Say the word “psychedelic” and most people will immediately conjure up images of tie-dyed hippy types taking magic mushrooms.
However, recent developments have indicated that new treatments derived from these mind-altering substances are garnering new attention from the investment community.
On Thursday, Berlin-based biotech called ATAI Life Sciences secured around US$43mln (£36.8mln) in a funding round, valuing the firm at around US$240mln, making it the largest company in the space.
Founded in 2018, ATAI finances clinical trials for drugs that incorporate psychedelic compounds that could potentially be used to treat mental health disorders.
These include ketamine, often used for pain relief and sedation, and psilocybin, the active ingredient in magic mushrooms.
ATAI currently owns Perception Neuroscience, a company developing therapies for neuropsychiatric diseases (e.g. eating disorders), and is the largest stakeholder in Compass Pathways, a firm looking at psilocybin-based therapy for depression.
Echoes of cannabis
Much like cannabis before it, psychedelic compounds have often been maligned by mainstream society for their connection with recreational drug use.
However, again like cannabis, there is a growing body of evidence that the chemicals could be used to treat various mental health problems.
There have also been some encouraging signs from regulators around the use of the substances.
Last October, Compass Pathways received a ‘Breakthrough Therapy’ designation from the US Food and Drug Administration (FDA) for its psilocybin depression therapy.
A ‘Breakthrough Therapy’ is defined as a drug having preliminary clinical evidence that shows it may demonstrate a substantial improvement over options that are currently available to patients.
While this may not be an immediate sign for investors to turn on the money tap, it does help smaller biotech companies get their foot in the door when it comes to raising money as potential investors might take the view that the regulatory approval process would likely be simpler or expedited.
Reflecting on cannabis, the global medical marijuana market is expected to grow at a compound annual growth rate (CAGR) of 15.9% between 2018 and 2026, taking its value from around US$12bn to US$39bn.
This has been helped by a wave of legalisation in recent years in populous US states such as California, as well as the whole of Canada, on the back of increasingly relaxed attitudes around the drug as well as greater awareness of the plant’s medicinal potential, particularly cannabidiol (CBD) which can help treat neurological disorders like epilepsy.
If psychedelics follow suit, laying down a marker early with regulators could give companies a critical first-mover advantage.
Big hitters involved
It isn’t just small biotech firms researching the potential of psychedelics either.
In early March, pharmaceutical and consumer goods firm Johnson & Johnson (NYSE:JNJ) received FDA approval for a new nasal spray using esketamine, a derivative of ketamine, to help treat patients suffering from depression.
The new drug, called Spravato, is designed to help alleviate treatment-resistant depression, which is when a patient still requires medication despite taking two or more types of anti-depressant previously.
The approval followed years of research by J&J’s pharmaceuticals arm, Janssen, into the potential uses of esketamine in anti-depression treatments.
Mental illness is one of the biggest causes of the world’s disease burden, with the World Health Organisation (WHO) estimating that one in four people are affected by a mental or neurological disorder at some point in their lives.
In the UK alone, around 19.7% of people have been reported as showing symptoms of anxiety or depression.
With numbers like that, the market for psychedelic medicines already seems wide open.