In some emerging markets, scientific innovation helps drive funding models and forms of community engagement that can amplify the impact of new discoveries. An opportunity for this potential synergy emerged late last year when Tactogen announced the launch of its Community Stakeholder Initiative which allows members of the public to purchase an equity stake in the company. The initiative is open until January 30.
Tactogen Chief Operating Officer Luke Pustejovsky says this is the first time a drug discovery and development company creating derivatives of psychedelic substances has opened its doors to non-accredited investors. Accredited investors in the U.S. include high-net-worth individuals, banks, insurance companies, venture capital funds, brokers and trusts. Pustejovsky says Tactogen wants to give a wider community of researchers, non-profit leaders, activists, grad students, therapists and patients around the world a seat at the table.
“Tactogen is innovating in terms of the composition of molecules and the structure of medicines, and innovating in funding mechanisms,” says Victoria Hale, lead investor for the initiative and founder of the nonprofit pharmaceutical companies OneWorld Health and Medicines360. “What attracted me is the funding model, then you add a community focus which is core to a collaborative culture.”
Founded in 2020, Tactogen is creating an initial product line of therapeutic compounds called entactogens, which are more commonly called empathogens. These pharmacological agents do not dissolve one’s sense of self like classic psychedelics, but instead appear to increase self-compassion and acceptance. Proponents say entactogens can help accelerate a psychotherapeutic process and support mental wellness.
The most widely known entactogen is MDMA, which is being investigated in Phase 3 clinical studies by MAPS together with psychotherapy as a treatment for post traumatic stress disorder. MAPS recently announced that prior positive results have been confirmed in MAPP2, its second Phase 3 trial of MDMA-assisted psychotherapy for people living with PTSD.
Pustojovsky notes that a central premise of MDMA research is that the emotional states brought on by the compound are a central component of its therapeutic effects. Those who take MDMA report feeling less neurotic and critical of themselves and are therefore able to think more clearly and sympathetically about challenging parts of their lives that they would otherwise avoid, says Pustojovsky. “When you can be gentle and honest with yourself, you can make extraordinary therapeutic progress.”
Tactogen is using funding from investors to develop new entactogens, confirm their effects, and file patent applications. To date, it has published four patent applications for candidate molecules. The company says that funds raised by the Community Stakeholder Initiative and more conventional funding mechanisms will be used to further study molecules it is developing and identify the most promising for clinical trials.
Tactogen has raised $6.3 million since early 2020 and anticipates raising a total of more than $200 million in the next decade to bring its first products to market. The company has immediate plans to raise $4 to $7 million in the first quarter of 2023. The timing of this funding appears to correspond with the success of MAPS’ final MAPP2 Phase 3 clinical trials.
“We are also raising money in a more traditional manner from venture capital, just like other companies,” Pustejovsky. “What we are doing that is a little different is including people in the community in a parallel process alongside the standard venture capital. We hope other companies will consider this approach to including the community.”
The Tactogen Community Stakeholder Initiative relies on a SEC regulation known as Equity Crowdfunding or Regulation CF that was launched in 2016. It allows non-accredited investors to use specialized platforms to invest as little as $100 into private, early stage companies. According to Tactogen, all the participants in the Community Stakeholder Initiative will be part of a single investment instrument that will appear as one line on the capitalization table for the company. As the lead investor, Hale will vote on behalf of all participants in the initiative.
“When I developed medicines for reproductive health, we could make great medicines in the world,” says Hale. “But we also needed to innovate on the business model for future access and impact.”
Wefunder is serving as the investment instrument for those investing through the Community Stakeholder Initiative. Tactogen and Wefunder have entered a limited partnership that includes initiative participants. To date, the Tactogen Wefunder site has raised $80,172 from 129 investors. Those who invest through this vehicle will be part of that one limited partnership. According to Pustejovsky, Tactogen already has 14 investors, venture capital firms who have bought a stake in the company. People joining the initiative would essentially be the fifteenth investor.
“This represents a small amount of what the company needs to raise, but philosophically it’s very aligned when a nonprofit leader like Rebecca Martinez invests $750,” says Pustejovsky of the executive director of the nonprofit Alma Institute. “A venture capitalist writing a $200M check is not more meaningful than a nonprofit leader who is digging deep. It’s more aligned with their values.”
