2022. It then plummeted to its lowest point since ever in December.

There was a handful of IPOs this year, though less than in 2021. After-market offerings were many as companies attempted to secure enough capital to make it through 2023 and beyond. The companies that are being considered the lowest risk are those with a cash runway that will keep them up and running until 2025. Those without that cash runway may not make it through the bear market. During the latter half of 2022, many companies looked to secure capital and minimize cash burn. Mergers, acquisitions, and thinning of programs have been commonplace in 2022. 

Atai, Compass, and MindMed have been popular among retail investors looking to mitigate risk. These three companies have a strong pipeline and enough cash to make it to 2025. Some investors, however, are unsure of MindMed because of its drama with Freeman Capital.

It would be remiss not to mention the issues going on within MindMed that have many investors worried about the future of the company. Although MindMed has a good cash runway and strong pipeline, questions raised about the handling of the company’s intellectual property and the ability of its management have increased volatility in MindMed’s stock. If you want to get the whole picture of what is happening with the company, Psychedelicinvest.com has been covering the story.

2020 and 2021 were exciting times for psychedelic companies going public. IPOs did incredibly well. 2021 was home to the first billion-dollar valuation of a psychedelic company. This year was quite a bit more bearish, but that is just part of the process of an emerging industry caught in a difficult economic climate. 

There are many factors influencing the psychedelic index. Of course, the state of the macroeconomy is going to play a big hand in where the index moves. It is also influenced by the shifting of social stigmas and government regulations– two things that have been moving in a positive direction this year. Major clinical trials such as Compass Pathways phase 2b results (released Dec. 2021) and MAPS phase 3 trials influence confidence in psychedelic stocks. All of this, and more, has affected the index this year. 

Reverse stock splits and dilutive financing from a handful of companies in the index have also had a negative influence on psychedelic stocks this year. All the companies maintain that it was the right decision for the long-term performance of the stock and investor returns. However, it has shaken investor confidence in the companies. Psychedelicinvest.com’s in-house retail investor, Adam Tubero, said that he is looking for companies to wait for their valuation to go up before diluting. He has more confidence in companies that secure non-dilutive financing while waiting for their share price to come up to a more accurate number before opting for dilutive financing– if at all. 

IPOs and Private Placement

There were a handful of companies that went public this year, though it wasn’t as big of a year for psychedelic IPOs as 2021 was. Compass Pathways was the first psychedelic company to reach a billion-dollar market cap after its IPO in 2020. Compass still has one of the highest market caps of all the companies included in the index despite being valued at less than half of what it was originally.

Psychedelic companies continue to enter the public market, though the number of IPOs is not as high as in 2021. Here are a few 

Reunion Neuroscience, the drug development division of Field Trip Health, listed on the Toronto Stock Exchange as its own public company.

Albert Labs begins trading on the Canadian Securities Exchange with private placement.

Psych Captial raises 810k (EU) with IPO on AQSE

Uplistings

Clearmind Medicine Announces Closing of US $7.5 Million Public Offering and Uplisting to the Nasdaq

Silo Pharma up lists to Nasdaq and raises $5 million in offering of common stock.

Private companies play an important role in the industry. This year has been a big year for the development of the infrastructure that is required to scale psychedelic treatment through an increasing number of private companies. Though capital is not as readily available as it was in 2020 and 2021, many psychedelic companies have been able to raise the money they need to set up shop and bring services to market. 

As it becomes more evident that psychedelic medicines will become legally available, companies are starting to build the infrastructure needed to scale psychedelic treatment. Clinics, media, education, investor resources, data, and technology are all necessary for the growth of the psychedelic industry. Psychedelics have unique needs that require tools designed specifically for this type of medicine. 

Private investors and venture capital firms continue to put money into the expanding range of psychedelic companies. One of the industry’s main venture capital firms, Iter investment, has put money into bioscience, education, and even a psilocybin retreat center this year. Investors remain confident in the long-term rewards of investing in the psychedelic industry. 

Private companies have had success this year with psychedelic services. Last month, Nucleus launched a marketing and client management software designed for psychedelic clinics and practitioners. Interest in the program has been significant since its launch. Nucleus also provides news and data for investors, practitioners, and entrepreneurs through psychedelicinvest.com and Neuly. 

This year, many of the new and emerging private companies have been working to provide support for the industry over the next five years. With MDMA and psilocybin therapy on the horizon, supporting resources for psychedelic treatment need to begin development now, and that is just what has been happening in 2022. 

There are also new psychedelic biotechnology companies seeking funding. 2022 is still so early in the development of psychedelic drugs that it is hard to say which companies will be the most successful. The most effective and popular psychedelic drugs, from the pharmaceutical side, are likely still in the development stage or have not been discovered yet. 

New biotechnology companies do have the potential to compete with the likes of Compass, Atai, and MindMed. It is difficult to say which compounds and analogs will be the most effective because research into psychedelics is still so new. What will not be successful is new biotech companies coming in and pushing drugs through the pipeline that are too similar to what companies that are already further along in the clinical trial process are pushing through. Emerging companies have to bring something new and creative to the table to gain the confidence of investors. 

