The Future of Mental Health and Addiction Therapy: Why Capital is Flowing into Psychedelics

The mental health crisis is nothing new. The World Health Organization (WHO) estimates that, globally, over 700 million people are affected by mental health disorders. The global pandemic is likely to increase those numbers as the shift to remote work further exposes how widespread the mental health epidemic really is. But there is positive news on the horizon with growing awareness from both the healthcare industry and consumers.

Psychedelics is one segment of the healthcare industry that is rapidly researching and developing transformative products that may have the potential to provide treatment to those suffering from mental illnesses, addiction, and other often overlooked and stigmatized conditions.

Psychedelics continue to become increasingly popular throughout the United States. Following the 2020 US election, Oregon voted in favor of Measure 109, which sought to legalize psilocybin mushrooms for controlled therapeutic use. In an even more momentous decision, the voters in the US capital voted in favor of a policy to decriminalize psychedelic substances in the form of certain psychedelic plants and fungi. Federal lawmakers now have the chance to review that reform before it goes into law, and it is possible that they will block it. However, the fact that both votes came out in favor shows the change in perception and it doesn’t come as a surprise. Psychedelic medicine is becoming a mainstream topic that is moving the future of mental health and addiction therapy forward, as part of a growing trend throughout North America.

What was once taboo is now becoming the biggest thing in mental health therapy. The total estimated market size of psychedelic medicine could reach as high as US$100 billion. This has led to the emergence of first-mover companies that “will have deep pockets, patentable products and a well-thought-out reimbursement strategy,” wrote Tania Gonsalves, an analyst for Canaccord Genuity Capital Markets, in a March research report.

While significant progress is still required, these early victories have spawned interest from the capital markets as they look at the psychedelics industry as a potential solution to the larger mental health crisis.

Changing perspectives on psychedelic medicine over the decades

Research into psychedelic medicine isn’t new by any means. Early research by government and international agencies does exist. However, much of this research was stigmatized by traditional policy and cultural movements throughout much of the 1950s and 1970s.

In 1967, LSD was classified under Schedule I of the 1967 United Nations convention on drugs. This classification meant that drugs like LSD, psilocybin and mescaline were identified to have “significant potential for harm and dependence and no accepted medical use.” Despite little evidence of harm, these drugs have been stuck on this list to this day.

Fortunately, in the late 1990s and into the early 2000s, several scientists began to apply modern research methods to psychedelics. These groups included the notable Strassman et al. group in the United States using DMT and Vollenweider et al. in Switzerland with their psilocybin-based therapies. After worldwide attention, survey results published in Neurology in May 2006 showed that psilocybin mushrooms and LSD might reduce the severity and frequency of cluster headaches.

At the turn of the century, the world saw a psychedelic renaissance through renewed therapeutic research. This trend in research only snowballed into more trials and financial investment into psychedelic medicine.

Today, leading companies are heavily investing in creating innovative products that have the potential to provide treatment to individuals suffering from mental health disorders. These companies include the likes of Cybin (NEO:CYBN), Compass Pathways (NASDAQ:CMPS) and Mind Medicine (NEO:MMED,OTCQB:MMEDF).

Easing regulations brings millions of dollars in financial investment

While significant due diligence is still required for the growing psychedelics market — that alone wasn’t enough to stifle the flow of capital into this emerging sector.

In 2017, the US Food and Drug Administration (FDA) recognized the potential benefits of MDMA by assigning a Breakthrough Therapy Designation to the drug to treat post-traumatic stress disorder (PTSD). The psychedelic compound Psilocybin would receive the same Breakthrough Therapy Designation two years later to treat major depressive disorder.

This assignment has enabled many developmental companies to launch more clinical trials and make their shareholders very happy.

Cybin, a leading biotech company focused on advancing psychedelic therapeutics having raised nearly C$90 million to date. On January 18 Cybin announced a C$20 million bought deal led by Canaccord, later upsized to over C$30 million due to strong demand for the stock. In October, 2020 Cybin close a C$45 million subscription receipt financing in a reverse takeover transaction, marking the largest subscription receipt financing in the Canadian psychedelic sector. The Company intends to use the net proceeds from the offering to advance its clinical trials, novel molecule programs and technologies surrounding the patient experience, and for working capital and general corporate purposes.

Compass Pathways is another leader in the psychedelics space. The company IPO’d at US$17 per share in 2020. This is in conjunction with a current market cap of more than US$1.2 billion. Like Cybin, the company has continued its research in the use of psychedelic compounds to treat depression.

“Compass’ successful IPO is further evidence that psychedelics are gaining traction as a viable solution for treating mental health and addiction,” said JR Rahn, co-founder and co-CEO of MindMed, in an October 2020 interview.

Over several decades, numerous research studies have progressed in their exploration of psychedelic-assisted therapies, including the use of psilocybin, MDMA, DMT, mescaline and other compounds.

As clinical trials see more progress, the shift in ideology around these drugs is projected to pick up in momentum. This change is even seen at the federal level, with the FDA approving and fast-tracking several clinical research trials.

The future of psychedelic medicine: Exciting opportunities in mental health treatment

Despite being classified as Schedule 1 drugs, these studies have demonstrated that psychedelic drugs are useful in treating mental disorders, such as depression, PTSD and anxiety. This is extremely significant as the world deals with the COVID-19 global pandemic and the mental health fallout caused by continuous remote work.

Due to the conditions surrounding the novel virus, more than one billion people are estimated to be affected by stress-related mental health conditions like depression, anxiety, addiction and PTSD. Early data shows that treatment in mental health was already a US$225 billion market in 2019 and is expected to grow to US$238 billion in 2020.

“It’s shown to the world what insiders have known for a long time — that this vision of bringing psychedelic medicine to the world isn’t a pipe dream, it’s very real and it’s happening now,” said Michael Hoyos, venture capitalist and co-founding partner at the Conscious Fund.

This changing trend is something that companies like Mind Medicine have realized. The company issued over 27 million shares, raising US$28 million in October 2020. Post-financing, Mind Medicine now has cash reserves of US$37.8 million that it plans to use to fund its clinical trial pipeline of psychedelic inspired medicines and experimental therapies.

Cybin is another company that’s looking to transform the way the psychedelic sector approaches mental health treatments. Having raised nearly C$90 million, the company is well capitalized to pursue several psychedelic drug development programs for the treatment of major depressive disorder as well as additional indications.

“Cybin is heading into a very active period with the pending start of a Phase 2 clinical study of sublingual psilocybin for the potential treatment of Major Depressive Disorder,” stated Doug Drysdale, Cybin CEO. “This work will take place in Jamaica with the University of West Indies. Our listing on NEO gives us increased access to capital, enhanced visibility with the investment community and, most importantly, a greater opportunity to bring innovative new treatment options to market.”

Takeaway

Investors and regulatory bodies are slowly warming up to the idea that psychedelics can provide suitable treatment options for those suffering from mental health conditions. The larger capital markets have seen a snowballing effect as innovations in psychiatric and mental health therapy are now materializing through psychedelic research and medicine.

With shifting consumer awareness and the removal of societal stigma, it’s no wonder why the psychedelic medicine market is estimated to grow to US$100 billion in the coming years. This exciting trend is forecasted to bring unprecedented levels of investment, capital gain and the potential for alleviating pain for the millions of North Americans suffering from mental health issues.

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