- Billions of dollars on the table
- Some of the biggest names in Silicon Valley and Wall Street already onboard
- Numerous strong investment drivers
With a fresh rally underway in psychedelic stocks, new investors to this sector will be wanting to get up to speed.
It’s a big story.
Psychedelic drugs are positioned to address a healthcare crisis that affects (far) more people than COVID-19. There is a huge market opportunity associated with this treatment crisis.
Clinical trials on psychedelic drugs show the clear potential to revolutionize several multi-billion-dollar mental health treatment markets.
More specifically, here are the eight major investment drivers of psychedelic stocks and the psychedelic drug industry.
1) The Mental Health Crisis – over 1 billion affected
More than 38 million people around the world have been infected with the COVOD-19 virus to date. More than 1 billion people (25 times the number of COVID-19 infections) are affected by stress-related mental health conditions like depression, anxiety, addiction and PTSD.
This is now officially a “Mental Health Crisis” according to the World Health Organization. And the coronavirus pandemic is causing this crisis to rapidly worsen due to the enormous economic and emotional stresses associated with the pandemic.
Today, roughly 1 out of every 7 people on the planet is a potential patient for psychedelic drug medicine. In turn, this has opened up an enormous commercial opportunity.
Along with the toll in human health from this Crisis, there is also a gigantic economic impact.
The World Economic Forum estimated that by 2018 mental health disorders were already costing the global economy $1 trillion per year in lost productivity alone.
The Lancet Commission projects that between now and 2030, just the lost productivity from the Mental Health Crisis will cost the global economy $16 trillion. This is truly a “crisis” in every sense.
2) $300 billion U.S. mental health treatment market
The commercial opportunity for psychedelic drugs in the United States alone is staggering. According to Statista, “mental health services” was already a $225 billion U.S. treatment market in 2019, forecast to grow to $238 billion in 2020.
And that estimate was before the COVID-19 pandemic greatly exacerbated this Crisis.
A broader look at U.S. mental health treatment (by Harris Williams & Co.) pegs the overall size of the U.S. treatment market at $300 billion in revenues.
Globally, the commercial opportunity in psychedelic drugs could exceed $1 trillion.
Making the commercial opportunity for psychedelic drugs especially exciting is that this is a wide-open playing field for new life sciences companies – in two respects.
3) Poor existing mental health treatment options imply massive disruption potential
What could possibly make the Mental Health Crisis worse than just the sheer numbers affected and the enormous economic costs it’s generating?
Existing treatment options for (in particular) depression, addiction, and post-traumatic stress disorder (PTSD) are grossly inadequate. This is a tragedy as well as a crisis.
The numbers bear this out.
Front-line drugs to treat depression (antidepressants) are only effective for roughly 50% of patients. This is only marginally better efficacy than placebos. In other words, most of the “medicinal efficacy” of antidepressants is nothing more than the Placebo Effect.
Partially due to the mediocre efficacy of antidepressants (and partly due to their harmful side effects) roughly 2 out of 3 Americans exhibiting symptoms of depression don’t even seek treatment.
Mainstream medicine does an equally dismal job of treating addiction. Addiction treatment is a $35 billion revolving-door industry in the United States: treat, release, relapse, repeat.
A cycle of failure.
“Twelve steps” approaches to addiction treatment have no foundation in science at all.
PTSD is at epidemic levels among military personnel and first responders. Yet two out of three U.S. veterans being treated for PTSD (the largest patient population) express dissatisfaction with the treatment they receive from the Department of Defense.
As research progresses on psychedelics-based treatments for these conditions, the “bar” is currently set very low for psychedelic drugs to disrupt these markets.
4) Wide open opportunity – Big Pharma walks away from mental health R&D
What could make the opportunity in mental health any more inviting for psychedelic drug companies?
Simple. Multinational drug companies have largely vacated drug research in this area.
An article in The Guardian reports that as far back as 2016, Big Pharma had already reduced R&D expenditures for mental health-related drugs by 70%.
It would be very difficult for life sciences startups to compete head-to-head with multinational drug companies in mental health research. But with Big Pharma (largely) not competing, the door here is wide open for the psychedelic drug industry.
A clear playing field for psychedelic drug development and the companies pursuing this opportunity. But it gets better.
