Psychedelics: The Current State of Play
Psychedelics have explosive potential in the mental health space, but strong market optimism is balanced by institutional wariness – and even bias.
Written by: Andy Cronin
The Regulatory Environment
Last month, I offered an introduction to the currently booming field of therapeutic psychedelics. The market outlook is optimistic, as I’ll discuss below, and investors are eager to push forward on studies of both classic and novel psychedelic compounds. There is clearly a broad base of both consumer interest and clinical demand, as I discussed in my previous article. The most significant barriers to development are therefore legal. There are two distinct kinds of barriers here. The first is positive and productive and involves standard regulatory limits of the kind required to ensure that any new drug is safe. The second is unique to psychedelics and involves decades of stigmatization and federal bans that have left many institutions wary of embracing LSD, MDMA, psilocybin, mescaline, DMT, and other compounds.
Nonetheless, we have recently seen several significant steps toward legalization. Oregon recently legalized psilocybin, and Washington, DC decriminalized a number of entheogens, including ayahuasca and peyote alongside the more common psilocybin. A number of municipalities (including Denver, CO and Santa Cruz, CA) have reduced penalties for possession of psychedelic substances. While other states may follow their lead, these changes are motivated less by the success of activists and clinically minded experts than they are by a general shift in cultural attitudes toward narcotic substances, as represented most dramatically by the spreading legalization of marijuana. The current trend is one of small-scale iterative progress toward legalization, as sentences are reduced in severity and new versions of defeated legalization initiatives continue to garner slowly increasing political support.
On the regulatory side, we have seen more dramatic leaps forward. These changes—such as the breakthrough approval for MDMA in cases of chronic PTSD—are driven by reliable evidence of clinical efficacy. Part of the context here is that, as researchers have noted, the decades-long absence of clinical research on psychedelics was due more to stigma than to actual risks. The MDMA approval followed the 2019 approval of esketamine as a breakthrough treatment for depression, and last year an FDA-approved phase II trial of psilocybin for long-term depression yielded positive results. There is clearly momentum here, and I expect to see studies of this kind accelerating over the next several years. Given stiff cultural and institutional resistance, however, it is likely that clinical trials for most classic psychedelics will take five or more years to develop.
Investment & The Market
By some estimates, the American market for psychedelics is projected to reach $11 billion by 2027. Of the more than 50 public companies working on psychedelic therapeutics, three have exceeded a $1 billion valuation: ATAI Life Sciences, COMPASS Pathways, and GH Research (with Mind Medicine Inc. falling just short at $925 million in November of last year). While some of these have faced headwinds since their IPOs (ATAI’s valuation has dropped from $2.6b to $0.61b at time of writing), all have strong candidate therapeutics in clinical trials. A large and growing number of smaller firms have also built pipelines with a number of promising candidates for the treatment of our most prevalent and treatment-resistant mental health conditions. Guy Goodwin, a professor of psychiatry at the University of Oxford and PI of a major UK trial, has said that a combination of interest, economic optimism, and clinical urgency is driving Silicon Valley investment—and that none of those forces are going anywhere.
This represents a dramatic shift from the decades between 1990 and 2015 when almost all psychedelic research was funded by nonprofit, nongovernmental organizations. Organizations in this group, such as Beckley Psytech, have long maintained that negative attitudes toward these drugs have been based on misleading overstatements of harm. That position appears to be born out of the recent growth of high-quality studies, and we see every reason to expect continued research to reinforce that general perspective.
In summary, then: we are in a state of consistent, relatively slow progress. Development is likely to accelerate over the next several years, and once full FDA approval is granted to toppling psychedelic treatments, the pace of investment in startups will likely increase to match. Another possible source of funding is governmental. Given the enormity and immediacy of the mental health crisis, the current lack of financial incentives for the private sector, and the sheer magnitude of research needed to determine the therapeutic efficacy of these agents, it is clearly in the Federal Government’s strategic interest to fund further study. I will have more to say about the market outlook for 2022-2027 in my next piece.
To discuss this topic further, we invite you to reach out to Andy Cronin.
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