Needs that companies are addressing:

Companies Being Funded:

Lusaris Therapeutics launches 60 million Series A financing round.

Healing Maps closes 1 million USD seed funding round.

Freedom Biosciences emerges from stealth with 10.5 million seed financing.

MycoMedia Life Sciences raises 60 million.

Nue Life Health announces $23 million financing round led by Obvious Ventures and Western Technology Investment.

Fluence raises 3 million to scale psychedelic therapy training.

Gilgamesh Pharmaceuticals raises $39 million in Series B.

The psychedelic investment space is made up of many different types of investors. There are about a dozen VC funds focused exclusively on mental health solutions and psychedelics. And this year, more traditional VCs have been dipping their toes into psychedelics.

Iter Investments and Palo Santo– two psychedelic VCs– both announced the closing of major funds this year. Palo Santo announced the closing of their $50 million fund in October. Palo Santo has invested in over 20 portfolio companies ranging from biotech to clinics and therapist education.

Iter also announced the closing of its first fund in July. Due to investor interest, Iter surpassed its $20 million target. The fund has invested in some of the same companies as Palo Santo, including Beckley Psytech and Fluence.

These funds are important because they understand the unique needs of psychedelic companies. There are so many moving parts within the psychedelic industry that not all investors fully understand. Psychedelic-focused VCs have been crucial in the building of the industry. However, they aren’t the only ones betting on psychedelics.

This year there has been an increase in investments from major VCs and investors that are gaining interest in psychedelics. In August, Australian billionaire Andrew Forrest began showing interest in psychedelics. The Forrest family’s private holding company, Tattarang, launched a $172 million fund focused solely on biotechnology. The fund– Tenmile– has already invested in a company developing MDMA analogs. 

Phyto Partners launched a new fund focused on neuro wellness and psychedelics. They partnered with Ambria Capital for the management of Phyto IV. The team is experienced in healthcare and technology markets, which feeds into the psychedelic industry well. Interest in psychedelics from institutional investors has grown this year. More big funds and investors are seeing the potential of psychedelics to be a massive industry. 

Many initial investors came over from the cannabis space because of the social crossover between marijuana and psychedelics. However, the needs and trajectory of the psychedelic industry are vastly different than that of cannabis. Bringing in investors who understand the biotechnology, pharmaceutical, and mental health treatment side of the business helps bridge the gap between recreational and medical viewpoints. 

Interest in psychedelics from VCs has continued to grow during 2022. Psychedelic-focused VCs have continued to bring in capital and invest. Many of these funds are very new– opening in 2020 or 2021, and are happy to see positive growth. Uncertainty is high in a bear market, so it is a very good sign to see these VCs continuing to do well, even though the economy is not doing as well as when the funds were started. 

Another good sign for the market– major VCs and investors are beginning to put money into psychedelics. Interest in the psychedelic industry from funds that are broadly focused on new healthcare solutions is a sign that psychedelics are being accepted as a viable mental health treatment, and not just by people who have been personally impacted by psychedelics. The increase in institutional interest in psychedelics this year is a good sign for the future of the market. 

Top Psychedelic VCs

There is no doubt that investors are being more cautious with their money in this bear economy. However, there is still a lot of confidence in the long-term trajectory of the psychedelic industry. Studies have shown enough positive results from psychedelic treatment that the belief that psychedelics will become an integral part of the mental healthcare system is holding steadfast. 

The main concern for investors with the impending recession is ensuring that the companies that they invest in will be able to weather the bear economy. There will likely be some psychedelic companies going out of business or forced to sell to a bigger company with a stronger cash position. Biotech is particularly risky because of how much capital it takes to bring a drug to market, so building confidence in a team’s ability to produce viable drug candidates, properly handle intellectual property, and market a drug is crucial.

This year, the anticipation of a recession has played a big role in actions within all industries, and perhaps even more so in the psychedelic industry because the risk is so high. Psychedelic biotech companies have been focusing on ensuring that they have enough cash runway to make it through 2023. The companies with the strongest position have enough cash on hand to make it to 2025. 

Non-biotech companies have slightly less pressure on them because many of them have sources of revenue already. Any company that can offer services within a year, or so, of inception is a much less risky investment. If these companies can prove future profitability, they are likely not to be too significantly influenced by the economy. 

Despite the fear of a further economic downturn, consumer spending has remained stable and unemployment rates have not spiked. These factors have little effect on biotech but do have the potential to affect clinics and brands selling products. There is no indication companies are struggling with decreased revenue. Many psychedelic companies showed a positive increase in revenue in their Q3 reports (compared to the previous year).  

Historically, recessions have increased rates of depression and suicide– an issue that the psychedelic industry is developing incredible tools to treat. However, because available psychedelic treatments are not covered by insurance, it is unlikely to affect those who seek out psychedelic treatment significantly. 

