The Year In Review For Psychedelic Drug Stocks: 2020

  • Multi-bagger returns for several companies
  • Large and rising capital flows into the industry
  • Very favorable media coverage and public opinion

In 2020, the psychedelic drug industry burst onto the radar of investors. As psychedelic drug research exploded and new capital has flooded into this sector, a vibrant core of public companies has commenced trading.

Still other pubcos have either added a psychedelics component to their business model or simply rebranded the entire company. Psychedelic drugs became the most important story in life sciences in 2020.

As investors look ahead to 2021, Psychedelic Stock Watch is looking back. We have prepared a 2020 Report Card for the psychedelic drug industry, measuring its development in 5 key categories.

Here is the Psychedelic Stock Watch 2020 review.

Stock performance:  A

After a subdued summer for psychedelic stocks, the industry caught fire in September with the Compass Pathways IPO. A new NASDAQ listing and the nearly $150 million raised by Compass for its IPO financing provided an instant credibility boost for these new public companies.
Several stocks went vertical. Investors who got in early had a number of multi-bagger opportunities.

The Compass IPO was the initial catalyst driving this rally. But fueling upward momentum was a rapid-fire series of new financings that injected ~$500 million into the sector – in just the last 3 ½ months of 2020.

Raising capital:  A+

Drug development is expensive. Taking a single drug through the clinical trials process can cost in excess of $100 million – and consume several years of time.

Even building and operating a network of psychedelics-assisted treatment clinics requires robust infusions of capital. As the psychedelic drug industry was getting off the ground, many investors were justifiably skeptical as to whether the industry could attract sufficient capital.

As we reach the end of 2020, those doubts have evaporated.

We’ve seen companies (public and private) close on several nine-figure financings.

We saw one company (MindMed) go to capital markets with new offerings three times in just the last quarter. Each financing was at a dramatically higher unit price (CAD$1.05 --> CAD$1.90 --> CAD$4.40) and each one was oversubscribed.

Indeed, virtually every new psychedelics private placement in the fourth quarter was oversubscribed, as institutions and high net-worth investors engaged in a feeding frenzy.

Psychedelic drug R&D:  A

Psychedelic Stock Watch is assigning the industry an “A” for its progress in psychedelic drug R&D in 2020. But many readers may see even that high grade as being too low.

As we end the year, one psychedelic drug clinical trial is moving into (final) Phase 3 testing. MAPS’ MDMA-assisted psychotherapy for the treatment of PTSD has commenced this stage of the clinical trials process – with early indications strongly pointing toward a successful result.

Based on earlier promising results (and an urgent need), the FDA has granted Breakthrough Therapy Designation to this research, further streamlining the clinical trial process.

Numerous other psychedelics-based clinical trials are at various stages of a Phase 2 trial.

Among the public companies beginning or engaged in Phase 2 clinical trials involving psychedelics are: Compass Pathways, MindMed Inc, Cybin Corp, and Mydecine Innovations Group. Indeed, MindMed itself has three drug R&D initiatives in or beginning Phase 2 trials.

Of equal importance are the clinical results emerging from these drug trials.

Compass Pathways’ Phase 2 clinical trial for treatment-resistant depression has also received Breakthrough Therapy Designation, due to the strong results from its own research.

We are currently in the midst of a Mental Health Crisis, with stress-related disorders like depression, addiction, anxiety and PTSD afflicting over 1 billion people globally. Much of the reason why this has become a crisis is the appalling standard of care for many of these conditions.

Addiction therapy is a revolving-door failure. Rehab, release, relapse, repeat.

Front-line drugs to treat depression (antidepressants) are dangerous and addictive. And their efficacy is little better than that of sugar pills. Roughly two-thirds of Americans exhibiting symptoms of depression don’t even seek treatment.

Meanwhile, clinical testing on psychedelics-based therapies is consistently yielding spectacular success rates for addiction, depression and PTSD.

MAPS’ MDMA-assisted psychotherapy for PTSD has been generating positive results for ~90% of patients being treated. Conversely, roughly two-thirds of U.S. veterans being treated for PTSD by the Department of Defense express dissatisfaction with the current standard of care.

The Department of Defense has become a major booster of psychedelic drug research – and has itself contributed $10s of millions for research funding.

Why no “A+” for psychedelic drug R&D in 2020?