Pustejovsky says that by the end of the next year, he would like to see ten companies launch community funding initiatives and wants to invest in those businesses. “It’s not like we are eliminating structural inequities with this raise, but it is a small step in the right direction,” says Pustejovsky. “I want to build a portfolio of private companies that are mission aligned and doing good stuff instead of more companies like MindMed or atai who went public prematurely, or others that are trying to cash out really on a craze.”
Evolving Funding Strategies
Tactogen’s rounds of investment are made possible through a simple agreement for future equity (SAFE), a financing contract used by startup companies to raise capital during seed financing. Granting investors the right to future shares in the company, SAFEs protect community investors. The Tactogen SAFEs cap the valuation of the company at $80 million and a 15% discount to the Series A funding (whatever the final pricing is), which Pustejovsky says is comparable with other drug development companies in the space such as Delix Therapeutics and Gilgamesh Pharmaceuticals at their earlier stages.
If they choose to invest, community stakeholders investing through the initiative are betting that Tactogen will be worth more than their favorable pricing to the Series A, says Pustejovsky. He says that Tactogen anticipates closing a Series A round of funding in the early part of 2023, so it makes sense for the company to conclude this initiative prior to signing the term sheet.
Pustejovsky allows that Tactogen could raise up to $4 million through crowdfunding sources through a twelve-month period that starts at the close of the Community Stakeholder Initiative. In an ideal world, he says crowdfunding would take place right before a Series A, B, or C funding round. This would allow the non-accredited investors to participate alongside the wealthy investors in the Series A round which is expected to raise $4 million to $7 million, and after conversion of four SAFEs, will constitute a total round of $10.5 million or more.
“Because the SAFEs become equity at a priced round, we would essentially add all the future and past SAFEs so far, $6.5 million from fourteen investors from four different SAFEs from August 2020 to the current date,” says Pustejovsky. “So all of that would go from future equity to equity and those would all be named in the cap table.”
Money raised during the Community Stakeholder Initiative will play a relatively small role in the overall funding Tactogen needs to study which molecules are most promising for clinical trials. If the total overall raise comes out to $10.5 million, Pustejovsky notes that the size of the current crowdfunding initiative is modest in comparison – $100,000 out of $10 million. But he believes that the initiative is a step in the right direction.
“It’s not so much about money, it is more about giving people an opportunity to become involved in something,” says Pustejovsky. “We want to be open and inclusive of people in the psychedelic ecosystem. Stakeholders in the community should have an opportunity to become shareholders.”
While the Tactogen initiative helps democratize the funding process, investment in early stage companies still carries risk. Pustejovsky asserts that participants in the initiative should invest what they comfortably afford to lose in its entirety. He notes that there are many risks getting novel compounds approved by the FDA, or its European equivalent, the European Medicines Agency.
Nevertheless, intrepid community stakeholders could play an important role scouting the forward edge of drug development. Pustejovsky says there was a view six to seven years ago that crowdfunding was competitive with venture capital. He said investors would “self-interestedly use uncouth language,” describing the cap table as “clean or unclean.” “But what happened is that VC investors discovered over time from crowdfunded deals that there was a better deal flow because crowdfunders provided an important signal,” says Pustejovsky.
Developing Next Generation Novel Molecules
Matthew Baggott, CEO and co-founder of Tactogen, says that both the company’s funding strategies and its stated goal of making transformational medicines safer, more effective and more accessible, stem from its role as a public benefit corporation. A former director at Genentech, which was a key player in the creation of the biotech industry, Baggott says he left the company when he saw that there was funding for psychedelics and an opportunity to add value to that research.
“My motivating question for many years has been, how do we make the MDMA experience safer?” says Baggott who noted that back in 1999 he initially argued with chemist Leonard Pickard who believed that chemists would develop a better molecule.
“Part of what changed my mind was that underground chemists developed newer molecules that had some of MDMA’s emotional effects, but with far less of its undesirable residual effects, like depressed mood,” says Baggott. “Now, we are trying to use modern science to figure out why these molecules are different and how we can combine their best features to make a new MDMA-like medicine that is gentler and more sustainable.”
According to Baggott, Tactogen was the first company to work on inventing new entactogens and there are now several others, in addition to MAPS, which has advanced the field for decades. Baggott says that Tactogen has now synthesized hundreds of different molecules, including several in target profiles. It is focused on creating novel entactogens that share the core therapeutic benefits of MDMA, while lessening undesirable effects such as acute hypertension, the potential for overuse, and decreased therapeutic effects with repeated use – what late esteemed psychedelic chemist Sasha Shulgin called “loss of magic.”