The state of the macroeconomy is certainly affecting the psychedelic industry, however, companies that have utilized 2022 to prepare for the further downturn are likely to weather the storm. The bear economy poses some struggles for the psychedelic industry and will help to shape it. There will be some companies that go under and several consolidations as a result of the economic space, but it does not pose a significant threat to the industry and its workers.

The psychedelic industry has seen positive growth in many areas during 2022. Companies are developing, services are expanding, and new research is being conducted. The following will take a look at the growth of various and how the industry is developing as a whole.

There were a few significant mergers and acquisitions within the psychedelic industry this year. Some companies acquired new assets to increase revenue and bolster the company as part of their plan to strengthen their position in the face of an economic downturn. Other companies sold off assets to trim down their cash burn.

Mydecine, a biotech company, sold off its technology platform, Mindleap, to Pangenomic health in a deal that was finalized on December 12. The deal was part of an attempt by Mydecine to refocus its resources on drug development. The company has been struggling financially this year and decided to slim its focus so that its pipeline is successful.

Other acquisitions include companies buying intellectual property to bolster their pipeline and the purchase of clinics to roll out ketamine treatment and increase revenue.

Mergers and acquisitions will likely increase in 2023 as some companies move to expand their programs and others struggle to secure the capital to keep their doors open.

This year, drug research and development have made huge strides. Hundreds of patents for novel psychedelic compounds have been filed over the past few years. Whether or not one of the drugs that were patented this year will be the one that changes the face of mental health treatment is yet to be seen. Over a dozen companies have been working hard to put out a high number of new compounds. 

Patents are playing a few different roles in the development of psychedelic drugs. Of course, biotech companies utilize patents to protect their investments in research and development. There are a handful of patents that are simply a synthetic version of a natural psychedelic, or a slight variation on compounds such as free base LSD. These patents protect the investment that these companies are making in clinical trials. 

Some companies are utilizing patents to protect novel administrations of existing drugs to increase effectiveness or decrease side effects. Other research teams are focused on developing versions of psychedelic compounds that aim to change an ‘undesirable effect.’

Patents have been a controversial topic this year– perhaps one of the most divisive topics in the psychedelic industry. Some people fear that the patents being placed on psychedelic compounds will create a monopoly on treatment and prevent people from being able to access affordable care. Non-Profit– Freedom to Operate– has been particularly vocal about their disapproval of some major patents, including Compass Pathway’s COMP360. 

Many believe that companies have no right to patent drugs and treatment techniques that have been utilized by people for hundreds of years. Their concerns are valid, however, putting psychedelic compounds (such as synthetic versions of psilocybin) through the FDA approval process is the quickest path to legal psychedelic therapy. This process requires a significant amount of capital, and without patents, companies have no way to protect their investment.

Patents are important in protecting intellectual property that companies have poured millions of dollars into. That is not innately an issue. However, concern has been raised that companies are patenting drugs and protocols that are not ‘new and non-obvious.’

Several patents have been challenged this year– the most notable is the Compass Pathway synthetic psilocybin drug (COMP360). Freedom to Operate, a non-profit committed to ‘Protecting Psychedelic Science & Medical Development for Public Benefit,’ filed a petition for a review of the patent back in 2021. This year, it was decided that the patent would stand. 

Another patent that drew some scrutiny this year is MindMed’s combination of LSD and MDMA. This combination of drugs has been popular in the underground psychedelic culture for decades, and some felt that the patent took credit for something that is already common practice. The patent in question is a combination of the two compounds into one drug and does not restrict the use of MDMA and LSD together.

One of the major issues is that much of the scientific research and discoveries that would help determine whether a patent is novel is not in the databases that are used to determine novelty. Psychedelics have been illegal for such a long time that much of the original scientific research and the work done underground are not readily available. Some companies could use this loophole to their advantage and gain control of psychedelics.

This poses a major issue for patients because statistically there is a 70-80% increase in price when a drug is patented. The psychedelic industry is largely driven by individuals who are passionate about helping people who are suffering. Unfortunately, history has shown us that a few big pharmaceutical companies do have the power to create a monopoly on life-changing drugs and prevent low-income (even middle-class) patients from accessing them. 

Some patents that we have seen this year, on the other hand, have the potential to fix this problem. One example is Mydecine’s family of MDMA analogs with a shorter half-life. Psychedelic treatment often costs thousands of dollars because the time spent with a therapist is significant. By decreasing the half-life (duration) of psychedelic compounds, some companies aim to decrease the cost of treatment.

Patents serve an important purpose, but when the system is abused it poses a threat to the psychedelic movement. The capital and patent systems should be used to encourage new discoveries that propel healthcare forward. Unfortunately, because of the way the system is designed, companies are overutilizing patents to assure investors that the extensive capital being put into these programs will turn a profit. 

This is a complex problem that requires structural changes in the pharmaceutical industry– something that is not likely to happen by the time some of these questionable patents hit the market. Without careful consideration of how the psychedelic industry is moving forward with patents, these issues could pose some serious challenges and roadblocks in the next 5-10 years.