One simple reason: no psychedelic drug completed the clinical trial process in 2020. But we could easily see this occur in 2021 – earning the sector an even higher letter-grade next year.

Media/public opinion: A+

Most psychedelic drugs are illegal, and have been strictly prohibited for ~50 years. Through nearly all of this time, the mainstream media has demonized any/all usage of these substances.

Why are we reminding readers of these facts?

Because if we look around today at public attitudes and what is being written in the media about these drugs, visitors from a distant planet would never guess that these drugs are still (mostly) illegal.

In the medical community, a Renaissance has taken place regarding psychedelics-based research. A long-and-growing list of physicians are banging the drum for the medicinal potential of these drugs – including many of the brightest minds in medicine.
Among the general public, there are two parallel tracks of interest that are both seeing exponential increases in support:
  • Gaining access to psychedelic medicines to elevate the standard of care for many mental health disorders.
  • “Biohacking” with these substances (generally via microdosing) as a new health-and-wellness trend to significantly improve quality of life and/or career performance.

Despite 50 years of anti-psychedelics propaganda (by government and media) fears/phobias toward these drugs are rapidly dissipating.

Most surprising, however, has been the change in media attitudes and coverage of psychedelic drugs.

The anti-drug propaganda is gone. It has been replaced by in-depth, fact-based coverage of psychedelics and psychedelic drug R&D, with mainstream media coverage universally positive.
The mainstream media still regularly smears the (legal) cannabis industry with archaic propaganda that has been completely discredited. But these same large corporations have turned over the proverbial “new leaf” when it comes to how they cover psychedelic drugs.

In turn, the consistently positive optics being projected on psychedelics by the media can only have a beneficial effect on political and regulatory attitudes toward psychedelic drugs.

Regulatory thaw:  B

In 2020, the psychedelic drug industry has addressed – and essentially eliminated – investor doubts in several key areas. When it comes to stock performance, capital raising, drug R&D and public opinion, the psychedelic drug industry couldn’t look any stronger as 2020 comes to a close.

Yet one area of doubt remains: the decriminalization/legalization of these substances and subsequently creating a regulatory framework for these emerging drugs.

Considerable progress has been made this year.

Several U.S. cities have decriminalized psychedelic drugs. In the recent U.S. election, the state of Oregon not only broadly decriminalized psychedelic drugs, it has legalized psilocybin for medicinal use.

In Canada, progress began a little later but is moving even faster – much like we saw with cannabis legalization.

It started at the beginning of August, when Health Canada granted “medical exemptions” to allow medicinal psilocybin use for four terminally-ill patients.

Subsequently, Health Canada has expanded these medical exemptions for psilocybin use for patients. More importantly, it has granted several psychedelics therapists permission to personally use these substances to help refine treatment.

In the space of a few months, Health Canada has gone from being cautiously receptive toward the medicinal use of psilocybin to moving clearly and methodically to broaden medicinal usage in Canada.

One observer with a strong interest in these developments is Doug Drysdale, CEO of Cybin Corp. Cybin is one of the public companies that is well-advanced into formal clinical trials with its psilocybin-based R&D.

Drysdale estimates that psilocybin-based therapies will start to be approved (as they emerge from these clinical trials) in roughly a two-year time frame. And he sees psilocybin legalization (at least in Canada) as a real possibility over the same time-horizon.

While the psychedelic drug industry earns a solid “B” for regulatory progress in 2020, the sector is still at the beginning of a long road.

Better days ahead for psychedelic stocks

As good as 2020 was for the psychedelic drug industry, expectations for 2021 are even higher. The half-billion in fresh capital that was raised in roughly the last quarter of 2020 is sufficient to drive plenty of growth in this industry in the first half of 2021.

Major industry catalysts loom for early 2021.

More companies will be going public. New investment capital will continue to flood into the industry. Regulatory progress should accelerate. And several psychedelic drugs should get much closer to the drug approval finish line in 2021.

Also, two dimensions of the industry that were just starting to gain prominence in 2020 will be squarely in the spotlight for investors in 2021.

Psychedelic Stock Watch will cover all these topics when we look ahead to 2021 next week.

DISCLOSURE: The writer holds shares in MindMed Inc, Numinus Wellness, Cybin Corp and Mind Cure Health. Mind Cure Health is a client of Psychedelic Stock Watch.

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