As the most common cause of disability worldwide, mental illness has reached a crisis stage. It represents not just a critical humanitarian need, but potentially an emerging existential threat to humanity. The World Health Organization estimates that globally approximately 280 million people suffer from depression, 800,000 people die from suicide annually, and 345 million are estimated to suffer from PTSD. It is estimated that over 70% of people suffering from mental illness do not receive treatment.
Clinical research increasingly suggests that psychedelic compounds offer widespread promise for more effective therapies that could substantially ameliorate these dire statistics. Can new funding structures effectively compete with traditional investment markets to support the development of new therapies in the emerging psychedelic industry?
At the Psychedelic Business Forum, an event that took place in New York City on December 2, 2021, the Multidisciplinary Association for Psychedelic Studies (MAPS) and Vine Ventures announced a novel social impact Special Purpose Vehicle (SPV) called the Regenerative Financing Vine to raise $70 million for patient access infrastructure and research for MDMA-assisted psychotherapy for PTSD.
MAPS has demonstrated remarkable success in its first Phase 3 clinical trials for this therapy and is currently in the second and final Phase 3 trial. MAPS expects to have FDA approval at the end of 2023 for prescription use of MDMA-assisted psychotherapy, which would offer new treatment options for the estimated 9 million Americans living with PTSD.
In the words of Vine Ventures founder and managing director Ryan Zurrer, “MAPS is the most important organization for the success of psychedelic therapies globally.” Over its 35-year history, MAPS has raised more than $130 million to date solely from nonprofit donors to achieve this goal. With the emerging psychedelic-assisted therapy market pioneered by MAPS now garnering over $2 billion in investor funding, donation-based strategies are giving way to investment.
In a recent Lucid News interview with MAPS founder Rick Doblin, he discussed funding strategies and the Vine vehicle as a means to fulfill the MAPS mission as both a non-profit and for-profit MAPS Public Benefit Corporation subsidiary – without surrendering equity or control to investors.
Terms of the Deal
Vine has pledged a minimum of $13 million in capital towards the $70 million SPV. Once the Vine SPV recoups its investment through revenue generated by MAPS at 2x or roughly 6.1% of total revenue, then the percentage of revenue the SPV receives decreases. This is due to a reciprocity mechanism that returns 15% of the Vine revenue share back to MAPS until the SPV reaches a 3x payback. After that point, the SPV reciprocity mechanism returns 50% of its revenue share to MAPS.
According to the MAPS press release, revenue share payments will be based on North America sales of MDMA for use in MDMA-assisted therapy. While MAPS has not yet announced a pricing model, estimates for drug pricing can be considered based on MAPS’ stated target of treating one million patients through their six-year period of MDMA-related exclusivity.
Based on this publicly-available data, it appears that MAPS must sell approximately $1.15 billion worth of MDMA for investors to breakeven and approximately $3.85 billion to reach a 3x return over the eight-year period of revenue share payments. According to Doblin, if MAPS is unable to pay investors back through a percentage of revenue, they do not receive a return on their investment. To deliver the 10x return to the Vine SPV that venture capitalists usually target, MAPS would need to sell approximately $19.9 billion worth of MDMA.
It’s still to be seen how the SPV may impact future philanthropic donations to the MAPS nonprofit. The Psychedelic Business Forum also explored ways a values-centered psychedelic ecosystem might fulfill the overarching goals of the Psychedelic Science Funders Collaborative (PSFC), a community of philanthropists which gave MAPS a $4 million dollar grant to help make MDMA-assisted psychotherapy “safe, effective, and accessible psychedelic healing for as many as possible, as soon as possible, while ensuring care is introduced equitably and reaches those who could benefit most.”
Speakers at the Psychedelic Business Forum contrasted ethical, stewardship-oriented and stakeholder-focused investment vehicles like the MAPS/Vine SPV against traditional extractive, shareholder-centric funding models focused on a 10x return.
Can the MAPS Funding Model Replicate and Succeed?
As a leader in the development of psychedelic-assisted therapies, MAPS is in a preeminent position in the journey to FDA approval as well as fundraising. Consistent with its mission, MAPS intends to prioritize benefit — patient outcomes and equitable access — over profits.
But while MAPS is leading the way with the Vine investment vehicle, presentations and discussions at the Psychedelic Business Forum begged the question as to whether other companies seeking to deliver psychedelic-assisted therapies to as many as possible as quickly as possible, could accomplish this goal through alternative funding vehicles like the Vine SPV – rather than traditional investment mechanisms focused on shareholder returns.
While philanthropy provided the starting point for MAPS when no business case could be made, Doblin notes that with the proliferation of new for-profit companies, the market has evolved to include an expectation of investment – and returns. In 2020 alone, PSFC notes that $658 million in commercial funding was raised for 65 companies pursuing psychedelic-assisted treatments.
As MAPS approaches FDA approval, more companies with financial needs will be attracted to the space. If alternative funding vehicles are to prevail in support of ethical, mission-driven psychedelic enterprises, what must they be able to deliver to help their companies succeed and deliver value for the greater good?
