Psychedelics Inc.

Startups want to profit from psilocybin and LSD. They have the potential to heal millions.

Despite Covid-19, a crashing economy and formidable legal obstacles, a growing number of entrepreneurs and investors are betting that medicines derived from psychedelic drugs can become a real business and heal millions of people. They are joining the researchers, activists, philanthropists and journalists who until now have been driving what’s been called the psychedelic renaissance.

A dozen or more startup companies are developing medicines from psilocybin, MDMA, ibogaine and LSD, all of which are illegal in the US, as well as from ketamine, a legal anesthetic with hallucinogenic properties. They hope to treat a surprisingly wide range of mental conditions, including post-traumatic stress disorder (PTSD), depression, anxiety, addiction, even Alzheimer’s disease.

Shares of Champignon Brands and MindMed began trading on stock exchanges in Canada in March. In April, Champignon — stock symbol SHRM — acquired Altmed Capital, a startup led by a prominent Canadian psychiatrist. Field Trip Health treated its first patient at a ketamine clinic in Toronto, and NeonMind Biosciences (formerly Flourish Mushroom Labs) agreed to build a laboratory in Saint Vincent and the Grenadines to cultivate psilocybin from so-called magic mushrooms.

These newcomers join the MAPS Public Benefit Corp. and Compass Pathways, two established firms that for the moment lead the race to bring psychedelic medicines to market.

Founded in 2014, MAPS Public Benefit Corp. is a for-profit subsidiary of the Multidisciplinary Association for Psychedelic Studies (MAPS), a nonprofit that has promoted the benefits of psychedelics since the 1980s. It is recruiting volunteers for a final round of clinical trials of MDMA-assisted therapy for PTSD, and says it could win FDA approval by 2022. MDMA, a party drug, is known as ecstasy or molly.

UK-based Compass Pathways has raised about $117m — more than any other firm — since its launch in 2016. It is researching psilocybin-assisted therapy as a treatment for depression, and running clinical trials in Europe and North America.

“There’s no question that psychoactive drug therapy will transform psychiatry,” says Shlomi Raz, a former managing director at Goldman Sachs who is the founder of Eleusis, yet another startup. In a small trial in London, Eleusis found that people can safely take tiny doses of LSD. Next, it hopes to see if microdosing LSD can slow the progress of Alzheimer’s Disease.

Well-known investors have bought in. Billionaire Peter Thiel is among the investors in Compass, while Kevin O’Leary of Shark Tank and Blake Mycoskie of Tom’s Shoes are backing MindMed. Otsuka, a global pharma company based in Japan, is among the new investors in Compass Pathways.

Other startups— Nana, Orthogonal Thinker and Silo Wellness —are raising funds or preparing to do so. Hoping to ride the wave are media companies like The Third Wave, DoubleBlind and Psychedelic Finance, which publishes a newsletter on investing in psychedelics.

What, you may ask, is driving the surge of interest?

“A reason to believe in psychedelics”

First, there’s a vast need. Nearly one on five US adults live with a mental disorder each year and about 11 million American adults annually experience serious mental illness, according to the National Institute on Mental Health. Another 20 million struggle with substance abuse.

Those numbers are all but certain to grow. “One of the outcomes of the Covid-19 pandemic will be increased rates of opioid addiction and mental health issues,” says J.R. Rahm, the co-founder of MindMed, which is researching a derivative of ibogaine as an addiction treatment.

Second is that, for many, existing treatments don’t work. Tim Ferriss, the author, investor and philanthropist who has become an evangelist for psychedelic medicines, says: “Therapists have given up hope. People have given up hope.” Global antidepressant use is soaring, but experts don’t agree on whether the pills are effective.

Third, a growing body of research into the therapeutic use of psychedelics is delivering promising results, almost across the board, particularly when the drugs are accompanied by talk therapy. Last year, Johns Hopkins University in Baltimore and Imperial College in London launched the world’s first research centers devoted to psychedelics.

“The scientific literature gave us a reason to believe in psychedelics,” says Roger McIntyre, a professor of psychiatry who started AltMed after leading a center to treat mood disorders at the University of Toronto.

