New Federal Guidance on Psychedelics Could Open Minds—And Funding Sources

This story was reprinted with permission from Crain New York and written by Amanda D’Ambrosio.

Last month, federal regulators released research guidance for classic psychedelics, marking the first time the government has offered suggestions for studying medicines like LSD, MDMA, and psilocybin to treat mental illness. The draft guidance signals a shift in the medical community’s perception of psychedelic medicine—a field that has previously been deemed fringe.

Local researchers and biotech companies say it doesn’t impact them much.

“In that guidance document, there’s nothing surprising,” said Rob Barrow, chief executive of MindMed (OTC: MNMD), a Midtown-based biotech company investigating psychedelic drugs, especially for companies that have been in conversation with the FDA about their research.

While researchers say the guidance will not drastically change how they study the substances, it does have an impact on two major hurdles facing the burgeoning industry: public perception and funding.

“I think one of the biggest potential upsides is that it communicates [the FDA’s understanding of this research] to the broader world—whether that’s providers, patients, investors, researchers,” Barrow said.

The organization’s engagement with previously taboo substances signals a shift that the FDA is engaged in legitimate conversations about clinical trials for these medicines, also opening more doors for potential funding.

The FDA’s proposed guidance comes as general interest in psychedelics has increased, and industry experts estimate the drugs will grow into a multibillion-dollar industry. While interest in the field has grown, most of the funding for research has come from donors and biotech companies.

Dr. Michael Bogenschutz, director of NYU’s Center for Psychedelic Medicine, said that most funding came from philanthropy organizations until around five years ago when private funders and biotech companies began entering the space. The Center for Psychedelic Medicine, which launched in 2021, received $5 million in funding from MindMed to train researchers.

Public funding, which supports critical research that can bring treatments from clinical settings to the real world, has been sparse. But despite limited funding from the government, the field has published research showing the promising potential of these therapies.

In recent years a few randomized clinical trials, the gold standard in medical research, have shown that psilocybin-assisted psychotherapy might improve major depressive disorder or alcohol use disorder.

“The very early small studies that were done on limited funding were extremely promising,” Bogenschutz said of psilocybin, noting that evidence is still lacking on whether the drug is safe and effective.

But in order to conduct the studies that further investigate the safety and efficacy of psilocybin and other psychedelic drugs, researchers need funding from a key source—the government.

“This is something that needs the kind of investment that all potential therapeutics get—government funding,” said Dr. Rachel Yehuda, director of Mount Sinai’s Center for Psychedelic Psychotherapy and Trauma Research. Currently, trials of MDMA and psilocybin led by Mount Sinai researchers are funded by philanthropy.

“Government funding has to be a partner in this process to promote objective science,” Yehuda said. “It can’t just be industry-sponsored.”

Such funding is hard to come by; NYU was one of three institutions, including Johns Hopkins and the University of Alabama in Birmingham, to receive a combined $4 million grant from the National Institute on Drug Abuse to research psychedelics in 2021.

Facilitation from clinical professionals is where the costs of this research really lie, Yehuda said. The cost of a clinical trial has to cover staffing from a psychiatrist or psychologist to administer psychotherapy to participants taking psychedelics. When funds have to cover an hourly rate for a mental health professional for eight hours at a time, expenses start to rack up, she said.

The FDA’s guidance could further push drug companies and researchers to staff trials adequately, as well as take on the costs of doing so—it recommends two oversight monitors at all times, one of which is a graduate-level professional with clinical experience in psychotherapy. These staffing suggestions, and the costs that come with them, bolster the industry’s call for more funding to push treatments over the finish line.

But just because research is expensive does not mean it should not be pursued, Yehuda added. Professionals who can oversee clinical trials and deliver psychotherapy—a key aspect of the approach to using psychedelic medicine to treat mental illness—is a necessary cost that research organizations and drug companies must take on to fully investigate if and how these drugs should be used.

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