In Psychedelic Investing, Long-Term Thinking Is Key

This article was originally published on Microdose and appears here with permission. 

In response to a worldwide mental illness epidemic and flood of capital from investing firms, the psychedelic industry has seen explosive growth in recent years.

The newfound enthusiasm is advancing rapidly in the U.S. and worldwide. The sector broke new ground last year as states such as Utah, Missouri, Connecticut, New Jersey, Texas and California took essential steps to decriminalize or legalize psychedelic substances. On the commercial side, Data Bridge Market Research estimates that the psychedelic market in the U.S. could total $9.8 billion by 2029. That growth opportunity has spawned a long list of startups and a wave of psychedelic-related mergers and acquisitions involving investing holdings, media organizations, research, and other areas.

A recent example is Blackhawk Growth, a Vancouver-based investment firm, announcing a share purchase agreement, acquiring control of MindBio Therapeutics.

“The acquisition of MindBio Therapeutics will help to scale our life science and psychedelic portfolio,” said Frederick Pels, CEO of Blackhawk. “Complementing our current assets, a clinical trial and a management team with decades of experience in the health sector will enable Blackhawk and MindBio Therapeutics to be leaders in the legal psychedelic treatment industry that we believe will only continue to grow exponentially.”

MindBio Therapeutics is an arms-length privately-held clinical-stage drug development company pioneering psychedelic microdosing research and exploring emerging therapies to treat various mental health conditions such as depression, anxiety, chronic pain and PTSD.

“We are excited to become part of the Blackhawk portfolio, which expands our investor reach to the capital markets in North America, and we are now truly a global company with connections in Australia, New Zealand and Canada,” says Justin Hanka, Director of MindBio Therapeutics. “This is an important step in terms of accelerating our clinical research micro-dosing psychedelic medicines in Phase 2 clinical trials and the next steps towards commercialization.”

Mindbio’s Justin Hanka at Plant Medicine Week

According to a study by The Lancet, the global pandemic has severely harmed people’s mental health, with over 53 million additional major cases of depressive disorder and 76 million instances of anxiety disorders globally. Conversely, a recent report by Global Industry Analysts estimates that treatments for depression will comprise the most significant chunk of the disease indication segment, with more than 40% market share by the end of 2021.

The recognition of the enormous potential to use psychedelics for mental illness has driven substantial investment in the sector in the past four years. Companies are aiming to control and harness these drugs’ mood-altering capabilities. Similar to cannabis legalization, different jurisdictions are slowly opening their minds to experimenting with these drugs for medical uses.

“The pandemic and unfortunate rise in mental health-related complications has proved to be a real tailwind for the psychedelics space,” says Ken Ken Belotsky, Partner at Negev Capital, an investment firm focused on companies developing novel psychedelic medications for various mental health issues. “The focus on mental health has created a much larger addressable market as investors recognize that psychedelics can transform the broader mental health market.”

However, Belotsky highlights the risks involved in the psychedelic investment landscape and urges responsibility, analytical research, and patience on the part of anyone considering investing. Indeed, he believes only the companies with strong management teams will survive the current market downturn and emerge as winners when all the dust settles.

“The key is getting to know the players and gaining a deep understanding of the business and the management team,” Belotsky explains. “We have a responsibility to our investors to provide outstanding capital returns. That’s why, at Negev capital, we are approaching all our investments and partnerships with a long-term view.”

After receiving a post-IPO run-up valuation of $1.1 billion, Compass Pathways announced that it had completed the first randomized, double-blind trial of psilocybin for treating depressive symptoms, given to 233 patients across Europe and North America. Biotech company, Enveric Biosciences has developed a robust pipeline to move the company from the discovery phase to clinical development. “Enveric platform has the potential to disrupt and unlock much needed mental health treatments through psychedelic therapies,” says Dr. Joseph Tucker, CEO of Enveric.

As psychedelic medicine and therapy gain a foothold, researchers, activists, and members of the psychedelic community are calling for embracing innovative new business strategies to support the creation of a new kind of healthcare industry—one that addresses the inadequacy of traditional mental healthcare approach that’s made little progress in novel treatments over half a century.

“The perception has changed very quickly regarding entrepreneurship interest in psychedelics,” said Connor Haslam, CEO of Microdose Psychedelic Insights, a media company focused on building bridges and fostering communities while educating new investors. “And naturally that has helped increase interest from the public, policymakers, scientists and researchers to think about different structures and pathways of solving the mental health crisis.”

Meanwhile, at the World Economic Forum in Davos, psychedelics potential was a big part of the conversation among the participants for the first time.

“I am a firm believer that psychedelics have the ability to unlock novel approaches to disorders notoriously difficult to treat, like PTSD, alcoholism, opioid addiction and pain,” Kevin McKenzie, co-founder of Carvin Medicines, a Swiss drug company entering the psychedelic drug market told the Guardian. “Hosting this in Davos at the same location as WEF is a genius strategy – it brings fresh eyes and bright minds to psychedelic drug development, which builds credibility for these medicines,” he said.

As more companies aim to harness these drugs’ mood-altering capabilities, different jurisdictions are slowly opening their minds to experimenting with them for medical use. Lengthy regulatory processes and inefficiency within the healthcare industry will undoubtedly hinder market growth in the short term. And decades of entrenched stigma, long medical trials, and scarcity in funding during market volatility will certainly test the resiliency of this emerging space.

But, as Belotsky puts it, “for those long-term investors who have vetted the companies diligently and familiarize themselves properly with the industry, the potential is limitless. You should fear the market downturn if you expect massive gains in the short term without doing your homework.”