- Current psychedelic drug R&D involving human testing is already proceeding in treatment markets with a combined value of $330 billion in annual revenues
- Pre-clinical psychedelics-based research is targeting additional treatment markets valued in the $100s of billions
- The combined market cap of public companies pursuing this research is below $10 billion
Psychedelic drugs were in the news again this week. A very enthusiastic article from the BBC detailed the “psychedelic renaissance”.
Drugs that have been wrongfully criminalized for ~50 years are poised to revolutionize healthcare, in general, and (in particular) the treatment of mental health disorders. The BBC noted that:
Promising clinical trials suggest that psychedelics may prove game-changing treatments for depression, PTSD and addiction. The response from the psychiatric community, far from dismissive or even sceptical, has been largely open-armed. The drugs may well mark the field’s first paradigm shift since SSRIs in the 1980s. [emphasis mine]
Regular readers of Psychedelic Stock Watch have seen similar reporting on a regular basis. But the BBC’s message is being received not only by (current) investors in psychedelics but its entire mainstream audience.
A new healthcare trend, a treatment population of 2 billion people
Large opportunities in major treatment markets are being broadcast to the public by a major media outlet. That should be enough to get the attention of a lot of investors.
The BBC continued:
If current trends continue, it may be a matter of time until psychedelic-assisted psychotherapy is green-lighted by regulators. In a decade's time, might clinics and hospitals feature Psychedelic Session Rooms kitted out with cushions, incense, candles and paintings?
For investors wondering how big this “trend” could get, Psychedelic Stock Watch has previously laid out the Big Picture. Globally, there are ~2 billion people with treatable (but generally untreated) mental health disorders. Approximately 1 out of 4 people around the world.
Nearly an inexhaustible supply of patients stand ready to take advantage of next-generation mental health therapies featuring psychedelic drugs.
Why are these mental health disorders generally “untreated”? Because existing therapy options range from mediocre to abysmal. We have catalogued this litany of failure on many occasions.
Addiction therapy is largely a revolving door, because conventional drugs cannot control addictive cravings.
First-line drugs to treat depression are only effective for roughly 50% of patients, and 1/3rd of that is just a placebo effect. Two-thirds of Americans exhibiting symptoms of depression don’t even seek treatment due to inadequate treatment options.
In the U.S. military, an average of 22 veterans per day are committing suicide. Yet only 1/3rd of veterans receiving treatment for PTSD report any benefit from treatment.
Untreated mental health disorders, with catastrophic costs. Altogether, these mental health disorders lead to ~8 million preventable deaths per year. In economic terms, the failure to treat these mental health disorders costs the global economy trillions of dollars each year.
In total, this untreated mental health catastrophe is now commonly referred to as “the Mental Health Crisis”.
Massive revenue potential for psychedelic drugs in major treatment markets
Psychedelic drugs are capturing most of their headlines in the mainstream media due to their amazing capacity to successfully treat these mental health disorders. And Psychedelic Stock Watch has reviewed the R&D picture here.
However, the medicinal potential of psychedelic drugs goes well beyond these stress-related mental health disorders. Advancing research is showing psychedelics to be the ultimate brain-repair drugs – thus opening up numerous other treatment markets for potential research.
Looking at the treatment markets where there has already been human research (from formal clinical trials all the way down to informal empirical data), current psychedelic drug R&D is targeting treatment markets expected to reach a combined value of $330 billion before the end of this decade.
In the United States alone, an estimated 1.7 million Americans suffer traumatic brain injuries (TBIs) each year. As with stress-related mental health disorders, existing treatment options offer only mediocre therapy results.
While professional athletes are the most-visible demographic in need of much better treatment options, this is a vast overall treatment market – forecast to reach $182 billion in size by 2027.
The treatment market for nicotine addiction is also vast. With roughly 1 billion addicts globally, this treatment market is expected to grow to $64 billion by 2026.