The early research has been so promising that it led the FDA to designate MDMA, as a treatment for to PTSD, and psilocybin, as a treatment for hard-to-treat depression, as “breakthrough therapies.” That eases the way for further trials.

“The regulators see that we are succeeding,” says Rick Doblin, the founder and executive director of MAPS. “The drugs are working very well.”

The sacredness of psychedelic medicine

Not everyone is excited about the idea of extracting profits from psychedelics. These drugs, after all, were at the heart of the 1960s counterculture; the ex-Harvard lecturer Timothy Leary consumed prodigious amounts of LSD and famously exhorted his followers to “turn on, tune in and drop out.” Magic mushrooms have their own rich history; they have been used in spiritual ceremonies for hundreds of years by indigenous people in Latin America.

Robin Carhart-Harris, who leads the Centre for Psychedelic Research at Imperial College and advises several startups, told Psychedelic Finance:

There’s a lot of strong feeling in the psychedelic community about the sacredness of psychedelic medicine and the unholy, if not down-right rotten nature of capitalism. Sometimes it’s over-said and can feel like sanctimony, but I don’t want to reject it outright. I do feel that investors would be wise to honour the good sentiments of those within the psychedelic community who care about access and respect for those who have a longer heritage with these medicines than us. Equally however, I hope the community can respect that many of current investment efforts are about bringing this wisdom to the masses— improving access and changing the present prohibitive policies we have in place in the West.

MAPS’ Rick Doblin has his own concerns. “I’m worried that companies will tell dubious stories to unsophisticated investors,” says Doblin. MAPs’ for-profit unit will turn over any profits to the parent nonprofit, he says: “We have been turning down investors left and right.”

Still, Doblin believes that responsible companies will help make psychedelic medicine more widely available. “The scale of the suffering is so great that we need everybody to get involved,” he says.

It must be said that each of these startups has a great deal to prove. Some drugs won’t work. Those that do will need years to win over the FDA. Companies will then have to persuade doctors to use them, train therapists to administer them, develop a supply chain to manufacture and distribute them and convince insurance companies to pay for them.

“It’s an incredibly complex system,” says George Goldsmith, the co-founder, with Ekaterina Malievskaia of Compass Pathways. Compass began as a nonprofit but Goldsmith and Malievskaia, a physician, turned it into a company when they realized they would have to raise well over $100m to bring psilocybin-assisted therapy to market. “In order to do this work responsibly and at scale, you need a lot of fuel in the tank,” Goldsmith says.

A speculative investment

O’Leary, a venture capitalist, said on a MindMed webinar: “You need a huge amount of institutional capital to bring these medicines to fruition.”

“This is a highly speculative binary investment,” O’Leary added. “It’s either going to be worth a lot, or nothing.”

He’s right that the payoff could be big. It’s estimated that one in 10 Americans take antidepressants; global sales will top $15bn this year. Billions more are spent to treat veterans suffering from PTSD and people addicted to opioids.

It was the human cost of depression, PTSD and addiction that led some into the business. Compass’s Goldsmith and Malievskaia, who are married, saw the pain of depression in their family. Bill Linton, a Wisconsin corporate executive, started the nonprofit Usona Institute after psilocybin helped a close friend cope with suffering caused by cancer.

“I’ve got a brother who has suffered from various forms of mental illness,” explains Jeff B. Smith, the former group chairman of Johnson & Johnson North America, who is now chairman of the board of NeonMind. “Psilocybin offers great hope,” he says. Smith watched as J&J brought a ketamine derivative, branded as Spravato, to market last year as an antidepressant.

Most of these startups are focusing entirely on medicines. They say they are uninterested in the recreational use of psychedelics. “The medical pathway is the most prudent way to move forward,” says Ronan Levy, the executive chairman of Field Trip. In Oregon, a ballot proposal would legalize psilocybin therapy, but only if it is delivered in licensed settings by trained therapists.

Some advocates, though, want the life-changing benefits of psychedelics to be available to all. The cities of Denver, Oakland and Santa Cruz, CA, have taken steps to decriminalize psilocybin. Others are sure to follow.