The raising of interest rates this week by the Federal Reserve by a quarter percentage point was anticipated by investors and economists who hope that it will help calm markets after the recent banking meltdown. While this move by the Fed may help ease inflation, the unusual level of uncertainty in financial systems will continue to present challenges for companies in the psychedelic sector that hope to raise capital and lift share prices.
Survival of the fittest. As Chris Kilham argues in his story for Lucid News this week, “Are Psychedelics a New Paradigm or Business as Usual,” the psychedelic pharma goldrush lured investors towards what was billed as a new paradigm with unrealistic claims. Kilham notes that it costs an average of $350M to bring a new drug through the FDA approval process. With the current rate of success for drug approval averaging 10% to 20%, he believes that at least eight out of every ten companies developing psychedelic-assisted therapies will not survive market Darwinism.
This may limit possibilities for those now training to become psychedelic therapists and pressure companies to scale back workforces to reduce their cash burn rate. We’ve seen this happen now at atai Life Sciences which cut its workforce by 30% and has seen its share price plummet from a 52-week high of $5.60 to $1.20 today. Cybin scaled back by 15% and has seen its share price drop from a 52-week high of $1.14 to $.41. MindMed’s share price has sunk from a 52-week high of $19.95 to an opening price of $2.85 per share today. The Psychedelic Invest Index is posting -15.13% for the year to date.
Retail investors run. Josh Hardman at Psychedelic Alpha points out that compared with biotech indices and the S&P 500, stocks in publicly traded companies in the psychedelic sector had a correlated decline with the broader biotech market in the first half of 2022, then plummeted in the last half of the year. “At the first sign of a market correction a lot of people fled the sector,” said Hardman in a podcast where he argued that the decline was largely due to earlier hype and the large number of retail investors in the space.
Hardman also observes that companies which raised funds in 2020 and 2021 are now running out of runway and need to recapitalize in a tight market for funding. Mindcure summed it up well during its Strategic Review Process noting that since the “additional capital required to execute the Company’s business plan is unlikely to be found under the current and foreseeable market conditions,” the company is taking steps to preserve cash and maintain the value of its assets. Other businesses in the space are embracing the same strategy.
Funding for new molecules. Some large investors are continuing to bet on drug development companies developing molecules that promise shorter psychedelic experiences that they say will increase safety and reduce the cost of hiring therapists. The Wall Street Journal reports that Transcend Therapeutics Inc. raised $40 million from venture-capital investors in January to develop a treatment for PTSD. Both Gilgamesh Pharmaceuticals Inc. which raised $39M in a series B round of funding late last year and Lusaris Therapeutics Inc. which raised $60M in Series A funding have convinced some investors that they have a strategy for long-term survival.
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