The psychedelic industry continues to expand at a feverish pace

Stock valuations are rising amid new catalysts and legalisation to possess psychedelics

Summary

  • Mental Health is the biggest health crisis affecting individuals worldwide.
  • An estimated 2 billion people suffer from depression, anxiety and substance abuse.
  • The industry boasts 40+ publicly traded firms on the Canadian and US exchanges.
  • The biotech industry is gradually expanding from first to second-generation therapies.
  • Multiple therapies offer choice and assist in meeting patients needs.

Introduction

There is little doubt that the psychedelic space is one of the most-watched sectors over the last couple of years due to the enormous unmet medical need in treating neurological disorders. Include the impact of the Covid-19 pandemic and the patient population climbs manifold. While public attention has led to a plethora of new firms jumping in, the established biotechs are steadily making progress with their clinical trials and, in some instances acquiring or partnering with psychedelic and drug delivery firms to ensure breakthroughs. Some others are working with non-profits by providing infrastructure for psychotherapeutic treatment for clinical trials.

Research into psychedelic therapy is in full swing across the world. Leading the research on the therapeutical benefits of psychedelics are globally-renowned universities like New York University, Johns Hopkins, and the University of British Columbia. In addition, these institutions are actively registering participants with severe post-traumatic stress disorder, depression, anxiety, chronic pain, or substance abuse disorders for research trials.

In the United States, the non-profit research & educational organisation, Multidisciplinary Association for Psychedelic Studies (MAPS) is actively working with the US Food and Drug Administration to study the benefits of psychedelic-assisted therapies. In May 2021, the institution published groundbreaking results from its first Phase-3 MDMA (commonly known as ecstasy, molly) trial to treat post-traumatic stress disorder. According to the study, patients with severe PTSD benefitted enormously from the therapeutic action of MDMA & psychotherapy. The clinical trial included participants with severe, chronic post-traumatic stress disorder (PTSD). Interestingly, after just three MDMA-assisted therapeutic sessions, 67% of the participants no longer qualified for a PTSD diagnosis. Also, in 88% of the members, there was a meaningful clinical reduction in the symptoms. Following the highly conclusive outcome, MAPS has started enrolling participants for the second Phase-3 trials. Also, the FDA has granted psilocybin and MDMA breakthrough therapy status, expediting research into the drugs. This follows the approval for Johnson & Johnson's esketamine nasal spray, 'Spravato,' for treatment-resistant depression by the FDA and the EU in 2019.

So, how do psychedelics work?

Our central and peripheral nervous systems comprise what is called the 5HT or serotonin receptors. The pharmacological properties of these receptors in the human brain are similar but not identical to those in the rat brain (Source: Multiple serotonin receptors in the human brain- Angel Pazos, Antonio M. Gonzalez, Jose M. Palacios). Serotonin interacts and activates neurotransmitters like dopamine, GABA, glutamate, and others, along with hormones such as oxytocin, vasopressin, prolactin, etc. These help manage neurological actions like sleep, mood, anxiety, cognition, memory, learning, appetite etc. Psychedelics stimulate the serotonin 2A receptors by binding to it, altering its internal conditions and thereby the neuron it sits on.

So far, several studies have pointed to the potential benefits of psychedelic therapy. Among the 15 known serotonin receptors, the primary focus of psychedelic drugs is the 5HT2 receptor, a subfamily of the 5HT, which typically make up the three G protein-coupled receptors (GPCRs)- 5HT2A, 5HT2B, and 5HT2C.

Receptor Regulatory function
5HT2A Memory, learning, emotions like depression, fear, trauma, anxiety, etc.
5HT2B Smooth muscle contractions.
5HT2C Anxiety, appetite, stress, sleep, etc.

Industry categorisation-

The biotech industry is categorised into two, depending on the firms researching first and second-generation compounds. The first-generation therapies are derived mainly from naturally occurring psychoactive substances like mushrooms, fungus, cactus and other medicinal plants. The compounds include psilocybin, DMT, mescaline, LSD, ibogaine, etc. On the other hand, second-generation drugs possess the therapeutic benefits of psychedelics without the hallucination or trip. The key differentiation between the first and second-generation drug therapies is the ability of the latter to target specific 5HT2 receptors.

Psychedelic firms employing first-generation compounds include ATAI Life Sciences, Compass Pathways, Cybin Corp, Revive Therapeutics, HAVN Life Sciences, Numinus Wellness and others. However, when it comes to second-generation psychedelic compounds, there are very few firms researching them. Some of them include Better Life Pharma, Mindset Pharma and Longboard Pharmaceuticals Inc. These firms are currently working on drugs to treat Major Depressive Disorder, Treatment-Resistant Depression and Epilepsy. One other prominent biotech firm developing second-generation proprietary compounds is the Toronto-based Bright Minds Biosciences.

Possible drawbacks with first-generation psychedelics-

It is well established that first-generation psychedelics target the 5HT2a receptor and are extremely helpful in treating depression and other neurological disorders. However, there are a few grey areas, some of which are already visible and some which could show up as research progresses. Here are a few of them-

  1. Bad trips- Hallucinogenic drugs can alter a patient's thinking process, thereby causing significant distortions from reality. Patients consuming these drugs can either go through an enjoyable or unpleasant experience, depending on several factors. The latter is termed 'bad trip', and it starts within a few minutes of taking the psychedelic and could last several hours. The experiences vary across psychedelics, patients and are unpredictable. Some bad trips include nightmares, panic reactions, anxiety, numbness, tremors, insanity or despair. So, for the safety of patients, these therapies have to be mandatorily conducted in healthcare centres and continuously supervised by a health specialist.
  2. Long-trip time- First-gen psychedelic therapies in the current form require patients to be under the influence of the hallucinogenic effect for several hours. During this time, they need close clinical supervision to ensure an optimal therapeutic outcome besides avoiding unpleasant side effects. So, there are some concerns that psychedelics could be challenging to deploy profitably at scale.
  3. Cardiac complications- The therapeutic benefits of the first-generation drugs are visible when these compounds are taken in small doses and at intervals ranging from several weeks to months. However, increasing the dosage and frequency can activate the 5HT2B receptor, causing cardiac complications, including valvular heart diseases. In the past, drugs targeting 5HT2B received FDA approval but were eventually pulled from shelves following instances of cardiac toxicity.