5) Psychedelic drugs are demonstrating vastly superior treatment results
If existing treatments for mental health conditions were already effective and testing on psychedelic drugs was showing mediocre results, there would be no opportunity here.
What we are seeing is the precise opposite.
Existing treatments are grossly inadequate. Clinical trials on psychedelics-based therapies are consistently generating spectacular treatment results. For depression. For addiction. For PTSD.
And psychedelics-based drug research is rapidly expanding into other treatment fields.
As government and societal attitudes towards psychedelic drugs are rapidly thawing, a new industry with almost unlimited potential is being born.
6) Big-name backers climb onto the psychedelics bandwagon
One billion potential customers.
Numerous multi-billion-dollar health treatment markets wide open for new drug therapies.
A (previously prohibited) class of drugs is showing enormous potential to capture these treatment markets.
Who would be interested in a market opportunity like this? Some of the biggest players in Silicon Valley and Wall Street – for starters.
PayPal billionaire Peter Thiel was one of the first big names in Silicon Valley to embrace the psychedelics opportunity in a big way. Hedge fund manager (and former Goldman Sachs partner) Mike Novogratz was another early entrant.
However, the appeal of the psychedelic drug industry goes well beyond Silicon Valley and Wall Street.
Tim Ferriss, Kevin O’Leary, Bruce Linton (former Canopy Growth CEO), Bob Parsons (Go-Daddy founder) and Steve Jurvetson (Space X, Tesla) are just some of the high-profile figures who are financially backing the psychedelic drug industry.
These are the sort of “influencers” that can move capital markets. And capital is flowing into the psychedelic drug industry.
7) Well-capitalized emerging sector
Life sciences startups are coming up with great ideas almost every day. But getting those ideas funded is an entirely separate proposition.
Drug development, in particular, isn’t cheap.
Bringing a new drug to market through the arduous drug-approval process can cost in the $100s of millions. Regardless of the medical potential of psychedelic drugs, if funding wasn’t on the table there would be no opportunity.
The money is on the table.
Big-name market players attract capital the way sugar attracts flies.
Early industry-leader Compass Pathways (US:CMPS) has already raised in excess of $200 million, including over $127 million in its IPO financing.
Mindstrong, a private healthcare company specializing in pyschedelic drug IT, announced earlier this year it had secured $100 million for its Series C fundraising.
MAPS, the Multidisciplinary Association for Psychedelic Studies, easily raised $30 million just for a single clinical trial – a MDMA-based therapy for PTSD.
Research leader, MindMed Inc (CAN:MMED / US:MMED) just completed a CAD$25 million bought deal financing at well over double the unit price its shares were trading at – less than three weeks earlier.
Retail investors are catching the wave as well. Trading volumes have been elevated across the board for shroom stocks since the Compass Pathways IPOs.
In addition to Compass and MindMed, psychedelics companies like Mind Cure Health (CAN:MCUR / US:MCURF), Numinus Wellness (CAN:NUMI / US:MYCO) and Mydecine Innovations Group (CAN:MYCO / US:MYCOF) have also been recording big, recent gains.
8) Getting in early
In any new market opportunity, it's generally those who get in early that reap the largest profits.
With a flood of recent mainstream media attention on companies like Compass Pathways and MindMed, it’s easy to forget that this is still an industry truly in its infancy.
Only roughly a dozen pure players in psychedelics are currently publicly trading.
Compass Pathways has a market cap of US$1.3 billion. MindMed’s market cap has recently surged to CAD$300 million. But after that the numbers drop off rapidly for the rest of the industry.
These market babies are ready to be adopted by investors looking for outsized returns.
Older investors will lament previous missed opportunities to “get in early” on major market success stories – especially those related to new research and technologies.
Today, investors have an obvious get-in-early opportunity staring them in the face: psychedelic drugs.
If you can find an investment opportunity with a couple of very good reasons to invest, that’s worth exploring.
When a multi-billion-dollar investment opportunity emerges with eight strong investment drivers, it’s time to reach for the checkbook.
DISCLOSURE: The writer holds shares in MindMed Inc, Numinus Wellness and Mind Cure Health. Mind Cure Health is a client of Psychedelic Stock Watch.