- Most of the leading psychedelic drug stocks did not exist (as public companies) six months ago
- Those that did exist were priced at a fraction of their current share price
- During the past 6 months, public companies (alone) have raised ~US$400 million in new capital to drive further growth in the industry
This year hasn’t started off well for psychedelic drug stocks. In fact, going back to the 2020 highs for these companies (set in December), most of the pubcos in this space are off sharply.
A glance at some of the drops from previous highs is not a pretty picture.
But just like putting a hand over one eye, viewing psychedelic drug stocks from this perspective provides less than half of the real picture.
Not only is much of the picture missing, but (with a hand over one eye) investors have no depth to their perspective.
So it is with psychedelic drug stocks. Looking at only the trading from the past couple of months would provide a seriously misleading perspective on these companies – and the industry as a whole.
Psychedelic Stock Watch wants investors to look at this space with both eyes open. We went back six months to compare psychedelic drug stocks then and now. And we included the 2020 highs.
Looking at that graphic, it’s easy to say that psychedelic stocks currently look cheap. Less than half of them had even begun trading by August. Those public companies that were trading are currently well above their August share price, but also well below previous highs.
Indeed, six months ago, this was a sector poised for take-off. But most stocks haven’t (fully) bounced back from a sector-wide correction during the thin trading of the Holiday Season.
The exception would be Field Trip Health (CAN:FTRP / US:FTRPF). Field Trip has moved to a new high in 2021 (CAD$9.89), on the strength of a “buy” rating from Stifel GMP and a CAD$8.50 price target.
Do the other stocks look “cheap” because the bottom has fallen out from under the industry? Or, are they simply discounted from previous levels and now attractively priced for investors?
Industry report card
Psychedelic Stock Watch doesn’t just follow the trading of public companies in this space. We’re also keen observers of the overall industry.
What we have continued to report to our audience is that progress within the psychedelic drug industry itself continues to meet or exceed expectations – on every level.
b) Corporate development
c) Capital raising
d) Psychedelic drug legal reform
It is the continued spectacular results in clinical studies of psychedelic drugs that is largely responsible for the glowing and growing coverage of the psychedelic drug industry from the mainstream media.
Clinical results continue to far exceed existing standards of care in virtually every area of mental health care under research. Several public companies are already advancing into Phase 2 clinical trials – the proof-of-concept stage for drug research.
Compass Pathways (US:CMPS), MindMed Inc (CAN:MMED / US:MMEDF), Cybin Inc (CAN:CYBN / US:CLXPF) and Mydecine Innovations Group (CAN:MYCO / US:MYCOF) are all either starting or have already commenced Phase 2 clinical trials on psychedelics-based therapies.
Beyond mental health, psychedelic drug companies are rapidly branching out into other areas of medical treatment. This includes enormous medical treatment markets like: traumatic brain injury (TBI) ($121 billion market in 2019), chronic pain ($77.8 billion market in 2019), and autoimmune disorders ($53.2 billion market in 2019).
If anything, these public companies are exceeding expectations on the drug research front.
The most obvious yardstick to measure corporate development in the psychedelic drug industry is to simply remind investors that as recently as six months ago only three of the leading public companies had even commenced trading.
Six months later, there are roughly two dozen public companies with operations primarily focused on the psychedelic drug industry.
Another couple of dozen public companies have at least partially moved into the space.
And these pubcos are busy.
In addition to clinical trials for drug development, psychedelic drug companies are also very active in:
- Medical treatment facilities (and markets).
- Developing new IP (and filing patent applications) for not only new drugs but also various forms of digital therapeutics technology and drug delivery systems.
- Product development for non-prescription drug markets, most specifically nootropics for the enormous dietary supplements market.
- M&A activity to support all of the operational priorities above.
Some observers of this industry are even more excited about the revenue/growth potential for psychedelic drug companies in medical treatment markets than in actual drug development.
Public companies including Field Trip, Novamind Inc (CAN:NM / US:NVDMF), Numinus Wellness (CAN:NUMI / US:LKYSF) and Mind Cure Health (CAN:MCUR / US:MCURF) either already have (legal) clinics in operation or will be opening facilities in the near future.