Besides the above drawbacks, there is also the issue with IP and patents, crucial for a psychedelic firm to commercialise a drug. Naturally occurring plants, fungus or mushrooms cannot be patented unless companies derive new molecules from them. Without a strong IP, these psychedelics would be treated as generics, and competitors could easily duplicate them. This is one of the reasons we see several firms filing provisional patents to protect their inventions and test and refine them before filing a formal patent application.

About Bright Minds Biosciences-

The existing serotonin drugs are primarily used to treat minor-moderate depression, and they come with severe side effects. Therefore, only a reasonable percentage of patients showing moderate signs of depression can be treated. The rest of them grieving from severe depression and suicidal tendencies are subject to other forms of treatment, including electric shock.

Bright Minds Biosciences is focused on the second-generation molecules by addressing issues with the existing psychedelic drugs like psilocybin. Earlier this year, Bright Minds announced positive data from its late-stage Binge Eating Disorder (BED) and Opioid Use Disorder (OUD) pre-clinical trials. The tests were carried out at the Texas branch of the Center for Addiction Research, and BMB's proprietary 5-HT2c agonists came out at the top in rodent models. The data showed the agonists suppressed food intake, especially high-calorie palatable foods. Higher doses resulted in a drop in binge eating by over 50%, followed by significant body weight loss with no noticeable side effects in the 24-hour evaluation period.

Bright Minds Biosciences has been making waves of late, and we thought we'd take a look and what sets them apart from the other psychedelic firms-

Leadership team- A biotech firm's success depends on the superiority of the leadership team. Bright Minds has assembled top neuroscientists, drug developers and physicians from the industry to play a specialised role in the company's drug development program. While the average experience of the scientific team members exceeds 25 years, what's astounding is that their expertise has primarily revolved around CNS and psychedelic compounds.

Here are the key personnel representing the leadership team at Bright Minds Biosciences-

  • Ian McDonald- Co-founder and CEO, BMB. He comes with IB and PE experience. His prior experience includes management and board positions in TSX-listed firms.
  • Dr Alan Kozikowski- Co-founder and CSO, BMB. Alan has over 550 publications, 100+ patents and has led multiple biopharma companies.
  • Dr Gideon Shapiro- VP Discovery, was in senior roles at various companies, including Novartis, where the team worked on novel neurology drugs.
  • Dr Revati Shreeniwas- CMO, is a former practising physician who also served as faculty at Stanford and Columbia Universities.
  • Jeremy Fryzuk- Director, worked at Morgan Stanley's principal investments group. He is now a PE investment professional.

Massive drug pipeline- Bright Minds Biosciences is developing second-generation agonists to treat seven disorders, targeting the 5HT2A and 5HT2C receptors. The 5HT2C agonists are in late pre-clinical stage trials to treat Undisclosed Seizure Disorder, Opioid Use Disorder, Binge Eating Disorder and Alzheimer's. The phase-1 clinical trials for the epilepsy drug are due to begin from Q1 2022. At the moment, there are no 5HT2C drugs in the market, so the success of these agonists in the trials should give them a big boost.

Intellectual property (IP)- Bright Minds has filed several patents and has two GRANTED PATENTS on variants of the psilocybin molecule. The IP was acquired by an in-licensing agreement with the University of Illinois, and the licensed/granted patents are valid until 2036.

Market size and potential- Bright Minds Biosciences' drug pipeline has a sizable patient population with unmet medical needs. Besides, the patents allow them to price the drug substantially higher than first-generation generic drugs. Based on the current patient population and the estimated annual on-patient drug price, the market potential for the BMB's drug pipeline runs into hundreds of billions of dollars.

Upcoming catalysts-

H2 2021- Nasdaq uplisting.
H1 2022 - Initiation of childhood Epilepsy trial in Australia.
H1 2022 - Initiation of opioid use disorder trial in Australia.
H2 2022 - Initiation of US-based clinical trial.
H2 2022 - Regulatory approval for trial initiation in Australia.
H2 2022 - Data read-out from pre-clinical studies.

Conclusion-

Is a 'psychedelic trip' genuinely required for the therapeutical benefit of these compounds will continue to be a matter of debate. According to Health Canada, the "use of magic mushrooms also comes with risks, including increased heart rate and blood pressure, flashbacks and bad trips that may lead to risk-taking behaviour, traumatic injuries and even death." However, doses can be larger in a clinical setting, spaced out over months or years, with ongoing psychological support. A typical trip lasts anywhere from five to eight hours, and research trials in this area are beginning to show tremendous promise in treating severe mental disorders.

According to ResearchandMarkets, the psychedelic industry is expected to swell to $11 billion by 2027, a compounded annual growth rate of 12% from $5 billion in 2020. This is a big potential market by any standards, but translating prospects into revenue is not just about federal legalisation, drug delivery, or successful bringing a drug to the market. Rather, it's about firms creating novel compounds and patenting them. That's because, without patents, drugs are treated as generics, and no one would want to invest in a biotech firm developing generic products.

The nascent psychedelic industry is touted to revolutionise neurological therapy for millions of people worldwide, and as with any new sector, there's plenty of hope and excitement. But, it is also a high-risk, high-reward space for investors, with plenty of potential pitfalls.