For roughly the last 15 months, the psychedelic drug industry has been a story with two distinct narratives. First there is tale of the industry itself.
Psychedelic drug development continues to move forward both vertically and horizontally. Clinical results have generally been spectacular.
Occasional setbacks have been encountered, especially relating to drug patents. But this is to be expected with any drug R&D.
On the treatment side, the industry is also expanding rapidly. Treatment-focused companies have announced a flurry of clinic openings. A few are also already reporting robust revenue streams.
Then there is the story around the companies themselves.
Despite all the positive industry developments, algorithm-dominated markets have ground down the share prices of most of these companies in what has been a punishing attrition.
Given these almost diametrically opposed narratives, it’s not a surprise to see changes coming to the industry – from both external and internal sources.
2022: a year of major deals?
Early in the year, Psychedelic Stock Watch reported on a very significant drug partnership between a subsidiary of Japanese pharmaceutical giant, Otsuka Pharmaceutical and junior psychedelics company, Mindset Pharma (CAN:MSET / US:MSSTF). We previously produced our own feature on this news.
Otsuka has agreed to fund two families of Mindset’s novel molecules through Phase I clinical trials, at which point Otsuka will hold right of first refusal on drug candidates emerging from that R&D.
More recently, two other major deals have been announced.
First, we saw an important acquisition as the industry consolidates from within. Numinus Wellness (CAN:NUMI / US:NUMIF) has announced an all-share acquisition of Novamind Inc (CAN:NM / US:NVMDF).
Novamind is the early leader in treatment revenues, reporting revenues of CAD$2.45 million in its most recent quarter from its expanding U.S.-based network of clinics. Novamind is also becoming increasingly active as a host for mental health-related clinical trials.
Numinus is more balanced between drug R&D and its own network of treatment clinics. The company remains one of the better-capitalized players in the industry. The new combination boasts the strongest revenue streams in the industry and is well-positioned for expansion.
More recently, another major drug partnership has been announced. Private New York-based psychedelics company, Terran Biosciences has signed a deal with Paris-based Big Pharma player, Sanofi (US:SNY) to work together on two late-stage CNS drugs.
The deal comes shortly after Terran itself acquired a portfolio of CNS-related IP. With this deal involving late-state drugs rather than early-development novel molecules, there is greater potential for large near-term dividends from this research partnership.
Are these deals an indication that the psychedelic drug industry is entering a new phase as it matures, characterized by increasingly significant partnerships and acquisitions?
More M&A, partnerships on the way in the psychedelic drug industry
Certainly, we are going to see more consolidation within the industry. Almost all industry players have seen serious erosion of market capitalization.
A couple of smaller players have already ceased operations. A few more appear to be close to running out of money.
Yet these smaller companies are holding some attractive assets and (in some cases) cash on hand to make them of interest to larger players. Consolidation will continue, but (as we’ve seen with Numinus/Novamind) some very accretive combinations are possible.
Will we see more large pharmaceutical companies engaging with the psychedelic drug industry in new drug R&D partnerships?
In fact, this was one of the topics specifically addressed in a recent Psychedelic Stock Watch article. In a feature on the vast untapped potential of psychedelics for new drug patents, we caught up with Mindset’s CEO, James Lanthier.
We specifically asked Lanthier if he expected to see more industry partnerships, similar to what Mindset itself had inked with Otsuka Pharmaceutical. His response was affirmative.
…CEO Lanthier is expecting to see more drug development partnerships emerging in the psychedelics space, similar to Mindset’s own deal with Otsuka Pharmaceuticals.
As indicated in that previous article, apart from the well-known psychedelics, dozens of lesser-known psychedelic drugs provide fertile pastures for decades of future R&D into psychedelics for mental health treatment – as well as an increasing list of other disorders.
Meanwhile, Big Pharma itself is badly in need of viable new drug candidates to restock its pipelines.
With larger pharmaceutical companies having mostly abandoned research on mental health drugs – as a Mental Health Crisis spirals out of control – there is an enormous monetary incentive for drug giants to team up with the psychedelic drug industry.
With valuations so lean within the industry at present, we could easily see external acquisitions: larger drug companies moving in to simply buy out smaller psychedelics companies, and incorporate that R&D into their own pipeline.
An emerging industry in transition
The year 2020 could be regarded as the “birth” of the psychedelic drug industry, in terms of the arrival of public companies and a massive infusion of capital to fund this new industry.
Emerging pubcos soared to great heights as the year progressed, attracting in turn even more robust flows of venture capital into the industry.
Last year was a very painful retrenchment for the industry – for no particular reason other than capricious market conditions. But the result of these scorched-earth market conditions is that the search for new partnerships is now motivated not only by expediency but also by necessity.
With over 2 billion people (globally) suffering from treatable mental health disorders and over $300 billion per year currently being spent on mental health in the United States alone, psychedelic drug companies make attractive dance partners for other players in the pharmaceutical industry.
As Psychedelic Stock Watch regularly reports, psychedelic drugs continue to demonstrate the clear potential to completely revolutionize the treatment of mental health.
As 2022 began, it was clear that things had to change within the psychedelic drug industry. As we near the end of the first third of this year, it appears that things are changing within the industry.
This will be welcome news to existing investors, most of whom are sitting underwater in their holdings.
It is also a great opportunity for new investors. They can jump into these public companies at (literally) ground-floor valuations, just as overall interest of the pharmaceutical industry in psychedelics seems to be heating up.
With increasing grassroots pressure on national governments to update their punitive and archaic laws on psychedelic drugs – which would further accelerate drug R&D – even more industry catalysts may loom on the horizon.
Is the psychedelic drug industry entering a new phase? Certainly, there are strong indications that this is the case.
If more deals should materialize as the year progresses, investors may look back on 2022 as the re-birth of the psychedelic drug industry.
DISCLOSURE: The writer holds shares in Mindset Pharma, Numinus Wellness and Novamind Inc.