The psychedelic drug industry represents not merely revolutionary drugs (for mental health care) but also revolutionary technology.
Psychedelic drug companies are at the cutting edge when it comes to incorporating new digital therapeutics technology into their treatment models.
This is next-generation digital technology that increasingly relies upon AI and/or bioinformatics to not only generate efficiencies in treatment but also the drug development process. Many of these public companies are already active in this area.
Then there are the non-prescription drug markets being targeted by these psychedelic drug companies in product development.
Currently, the focus is on “nootropics”: assorted health benefits derived largely from functional mushrooms – a large market in the huge dietary supplements space. Mordor Intelligence estimated functional mushrooms as a $23 billion market in 2019. Overall, the dietary supplements market is expected to grow to $220 billion by 2027.
Longer term, psychedelic drug companies are eying commercial possibilities in bringing “psychotropics” (actual psychedelic drugs) to market as health supplements – but in microdoses where there is no psychoactive effect.
MINDCURE was the first public psychedelic drug company to target nootropic development. But several other players in the industry are also moving in this direction.
While psychedelic drug companies are busy with organic development, they are also active in M&A. Acquiring ancillary technologies. Establishing commercial and research partnerships.
This is not an emerging life sciences industry seeking to lure in investors with promising drug research alone. These public (and private) companies have been very active in building an entire industry around this drug development.
Drug development is expensive. Creating medical treatment facilities is also a capital-intensive enterprise.
It wouldn’t matter how promising is the drug research the and (potential) treatment markets if the industry couldn’t attract sufficient capital to fund such growth and development.
Fortunately, the one area where the psychedelic drug industry has exceeded expectations by the largest margin is in raising capital.
Over the past 6 months, public companies have raised ~US$400 million in fresh capital. Including the private sector, well over half a billion dollars has been raised.
That’s not chump change – for an emerging industry less than 1 year old. As public companies go, these are still babies. But you wouldn’t know that by looking at the robust corporate treasuries for these companies.
Institutional investors are practically lining up to throw money at this industry. Financings (mostly bought deals) are all oversubscribed.
Institutions are not alone in their zeal for the psychedelic drug industry. High-profile private investors have also been flocking to this space.
In short, the Smart Money likes psychedelics.
Psychedelic drug legal reform
Even with all of these factors in their favor, psychedelic drug companies are basically spitting into the wind if they can’t get many of these psychedelic drugs – currently Prohibited – legalized for medicinal use.
Here again, the operative phrase for this emerging industry is “exceeding expectations”.
In a recent article on the psychedelic drug industry, Rolling Stone magazine described the path to legalization (in the United States) as “a very long game”.
Psychedelic Stock Watch disagreed.
We’re as pessimistic as anyone regarding the dismal track record of Congress in getting anything done. But one of the few entities that doesn’t get regularly stonewalled by these lethargic senior citizens is the U.S. military.
And the Department of Defense is the world’s largest individual donor funding psychedelic drug research. That’s a hint that even members of Congress can perceive from their ivory towers.
Beyond this are a host of powerful economic arguments in favor of legalizing psychedelics for medicinal use.
- Mental health disorders are the single largest cause of disability.
- They cost the global economy over $1 trillion per year in lost productivity alone.
- In the United States, roughly $300 billion per year is currently squandered on mental health services – because dismal treatment options are producing very little return from that spending.
Psychedelic drug-based therapies not only show the potential to deliver a vastly superior standard of care. They can (apparently) dramatically reduce mental health care spending while delivering these results.
You don’t need to be a rocket scientist to understand the benefits from legalized psychedelic therapies. Even U.S. politicians can connect the dots here.
Psychedelic drug stocks are cheap
Psychedelic stocks (with rare exceptions) have been significantly discounted from their 2020 highs.
That’s not an indictment of this emerging industry. It’s certainly not a reflection of the over-achieving public companies that have been building this industry.
It’s just another aspect of the crazy rollercoaster ride that we call “markets”.
For investors in these companies, opportunity knocks.
DISCLOSURE: The writer holds shares in MindMed Inc, Numinus Wellness, Cybin Inc, Entheon Biomedical and Mind Cure Health. Mind Cure Health is a client of Psychedelic Stock Watch.