Psychedelics Market 2022 Year-End Review

What were the most significant psychedelics events of 2022?

Investors switch to long-term mindset

The first publicly traded psychedelics company reached the capital markets in 2019, and shortly after that the industry saw a significant burst of new players declare their intentions to focus on the space.

These psychedelics stocks came onto the scene near the end of the "green rush," a period when cannabis companies saw significant valuation jumps. Although the two industries are vastly different in many ways, the success initially seen in cannabis created unrealistic expectations in the psychedelics investment community.

According to one expert, those expectations affected the early stages of the psychedelics market, but now there has been a real change of guard when it comes to knowledge of the space. “I've seen a shift, and I've seen the majority transition, yes,” Najla Guthrie, CEO of Wellbeing Digital Sciences (NEO:MEDI), told INN at this year's Wonderland conference.

Guthrie was referencing a change in psychedelics investors from people with an interest in day-to-day trading to more established market participants with their eyes on the long-term outlook for the industry.

One sign of this change was the publication of the first note on the space by Morgan Stanley (NYSE:MS). While the firm has not begun coverage on any companies, its broad sector observations point to a positive outlook on the industry.

“You're still going to have, you know, that fringe element that still thinks it's going to be … like cannabis, but I think those are the minority today,” Guthrie explained to INN.

The expert said she is encouraged by the data being produced by the top drug makers in the psychedelics space.

“I'm looking forward to seeing a lot of those come through the pipeline,” Guthrie said. “I'm very, very excited and encouraged about where we're headed, and how we're transitioning.”

Economic headwinds cause psychedelics stocks to drag

Despite a recognized shift in the psychedelics investor base, this year has been a real test for stakeholders.

As of November 30, the Horizons Psychedelic Stock Index ETF (NEO:PSYK), which includes some of the biggest psychedelics companies, along with pharmaceutical stocks connected to the industry, was down 56.54 percent.

Companies like ATAI Life Sciences (NASDAQ:ATAI), COMPASS Pathways (NASDAQ:CMPS) and Cybin (NYSEAMERICAN:CYBN), standard bearers for the market, have all seen share price declines of over 50 percent each.

Before allowing panic to settle in, one expert told INN that investors need to recognize how much broad world events have impacted most industries, especially emerging sectors.

“Macro forces are not only affecting psychedelics, but all kinds of early risky assets,” Maria Velkova, managing partner at Tabula Rasa Ventures, told INN during the Wonderland conference.

The financial expert said the previous hype cycle seen in psychedelics will play a role in determining what the downturn will amount to. “I think (the downturn is) fitting well with the natural progression of the hype downturn as well,” she said.

Clinical data affecting psychedelics investment story

This past year offered a substantial amount of new clinical data and progress for the biggest psychedelics studies.

As these studies become more prominent and regulators engage with more of them, an added level of comfort has been created surrounding psychedelic substances and potential drug products.

Velkova told INN that regulators are in charge as strict overseers of the data produced from these studies.

“The data is the data,” Velkova said. “This is why the (US Food and Drug Administration) was set up — to ensure that companies that are developing medicines are collecting the right data.”

Velkova spent a decade in the pharmaceutical industry before stepping into psychedelics.

When asked for a theme indicative of the capital market's progress in 2022, Guthrie said it’s been very difficult.

“It's been a painful transition for a lot of companies in the sector; (they) have lost a lot of their value,” the expert explained, adding that this is a symptom of where the capital markets are right now.

Guthrie told INN that a lot of the initial capital raised for the sector came with “unrealistic expectations” for the drug pipeline timeline. In addition, the market has taken a beating from the effects of inflation in the global economy, supply chain problems affected by lingering COVID-19 issues and the aggravated results of the war caused by Russia’s invasion of Ukraine.

Velkova also thinks companies listing at early stages will affect the current flow of psychedelics companies. The expert expressed reservations about early stage drug development companies going public, a trend seen in the psychedelics space.

“But you know, people have made decisions,” she said. “And now they're trying to kind of deal with the consequences of the market forces, which are outside of their hands.”

Velkova told INN she has seen a slowdown in investment momentum alongside a stabilization in valuations. “I do think that they were way out of proportion before; there's still a lot of unanswered questions, and a lot of uncertainty in the space,” she said.

She doesn't doubt the effectiveness of these substances as novel drugs, but when it comes to the investment storyline, the expert questions whether there have been complete answers about the commercial rollout of these potential drugs.