Morgan Stanley Positive in First Psychedelics Research Report

Morgan Stanley optimistic on medical uses for psychedelics

Experts have long connected the medical benefits of psychedelics with the industry's investment potential, and Morgan Stanley emphasizes the medical approach from leading researchers in the private and capital markets.

“Psychedelic therapies are an alternative approach to treating mental health that target unmet needs and redress the lack of innovation in the field,” the report states.

The researchers specifically point to a crisis in mental health treatments, which is leading to increased potential for psychedelics to step in and play a significant role in caring for millions.

The study even discusses the possibility of psychedelic compounds becoming legitimate addiction treatments.

Interestingly, Morgan Stanley doesn’t limit psychedelic medicines to the mental heath arena. In fact, the report explains, “Beyond mental illness and pain-related diseases, psychedelics have the potential to treat any disease where new neural pathways might improve function.”

Psychedelics industry reacts positively to report

The Morgan Stanley study has been celebrated across the psychedelics community, with many industry participants seeing it as a major step up for the still-maturing space.

The widespread sharing of the document has resulted in various companies seeing rises in their daily trading. Since the start of the week, some of the biggest names, like COMPASS Pathways (NASDAQ:CMPS), ATAI Life Sciences (NASDAQ:ATAI) and MindMed (NASDAQ:MNMD,NEO:MMED), have seen jumps in trading activity.

Aside from that, the first psychedelics exchange-traded fund (ETF), the Horizons Psychedelic Stock Index ETF (NEO:PSYK), has been moving up this week as the report continues to spread.

The Morgan Stanley report pairs well with a similar study shared by accounting operator KPMG back in June.

The KPMG study expresses a bullish perspective on psychedelic medicines, and even offers financial data for investors, providing breakdowns of the biggest investment deals seen in the market.

The psychedelics market has also responded well to a recent Netflix (NASDAQ:NFLX) show that showcases the medical benefits of psychedelics and the changing perspectives surrounding these compounds.

Study doesn’t pull any punches with market concerns

When it comes to the red flags investors should be aware of in this market, the researchers at Morgan Stanley pointed to the difficulty of navigating the US Food and Drug Administration clinical trial process.

“To succeed, infrastructure and clinician support must be available and scalable,” the report explains.

The researchers also expressed concerns about the stigma that is present when discussing psychedelics, and what it will take to change these negative perspectives.

Another difficulty highlighted by the study is the “competitive landscape” present in the industry and how companies will be able to differentiate themselves from the pack.

“Even though most novel psychedelic compounds are patented, the drugs have similar chemical structures and, consequently, similar therapeutic effects, making it unclear how psychedelic companies will significantly differentiate their treatments and establish market share,” the report states.

These concerns create a space of opportunity for investors willing to practice due diligence.

Investor takeaway

Morgan Stanley's report represents a significant step up in how the psychedelics market is understood by large investment banks. While it doesn’t dive into the companies in the market, the research shows a mature understanding of the sector and may pave the way for other established research firms to share their thoughts.