But the best existing “smoking cessation” products generate a success rate of only ~30%. The most popular of these drugs was generating over $1 billion per year in revenues – before it was recalled due to harmful side effects.
A 2014 clinical study by Johns Hopkins using psilocybin-based therapy to treat nicotine addiction reported that 80% of participants were still fully abstinent 6 months later. How much bigger would the nicotine addiction treatment market get if there was a therapy on the market that actually worked? And psilocybin is also an extremely safe substance.
According to the CDC, more than two-thirds of American cigarette smokers want to quit – but can’t.
The story is the same with other forms of substance abuse/addiction. Existing treatment options provide little more than minimally effective crutches. Clinical research is showing that psychedelic drugs can deliver cures.
Estimates on the future size of the depression treatment market are also likely very conservative, for similar reasons. Existing treatments don’t work. Consequently, most people don’t even seek treatment.
Clinical studies are demonstrating the clear potential of psychedelic medicine to cure depression.
In short, these treatment markets will likely grow even larger because of the success rate of psychedelic medicine. And because these therapies represent such enormous (potential) improvements versus the existing standard of care, they can be expected to claim major market share over the long term.
Massive investment opportunity, cheap psychedelic stocks
The psychedelic drug industry is an emerging industry, with public companies little more than 1 year old. But clinical research is already advanced, including Phase IIb and even Phase III clinical trials currently underway.
As already noted, the treatment markets being targeted by this research are projected to be worth a combined $330 billion in annual revenues. Yet the market cap of the entire industry (among public companies) is less than $10 billion.
That is a lot of upside potential.
Not surprisingly, institutional investors are already providing strong financial support for this industry. Public companies alone have now raised in excess of $1 billion. Financings are almost always upsized and oversubscribed.
There is little doubt that these companies will be (well) financed to make it to the finish line in their drug development – in what is a capital-intensive industry.
The fundamentals for the psychedelic drug industry are about as bullish as it gets for investors in life science companies.
- Huge treatment populations
- Huge treatment markets
- Huge improvements on the existing standard of care
- Abundant capital for R&D
Early investors in this space have already seen the investment potential of these companies. During a major run last fall, several companies produced ten-baggers for investors.
In 2021, gains have been much more muted. Most companies sit well below their 52-week highs. Despite the magnitude of the investment opportunity here, these psychedelic stocks are cheap.
Even more blue-sky potential
The picture above only covers opportunities in psychedelic drug research where there is already some human testing occurring. A massive and growing volume of additional psychedelics-based research is taking place at the pre-clinical level.
Chronic pain is one of the largest treatment markets. Estimated to become a $151.7 billion treatment market by 2030. The potential of psychedelic medicine here is more than theoretical.
Ketamine, the only currently legal psychedelic drug, has already been used off-label in pain management. However, other psychedelic drugs are seen as having even more potential here and a flurry of pre-clinical research is already underway.
With obesity being a growing problem in our societies (no pun intended), weight management R&D is now being enthusiastically pursued by several public companies at the pre-clinical level. The obesity treatment market is expected to reach $27.1 billion by 2028.
New research on autoimmune disorders is focusing on a “psychosocial” root to these diseases. Psychedelics-based R&D is targeting this enormous treatment market, forecast to grow to $108 billion by 2023.
In other words, treating mental health disorders is only a starting point for this emerging industry – not the endpoint.
The two billion people with treatable mental health disorders are currently the focus of most psychedelic drug R&D. Further down the road, additional multi-billion-dollar treatment markets and 100s of millions more potential patients/consumers offer immense blue-sky potential.
There are no viable treatment options for psychedelics in treating mental health anywhere on the visible horizon. Mental health disorders are at catastrophic levels.
A humanitarian crisis. An economic crisis.
Governments must legalize and commercialize psychedelic medicine to address this medical catastrophe. And when they do, investors now have a price-tag on the magnitude of this commercial opportunity.