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Magic Mushrooms Are Giving Investors a Bad Trip

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Convincing friends who were contemplating an expensive divorce to try psychedelic drug therapy may have been the most valuable financial advice that billionaire German investor Christian Angermayer ever gave, he told an audience of finance and tech peers recently. It won’t be long before politicians trip together to resolve their differences, he says.

When not championing psychedelics’ therapeutic effects (occasionally with actress friend Uma Thurman), Angermayer tries to consume them himself once a year (only where they’re legal). He’s even convinced his parents to partake.

Such disarming openness has made the founder and chairman of Berlin-based drug development company Atai Life Sciences NV an effective advocate for the potential mental-health benefits of psychedelics such as psilocybin, the active ingredient of magic mushrooms. Although these compounds are still illegal in most places, they have enjoyed an extraordinary flourishing of medical research and financial investment in recent years.   

Angermayer has also put his money where his mouth is: After Atai raised $260 million last year in an IPO valuing it at $3 billion, his family office promised not to sell its anchor stake for at least another two years. Earlier this month, it doubled down by spending a modest amount on financial derivatives that pay off if Atai’s share price doubles in the next three years.

QuicktakeThe Psychedelics Boom 

Right now, though, the charm offensive isn’t working so well. An exchange-traded fund tracking psychedelic stocks has lost two-thirds of its value since peaking last year. While some of these companies haven’t suffered as much — GH Research Plc’s enterprise value is still almost $730 million, for example — retail investors who bought into the hype have often incurred big losses. The comedown has also put a dent in Angermayer’s wealth. Adjusting for its cash, investors now value Atai’s drug pipeline at $470 million.

Nearly $1.8 billion was raised by psychedelics startups from public and private investors in 2021, according to research firm Psilocybin Alpha. But while clinical trial results have been broadly encouraging, the dozens of companies that have popped up in this space are mostly still a long way from gaining regulatory approval and therefore having a marketable product.

Rising interest rates have also made capital providers less tolerant of firms that won’t produce profits for years, and psychedelics companies are no exception. Those that don’t already have a strong cash buffer face a tougher time securing funding.

Angermayer told me investors partly have themselves to blame for financing “nonsensical” companies that tout psychedelics but have “no clearly defined strategy or viable business model.” (He doesn’t include Atai or its psilocybin portfolio company Compass Pathways Plc in that bracket.) My view is that capital providers will need more assurances about regulation, the scalability of psychedelic drug treatments and the defensibility of intellectual property rights before they tiptoe back in.

There’s no question that attitudes toward psychedelics have shifted of late. Helped by popular books such as food writer Michael Pollan’s “How to Change your Mind” and the backing of influencers such as Tim Ferris, psychedelics are fast shedding their countercultural baggage.

The excitement is shared by many in the medical and psychiatric community due to mounting evidence that psychedelics can help treat depression, anxiety, addiction and other mental-health disorders. The need is greater than ever, as isolation and stress wrought by Covid have left countless more people struggling with these issues while existing drug treatments aren’t always effective.

For some, the wait may be nearly over. Oregon is preparing to license psilocybin for therapeutic use from next year, while Canada has begun allowing doctors to request these substances for treatment-resistant conditions. Having won fast-track status to trial Methyl​enedioxy​methamphetamine (MDMA) to treat post-traumatic stress in 2017, the Multidisciplinary Association for Psychedelic Studies, a nonprofit, could win U.S. Food and Drug Administration approval as soon as 2023. 

At the risk of overgeneralizing, it seems psychedelics help quiet the ego, break negative thought patterns and help some patients better deal with trauma. By spurring neuroplasticity — the brain’s ability to change and make new connections — patients may experience a positive shift in perspective. There’s some evidence these antidepressant effects can be quite long lasting.

Though generally not known to be addictive, psychedelic trips can be frightening and impair judgement, which is why therapists emphasize the importance of “set and setting” — creating the right expectations prior to therapy and the right physical and sensory environment for conducting it. Patients may require hours of in-clinic supervision during trips, as well psychological support to prepare for and process what they experience.

Gaining federal approval for psychedelic therapies will thus be only half the battle. Government health programs and private health insurers must also be persuaded to pick up the check. Companies don’t generally disclose psychedelic therapy costs, but Cowen analysts estimate $3,000 per treatment, compared to the roughly $700 annual cost of daily antidepressants.

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Reimbursement challenges are one reason some investors doubt whether psychedelics will ever become a lucrative business. Another impediment, somewhat ironically, is the drugs’ potential efficacy. If a couple of psilocybin trips heal a patient, how will a pharma industry accustomed to repeat prescriptions make money?

Yet companies have found ways to convince investors they’ll enjoy a return on their capital. One approach is to acquire a broad portfolio of psychedelic and non-psychedelic compounds, as Atai is doing, to be less exposed to clinical setbacks with one particular drug.

Others like Field Trip Health Ltd and Numinus Wellness Inc. are combining drug development with operating therapeutic clinics, which have a more immediate revenue stream. In the U.S., the club drug and anesthetic ketamine, and a related FDA-approved compound esketamine, developed by Johnson & Johnson as a nasal spray, are already available in such facilities.

Startups also hope to develop shorter-acting psychedelics, such as DMT (the active ingredient in Amazonian drink ayahuasca), that potentially offer a more cost-effective experience with the same therapeutic benefits. (It’s an open question whether the up-to-eight-hour duration of a psilocybin trip, or 12 hours for LSD or acid, is fundamental to the healing process.)

Unlike the cannabis industry, the companies active in this field often aren’t pushing to legalize recreational use of psychedelics. And by synthesizing and modifying existing psychedelic compounds (which are either naturally occurring or have expired patents), they hope to secure stronger IP protection — which gives comfort to investors but rankles purists.  

Some of the private capital rushing toward psychedelics will end up being wasted, but much will help further advance our understanding and regulatory acceptance of these molecules and ultimately ease the suffering of those with mental health issues. It wouldn’t be the first time a financial bubble destroyed investor wealth in the short term, only to leave behind a legacy of innovation and societal change.

More from Bloomberg Opinion Writers:

• Psychedelic Drugs Will Follow Pot’s Path to Legalization: Noah Feldman

• Ketamine-Like Depression Drug Isn’t a Surefire Hit: Max Nisen

• Ketamine Seems to Ease Depression. We’ll Soon See What Else It Does: Faye Flam

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.

More stories like this are available on bloomberg.com/opinion

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