It was the late Robin Williams who once said, “Reality is just a crutch for people who can’t handle drugs.” What D.A.R.E. didn’t tell kids was how much fun drugs can be. If approached with a certain degree of responsibility, some universal truths start to emerge. Heroin is deadly and best avoided entirely. Cannabis is harmless compared to alcohol. When you’re a bit too drunk, coke is a great way to sober up. Meth is a rush, but you’ll always be chasing that first high. And everyone should try LSD once in their lifetimes.
Society has been taking an increasingly lax approach to drug use lately as the Americans are legalizing them left and right. In turn, this has created a whole new class of pharmaceutical companies that hope to unleash the power of hallucinogens like mushrooms and LSD. In turn, that’s drawn the attention of investors who think there’s a lot of potential for investing in psychedelics.
Investing in Psychedelics
Just months ago, the world’s first psychedelic ETF went live. With about $65 million in assets under management, the Horizons Psychedelic Stock Index ETF (PSYK.NE) comes with a steep management fee of 0.85%. The ETF tracks the North American Psychedelics Index which is produced by index provider Solactive. The below ten stocks make up 73% of the ETF’s weight:
|CMPS||COMPASS PATHWAYS PLC ADR||1.35||8.08%|
|FTRP.CN||FIELD TRIP HEALTH||.176||6.62%|
|TRIP.CN||RED LIGHT HOLLAND||.069||5.37%|
|JNJ||JOHNSON & JOHNSON||421||4.58%|
Seelos Therapeutics is a name we hadn’t come across before, and it looks like they’re using ketamine for various indications. In second position is MindMed, a company that’s hoping a number of hallucinogenic substances and “hallucinogenic inspired” substances can help treat mental disorders.
About MindMed Stock
Founded in 2019, New Yawk’s own MindMed has raised around $204 million in disclosed funding from investors that included Shark Tank’s Kevin O’Leary who is not afraid to say he’s betting big on psychedelics. After going public using the old reverse merger trick, MindMend now has a market cap of $890 million USD and lots of interest from investors who believe there’s some serious potential for psychedelic inspired medicines.
Another thing Mr. Williams once said was that “cocaine is God’s way of telling you you are making too much money.” Perhaps that’s why cocaine is so prevalent in Saudi Arabia, that is if you’re connected and willing to pay around 2,400 USD a gram. The Founder and Co-CEO of MindMed, JR Rahn, knows a thing or two about the price of Charlie. A piece by Fortune talks about how Mr. Rahn beat his own cocaine addiction using hallucinogenics, something he said saved his life. That’s hardly surprising when you consider nose candy is the leading cause of emergency room visits by far.
Compare that to LSD, an illicit drug that rarely puts you in ER – relatively speaking. That’s even more surprising when you consider how haphazardly the black market for LSD operates. People who use recreational LSD ingest unknown quantities of LSD from unknown sources with the goal of “frying nuts.” Placing a few tiny pieces of tasteless paper on your tongue is irresponsible at best, but still results in very few emergency room visits when compared to other popular recreational drugs.
A paper titled LSD: a new treatment emerging from the past talks about how during the 1950s and into the early 1960s, LSD was used rather successfully to treat alcoholism. By the mid-1960s, research tapered off as “LSD had become synonymous with countercultural activities, hedonism and drug abuse.” Today, that’s all changing for the better. MindMed has partnered with some of the world’s leading psychedelic researchers, including Dr. Peter Gasser, a man who was once the only physician in the world allowed to legally use LSD on patients. He’s working on the Phase 2 Anxiety clinical trial that MindMed purchased from the University Hospital Basel’s Liechti Lab which involves microdosing – taking very small amounts of LSD in a controlled fashion.
MindMed calls this the “non-hallucingenic” approach.
Then there’s the full-on hallucinogenic approach which involves a high dose. Since an acid trip can last well through the evening and into the night, MindMed is looking to use an LSD neutralizer – a substance with the expected ability to abort the hallucinogenic effects of LSD within 20 to 30 minutes. They’re presently conducting a study to evaluate the effect of ketanserin on the acute response to LSD, something that should be wrapped up by year-end.
MindMed isn’t the only company working on psychedelic therapies, so it’s important they assemble some intellectual property that acts as a barrier to entry. Known substances such as LSD can be patented for a number of reasons seen below.
Another value proposition MindMed brings to the table is a proposed digital platform which can help administer these therapies, perhaps even remotely. To further that cause, MindMed recently acquired a machine learning startup called HealthMode. That acquisition helped them fill several key leadership roles. In connection with the acquisition, the two co-founders of HealthMode were appointed Chief Medical Officer of MindMed and Chief Technology Officer of MindMed.
While LSD is a focal point of MindMed’s present pipeline, they also plan to work with other psychedelic substances, or even substances that are inspired by psychedelics.
Psychedelic Inspired Medicines
In MindMed’s pipeline you’ll see reference made to something called “18-MC.” It’s a compound that MindMed’s team synthesized from ibogaine, a Schedule 1 substance extracted from the West Africa iboga shrub with anti-addictive properties, but also the potential to induce heart attacks. What MindMed has developed, 18-MC, is designed to correct the dysregulation in the brain’s reward/pleasure center to treat addiction without the hallucinogenic and potential negative side effects of ibogaine.
To Buy or Not to Buy
Mind Medicine doesn’t quite meet our market cap cutoff of one billion dollars, but we’re also avoiding them for the same reason we’re avoiding Compass Pathways. As typical with many biotech stocks, neither of these companies have revenues yet. There’s a great deal of regulatory risk involved. Strangely enough, the push to legalize recreational hallucinogens could actually have an adverse affect on their use as therapeutics. While the overall story sounds promising, we don’t invest in stories. We’ve avoided the cannabis space entirely because of regulatory risk and hype, and the same holds true for the psychedelics thesis.
Perhaps the most compelling reason to invest in MindMed would be the academic relationships they’ve established. The aforementioned article by Fortune cites longtime pharmaceutical executive, Halperin Wernli, as saying “she expects MindMed to enter partnerships with major drug companies in the future.” That’s a missing piece of this puzzle. The same article goes on to say that “the potential market is tiny compared with cannabis and that the likes of MindMed face a long and expensive path in bringing LSD-based drugs into the mainstream.” Usually, that expensive path is paved with shareholder dilution.
For those investors who see past our risk averse approach to investing, shares of MindMed are traded on the Canadian exchange NEO under the ticker MMED and as an ADR in the United States under the ticker MMEDF.
In 1963, Aldous Huxley took LSD right before his death, claiming that it helped him face his immortality. The power of hallucinogens is not in dispute, it’s that they impact every individual differently. Now that some controls are being put in place, there’s hope that some of society’s bigger problems such as addiction can be more easily addressed. Using drugs to treat drug problems may seem ironic, but it just might be the answer to combatting addiction. That’s not a bad thing for a founder to be so passionate about.
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