To answer this question, it is useful to examine the dynamics of traditional investment, which fundamentally centers around the ratio of risk and reward – or less kindly expressed, the balance between fear and greed. For every investment opportunity, there are myriad risks, and this is particularly true in a market that, with the notable exception of ketamine, predominantly involves compounds deemed by governments to be illegal with no demonstrated medical use.
Given that traditional investment focuses on returns within a defined time window, without a guaranteed path to FDA approval, returns on investment in psychedelic therapies could be delayed for years, or if the early market entrants fail, possibly decades. In the eyes of the investment community, mitigating that single risk alone warrants higher rewards. Can alternative funding vehicles offer rewards to their investors commensurate with such risk?
The Goals of Venture Capital
While many discussions at the Psychedelic Business Forum focused on the negative aspects of traditional investment mechanisms – and admittedly, there can be many – the strategies of venture capitalists also have their advantages. They seek for their investments to succeed and have developed strong methods for evaluating the quality of the investment opportunity.
Venture capitalists are notorious for their lengthy due diligence process prior to investment. They want to fully understand the possibilities, the risks, the effectiveness of the leadership team, and how clearly the leadership team is able to demonstrate that they have a viable strategy and plan to achieve success.
Without those fundamentals in place, the likelihood of success – whether expressed in the ability to deliver therapies or substantial shareholder returns – diminishes. As venture capitalists are investing other people’s money, their reputation depends on picking the best companies in the space that deliver the greatest successes and specifically, the highest returns on investment.
Once venture capitalists commit to a company, their mission is to support that company to succeed as fast as possible, not just through ongoing funding but with industry expertise, effective boards of directors, market connections, hiring assistance to obtain experienced leadership staff at highly-competitive wages and effective strategies for responding to competition. There always will be competition in this market space, whether entrenched older therapies such as SSRIs or newer psychedelic compounds. Venture capitalists also demand strong mechanisms for financial and operational accountability against clearly-set targets.
Can alternative investment vehicles provide this level of support and accountability to companies, particularly those that do not offer funders board representation or an equity position? How can investors help a company course-correct if it strays from successful execution?
Scaling is critical to accomplishing the MAPS mission of delivering MDMA-assisted psychotherapy to more people as rapidly as possible. Funders look at how fast an organization can grow to meet expansion targets while effectively managing risk. Venture capitalists are highly intent on scaling rapidly and often push their companies hard to this end. As scaling is such a moral imperative for companies developing psychedelic-assisted therapies to meet the challenges of the mental health crisis, can alternative investment vehicles provide the support necessary to help their companies grow rapidly?
Venture capitalists obtain equity for their participation, as their rewards typically are realized in the form of a company sale or initial public offering. In the MAPS/Vine SPV, no equity is offered and Doblin seems intent to avoid any equity offerings. But in equity investments, participation in financial rewards is usually offered to leadership and often staff so that they all may benefit from longer-term success. Can alternative investment vehicles be structured to support motivational financial incentives for the hard-working staff who make or break the success of a company?
Finally, return on investment must be addressed. The typical venture capitalist goal of 10x return is attractive to the majority of investors and particularly institutions charged with maximizing the return on investment of other people’s money. To date, alternative investment vehicles for responsible, sustainable, and impact investing have not typically been designed to offer such large rates of return.
Serving the Mission of Impact Investing
Impact investing as a whole still represents a small fraction of overall corporate investment. How can alternative investment vehicles expect to attract a sufficiency of capital for the psychedelic space when mainstream investment vehicles offer a much higher potential return with much greater accountability and influence over their companies?
MAPS is clearly the sector leader. The entire psychedelic industry looks to MAPS to successfully cross the finish line of FDA approval so that the benefits of psychedelic compounds may be realized to improve mental health. As MAPS grows, additional funding may well be necessary for it to complete its current and future missions. Any such additional funding and the mechanisms for raising it will again offer a model for other companies in the psychedelic space.
How can these new models lead the way? Structures of alternative funding vehicles must address the same issues faced by venture capitalist funding: strategy, planning, quality of leadership team and board, execution, risk management, and accountability. It seems imperative to reimagine the intersection of ideas, capital, and effort to create a sustainable model for effective mental health therapies. How might companies and funders work together for the benefit of all stakeholders?
The author Rick Ingrasci offered the observation “if you want to change the world, throw a better party.” Reflecting on the Psychedelic Business Forum and the Horizons conference that it was part of, it struck me that creating a successful psychedelic ecosystem requires a change in mindset from the scarcity of the dark times of psychedelic prohibition to the dawning abundance of shared benefit.
Why shouldn’t alternative investment vehicles, and the psychedelic-focused companies they invest in, deliver highly competitive returns to founders, employees, investors, and stakeholders, all while promoting ethical goals of mission-driven organizations committed to creating a better world for future generations?
Investors worldwide would enthusiastically join that party.