Psychedelic Companies With Solid Fundamentals Will Survive A Downturn In The Recession-Ridden Market

Article by Jason Najum. 

Psychedelic startups face a more challenging time raising capital amid market volatility, the prospect of rate hikes, and recession fears, but that could ultimately help the industry to mature.

"This period of market volatility and less appetite for risk is perfect for exposing companies with weak fundamentals - and will allow solid companies to expose what differentiates them in this saturated space," says Ken Belotsky, Partner at Negev Capital, an investment firm focused on companies developing novel psychedelic medications for various mental health issues. "From a long-term investing outlook, this is a good thing for the sector." 

According to Belotsky, companies likely to survive include those that already have strong leadership and dynamic business models. He believes that knowledgeable CEOs who have done their homework in this multilayered space will keep attracting investors who are becoming more cautious.

The psychedelics industry is projected to reach a whopping $ 6.85 billion by 2027 while growing at a compound annual growth rate of 16 percent during the forecast period, according to a 2020 report. Indeed, the psychedelic medicine companies surpassed $730 million milestones across 61 total deals, up from 42 compared to 2020 data – in what observers call “The Psychedelic Renaissance.”

The World Health Organization reported that nearly a billion people suffer from mental health problems worldwide. Researchers and scientists are exploring psychedelic drugs' therapeutic value to transform mental health treatment and provide a new treatment option for people with depression, bipolar disorder, and post-traumatic and cancer-related stress. 

A 2022 study conducted by Enveric Biosicances ENVB in partnership with the University of Calgary found approximately 50 percent of cancer patients report clinical levels of psychological distress, experiencing depressed mood, anxiety, demoralization and reduced quality of life.

"With the rising rates of cancer and its associated psychological ailments that have been underestimated and underdiagnosed until recently, we are working hard to develop new treatments that help cancer patients suffering from cancer-related distress," said Dr. Bob Dagher, Enveric's Chief Medical Officer. "Our collaboration with the research team at the University of Calgary's Hotchkiss Brain Institute and IMPACT Clinical Trial Accelerator will help us demonstrate the potential benefits of these novel treatments and get them to market as quickly as possible."

Compass Pathways, one of the few companies in mid-stage trials of its psychedelic treatment, released data on its midstage trials for its synthetic version of psilocybin, the psychoactive component found in magic mushrooms that could help people with treatment-resistant depression.

Much of the tangible success of any psychedelic business model hinges on the completion of clinical trials and regulatory approval, which is a long process. And naturally, developing new drugs and facilitating scientific research and therapies requires time and considerable financial investments.

"We have known for centuries that psychedelic compounds have a profound effect on the brain,our cognition, our thinking and our mood, but it has not been until recently that we have started to properly understand the science behind it,” says Justin Hanka, MindBio Therapeutics co-founder. "There needs to be a recognition that the need for better mental health treatments is way overdue, yet there's a disconnect because the drug development, regulatory approvals and clinical trials process are slow."

A month ago, MindBio completed phase 1 of the most extensive safety study that has ever been undertaken into micro-dosing to relieve mental health symptoms. Hanka says MindBio is racing ahead in this potentially life-changing research that has the potential of being a complete game-changer for millions of depression sufferers worldwide. 

A 2021 study from Nature, a randomized, double-blind, placebo-controlled study considered the gold standard for research, showed that "MDMA-assisted therapy is highly efficacious in individuals with severe PTSD, and treatment is safe and safe and well-tolerated."

In February 2020, Atai ATAI CEO Florian Brand told the Business Insider that he aimed to attract pharma and biotech investors as the company looked to continue its expansion. Atai has made notable headlines for winning over backers like Mike Novogratz and Peter Thiel.

Last year, the company secured a record $157 million in funding, providing evidence that psychedelics are starting to gain an institutional level of attention in the market.

Of course, there's a long way to go before these innovative therapies are available in the mainstream. Indeed, many psychedelic components, including MDMA and psilocybin, will likely not get approval for a few years, given the political environment. However, some jurisdictions in the United States are already leading the way regarding legalization. Detroit, for example, decriminalized psychedelics in November 2021, which means possessing psilocybin is still considered illegal, but law enforcement won't be pushing for arrests. Moreover, the California state senate passed a bill last summer to legalize psychedelics, though the bill still has to pass through the legislative steps before it becomes law.

A Bi-partisan Texas House Bill 1802 was passed last summer, allowing the Department of State Health Services, in collaboration with the Texas Medical Board, to look into the use of psychedelic substances, including MDMA, ketamine and post-traumatic stress disorder.

“Psychedelic medicine has the potential to completely change society’s approach to mental health treatment, and research is the first step to realizing that transformation,” said representative Alex Dominguez, a Democrat who sponsored the bill. “It’s said that ‘As goes Texas, so goes the nation.’ While states across the country consider how best to address the mental health crisis facing our nation, I hope they once again look to Texas for leadership.”

As research and clinical trials continue, Belotsky says there's no doubt that the space offers enormous opportunity in how we define mental health treatment and, by extension, huge investment potential. "Innovation is one piece of this puzzle, and regulatory acceptance another, but being able to run a cost-effective operation with competent leaders is the key to success from an investing perspective," he explains. "I believe that when you look at the global mental health crisis data, the institutional money will realize that funding research into psychedelic medicine is a solid long-term investment.”