- In today’s grossly overvalued markets, psychedelic stocks are trading at extremely lean multiples of cash and/or revenues
- The industry reported impressive growth in 2021 in drug development, clinics expansion, and IP development
- Psychedelic drug stocks are currently targeting treatment markets worth more than $330 billion, in a world where 1 in 4 people now has a treatable mental health disorder
The New Year has begun and investors’ focus will once again return to portfolio performance. For investors in psychedelic stocks 2021 was a year to forget.
These pubcos were strong performers in 2020. Yet despite major advances by the industry in 2021 in drug development, mental health clinic expansions, and IP development, most companies are trading near medium-term or all-time lows.
That may not be even be the most anomalous factor in current stock prices. As Psychedelic Stock Watch regularly reminds readers, the opportunities being pursued by these psychedelic drug companies are enormous and lucrative.
As 2022 begins, investors looking at the psychedelic drug industry will see three compelling reasons to make these stocks a significant component of their portfolio:
- Incredible value
- Rapid growth
- Enormous opportunity
Infamously, legendary investor Warren Buffett and his Berkshire Hathaway fund have been sitting on record cash positions going back five years. Currently Berkshire Hathaway’s cash reserves are at a record $149.2 billion.
Why? Because Warren Buffett “can’t find value” in the bloated P/Es of the large caps he invests in from the S&P 500 and NASDAQ.
Berkshire Hathaway’s investment mandate doesn’t allow it to venture into the smaller market caps found in the psychedelic drug industry. Too bad for BRK-holders, because the companies in the psychedelic drug sector scream “value”, virtually across the board.
Cashed up. Growing rapidly. Pursuing huge markets.
When psychedelic drug stocks enjoyed their huge run-up over the last third of 2020, most of the management teams of these publicly companies shrewdly took advantage of the bullish conditions and gorged on new capital.
In an industry where the public companies are still less than two years old, the psychedelic drug industry has raised in excess of $2 billion. The bulk of these financings took place near the end of 2020 and into the early months of 2021.
U.S. large caps are floating at extreme multiples that average greater than 20:1 forward earnings – propped up by obscene buy-backs using borrowed funds. Dangerous bull traps.
Psychedelic drug stocks are trading at very lean multiples of current cash. From the largest company in the sector (atai Life Sciences (US:ATAI), 3X cash) to the smaller pubcos (Mind Cure Health (CAN:MCUR / US:MCURF), less than 1X cash), these companies epitomize value.
Not a gamble on over-priced stocks based upon uncertain future revenue projections. Rather, investments in well-run companies with strong business models based upon money in the bank.
At a time when economic uncertainty has never been greater, valuations in the broader markets have never been more extreme. That’s a terrifying proposition for any true investor. Risk/reward clearly says “sell” with respect to the broader markets.
Conversely, with psychedelic stocks investors find transparent and compelling value propositions. A risk/reward profile that clearly says “buy”.
a) Strong balance sheets
b) Spectacular growth profiles
c) The largest commercial opportunities in life sciences
b) Spectacular growth profiles
c) The largest commercial opportunities in life sciences
As 2021 begins, psychedelic stocks are a cornucopia of stellar buying opportunities for any value-oriented investor.
To deliver robust “growth”, obviously a public company requires a large opportunity to grow into.
The psychedelic drug industry is pursuing many of the largest medical treatment markets, primarily involving the 2+ billion people with treatable but generally untreated mental health disorders: the Mental Health Crisis.
Conventional therapies have proven to be woefully inadequate in treating mental health. Clinical research is showing that psychedelics-based therapies can revolutionize treatment in all of these multi-billion-dollar markets.
Psychedelic drug companies have been taking advantage of these spectacular opportunities by stepping on the accelerator pedal in:
- Drug development
- Mental health treatment and clinics expansion
- IP development
Drug development is generally a long and expensive process. But while this is a “new” industry, many of these companies boast advanced drug research.
Clinical trials at the Phase II (proof of concept) and Phase III (drug approval stage) level provide investors with near-term commercial potential, in enormous treatment markets.
Paralleling this explosion in drug development is the growth in next-generation mental health therapies – and treatment facilities. Expansion of clinic networks has been rapid. Margins on these treatments are very robust.
Supporting both the drug development and clinics growth is critical IP development. Cutting-edge technologies that can both optimize therapeutic results and accelerate market penetration.
- Compass Pathways reported Phase IIb results for its COMP360 psilocybin-based therapy for Treatment Resistant Depression (TRD). The results (once fully presented) demonstrated very impressive efficacy, safety, and compatibility with other mental health medications.
- GH Research released Phase IIa results for its own psychedelic-based therapy for TRD. While not as advanced as the Compass trial, reported efficacy was even better.
