Robust Capital Flows Continue For Private Psychedelics Companies

  • Public companies have dramatically scaled back capital-raising to avoid diluting their stock at current price levels
  • However, capital flows into private psychedelics companies remain both large and steady
  • There are two messages here for investors

As Psychedelic Stock Watch regularly reminds investors, a big part of the story with this emerging sector is the success of these emerging companies in raising capital.

Drug development is not cheap. But institutional investors (and many high-profile private investors) have made a loud statement – with their wallets – that they plan on providing the capital necessary to get this industry to the finish line.

Financing activity has dried up with public companies in recent months. But the reason for that is obvious.

With share prices depressed, these companies (and their shareholders) have little desire to raise more capital at these price levels. And having raised roughly US$400 million toward the end of 2020 and into early 2021, they have the luxury of not needing to go back to capital markets until they can close financings at more attractive prices.

However, for any investors wondering if the interest in this industry had waned among institutional investors, the answer is a resounding “no”.

The most obvious example is industry leader, atai Life Sciences. Atai announced the closing of a $157 million Series D Financing Round – its largest financing yet – in early March. It’s so cash-rich that it is only seeking to raise an additional $100 million with its IPO financing.

Ireland-based GH Research closed an oversubscribed $125 million Series B Financing in April, on the back of its successful completion of a DMT-based Phase I clinical study. However, this robust demand from institutions for a piece of the action in the psychedelic drug industry extends to even the smaller startups.

The latest private player to demonstrate this is Gilgamesh Pharmaceuticals. On May 6th, Gilgamesh announced closing a $27 million Series A funding.

Who is Gilgamesh Pharmaceuticals?

It is pursuing drug development for the stress-related neuropsychiatric disorders that together constitute the Mental Health Crisis.

Research, which is focusing on ketamine and ibogaine, is at the preclinical stage. But senior management brings with them experience in both the pharmaceutical industry (J&J, Pfizer, Eli Lilly) as well as a successful exit in psychedelics (Kures).

At this stage of development for the industry, that’s enough to get institutional investors on board.

What is the message here for investors?

Well, depending on your perspective, there could be two messages.

Two messages for investors

Investors with experience in private equity may take this as a cue that they should currently be concentrating more of their own energies (and capital) on the private side of the industry.

On the other hand, for investors still focused on the public companies, there is also a message.

Despite the weak share price performance with these stocks though most of 2021, this is not a case of an industry with waning financial support or disappointing results.

Quite the opposite. Financial support for the industry is (at least) as strong as ever.

In operations, psychedelic drug companies – both public and private – have been very active in 2021: advancing drug R&D, clinic operations and IP development.

Media coverage of the industry has soared in recent weeks, with the tone generally very enthusiastic.

Yet with the extended selloff in U.S. tech stocks, sentiment among retail investors has currently waned. Trading volumes are low. For Contrarian investors, these are all strong “buy” signals.

These are stocks temporarily out of favor, but where the underlying story for the industry remains as strong as ever. It’s not as obvious with the pubcos. But it is certainly on display via the continued financial support for the private players in this industry.

Psychedelic stocks may presently be in hibernation mode. But the psychedelic drug industry remains the hottest story in life sciences today.
Public or private, this is a sector for which all serious tech investors will want exposure.
private equity (cover) by Elnur is licensed under Adobe Stock


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