- Several other important clinical trials were launched or completed in 2021, with the industry on track for even greater growth in 2022.
Mental health treatment/clinics expansion:
- The industry has gone from just two public companies operating a handful of clinics in 2020 to more than a half dozen pubcos operating dozens of mental health clinics in 2021.
- From nominal revenues in 2020, the industry has reported over $10 million in revenues for 2021, and is on track for much greater revenue growth in 2022.
- While only ketamine-based therapies are fully legal today, Canada (at the national level) and several U.S. states are moving to increase access to other psychedelics-based therapies, which boast even more impressive treatment results.
- Apart from numerous drug patent applications (and several granted patents), the psychedelic drug industry is also pursuing IP development related to drug synthesis, drug delivery systems, and digital therapeutics platforms.
- MINDCURE’s iSTRYM digital therapeutics platform went from the drawing board to initial launch in less than a year. The company is preparing for full commercialization in H1 2022 and with 20 clinic partners already lined up is well-positioned to capitalize on the explosive expansion of clinic operations.
Full-speed ahead on psychedelic drug development. Full-speed ahead on clinics expansion. Full-speed ahead on IP development. But where is it all leading?
As already noted, over 2 billion people now suffer from treatable mental health disorders. No matter how fast the industry can scale up, that represents decades of near-vertical growth potential.
In the United States alone, over $300 billion per year is spent on mental health each year, with very little to show for it. The psychedelic drug industry is targeting this revenue pie -- with next-generation drugs and therapies that will set the standard for mental health care in the 21st century.
Worse still for societies (but good for the industry), rates of depression, anxiety, substance abuse and PTSD are soaring exponentially as result of additional stress caused by oppressive Covid lockdowns and other restrictions.
In the U.S., the percentage of Americans exhibiting symptoms of depression has nearly quadrupled just since the start of the pandemic. Roughly 80 million Americans (1 in 4 people) are now prime candidates for these emerging psychedelics-based therapies, just with respect to depression.
In other words, this already-huge opportunity is growing in size at an exponential rate.
Meanwhile, conventional treatments for mental health have been grossly inadequate. That is why there is a (rapidly worsening) global Mental Health Crisis: because conventional therapies don’t work.
The introduction of psychedelic medicine is the equivalent of replacing crutches with actual cures. These drug therapies will revolutionize the treatment of mental health.
How big of an investment opportunity in life sciences are you looking for? How about this?
An inexhaustible supply of potential consumers (2+ billion), with therapies that represent as much of an improvement in the standard of care as the introduction of penicillin.
Beyond the huge potential in mental health treatment, psychedelic drug development is rapidly branching out into many other mega-treatment markets: chronic pain, traumatic brain injury, obesity and binge-eating, autoimmune disorders, and sexual dysfunction.
Drug developers like atai, Compass Pathways (US:CMPS), MindMed Inc (US:MNMD / CAN:MMED), Cybin Inc (US:CYBN / CAN:CYBN) and Mydecine Innovations Group (CAN:MYCO / US:MYCOF) are poised to capitalize on these multi-billion-dollar R&D opportunities.
Clinic operators like Field Trip Health (US:FTRP / CAN:FTRP), Numinus Wellness (CAN:NUMI / US:NUMIF), Novamind Inc (CAN:NM / US:NVMDF), and Awakn Life Sciences (CAN:AWKN / US:AWKNF) are positioned for spectacular growth in mental health treatment.
IP development, most notably digital therapeutics will play an important role in facilitating industry growth. Awakn has publicly explained how the introduction of MINDCURE’s iSTRYM platform will be a pivotal factor in scaling up its mental health treatment operations both quickly and efficiently.
All of these companies are well-capitalized (relative to current market caps) to execute on their growth strategies. Indeed, despite its strong growth profile for 2022, MINDCURE is presently trading at less than cash.
Outlook for 2022
When investors put their money into a stock, they hope (expect?) that the company will have a strong growth strategy and then execute quickly and efficiently on that strategy, while targeting markets with robust commercial potential.
Psychedelic drug companies have provided investors with a number of strong growth strategies. These companies (as noted above) have been executing on those strategies at an impressive rate. And the industry is targeting a plethora of multi-billion-dollar markets – almost all of which are ripe for disruption.
Yet, in our dysfunctional algorithm-driven markets, psychedelic stocks went backwards in 2021. A disappointment for existing shareholders of these companies but a gift for new investors as we begin 2022.
Psychedelic drug stocks represent unparalleled growth opportunities in life sciences. And in markets where the Oracle of Omaha himself has been unable to find value, these stocks offer investors many stellar value propositions.
DISCLOSURE: The writer holds shares in MindMed Inc, Cybin Inc, Numinus Wellness, Novamind Inc, and Mind Cure Health. Mind Cure Health is a client of Psychedelic Stock Watch.