MDMA-assisted therapy for PTSD as developed by MAPS, which calls for two to three administrations of the compound over a two to three month timeframe, does not create an impediment, says Pustejovsky. But if people choose to use MDMA throughout their lives, it could stop having the desired effect. “Solving this issue is something we substantially need to look at in future studies,” he says.
Included in Tactogen’s portfolio of molecules are those that Baggott says “are MDMA-like, but that sit on different sides of MDMA in the possibility space. For example, we have some entactogens that seem to have acute therapeutic effects that last longer than MDMA so patients wouldn’t need to redose, and we also have others that seem to have shorter effects.”
Tactogen is developing molecules using a machine learning process that predicts how changes to the structure of MDMA affect the biochemistry of a compound. After making predictions, the company synthesizes molecules that appear to be the most promising, then tests them in assays and sends this information back to their machine learning system. Through this process, Baggott says Tactogen has developed novel methods for modifying the drug’s effects and bringing them closer to finding molecules that are differentiated from MDMA and can be used as an alternative.
“We are working to ensure that therapy with these compounds is as accessible as possible,” says Baggott who notes that the ability to care for patients with these compounds will largely be limited by the availability of trained care providers and awareness of the therapies. As a public benefit corporation, he says Tactogen is simultaneously committed to realizing investor returns while working to benefit communities. “Focusing on novel molecules that are truly differentiated from existing options is a key way we keep those two things in alignment,” he says.
Hale says she is not aware of another pharma company that is organizing monthly town hall meetings with its lead scientists to inform the public about its research, as Tactogen is doing. Allison Feduccia, CEO of the education and therapeutic platform Psychedelic Support, says she invested in the Community Stakeholder Initiative because of the company’s commitment to community.
“Since the conception of Tactogen, community involvement has been baked into their business model,” says Feduccia. “This approach substantially differentiates them from other pharmaceutical companies. Accessibility to treatment is the most significant challenge in our current healthcare system.” Feduccia adds that she has been following Baggott’s research and publications on MDMA since the early 2000s and considers him a pioneer of the field.
“Thinking about the barriers to access, we believe that cost may be a great barrier,” says Baggott. “A lot of this cost is really driven by the clinical setting and the safety monitoring. If you didn’t need to worry about hypertension and other physiological effects, the possibilities for inexpensive therapy would be much greater and more people could access the therapy.”
Pustejovsky adds that Tactogen is looking at medicines that could be used at a much lower price point. In the MAPS expanded access program, he notes that there are 25 people in the program with an average cost of $64,000 per patient.
“Our vision is to be able to price this as equivalent to a wholesale SSRI treatment, which might be very much like $100 a month or $125 a month,” says Pustejovsky. “We will not come out with a pricing schedule until we get approved much later, but the strategy is to have enough broad application and be economical enough not to be cost prohibitive.”
Pustejovsky believes that novel entactogens could help people release from past patterns and be beneficial for numerous mental health indications. As more awareness develops around the transdiagnostic nature of depression and anxiety, eating disorders, the heterogeneous nature of conditions, and MDMA as a treatment for PTSD, he says this will pave the way for other gentler entactogens that could potentially be applied to 25% of all psychiatric conditions. “There is a greater understanding of things that could help you get unstuck and feel more connected and engage in the emotional truth of self compassion and self love,” says Pustejovsky.
The Essential Role of IP
Unlike MAPS, which is depending on a data exclusion period to develop MDMA-assisted psychotherapy, Tactogen has made intellectual property a central part of their drug development strategy. Hale says that as investors around the world are looking to the development of new compounds, the psychedelic sector has been criticized for having weak IP, and MDMA has no IP by principle because it has long been in the public domain. She believes that second and third generation psychedelic medicine companies will expect to have IP as they originate compositions and will see appropriately higher valuations.
“We need IP because we wanted the ability to develop our ideas and we didn’t want to get boxed out of developing things that we created knowing that we needed to raise $100 million plus,” says Pustejovsky, who says Tactogen has broad chemical IP in the entactogen space. “We think it’s very challenging to raise that amount of money without having a strong fundamental IP position.”
Baggott says he thinks of the molecules almost like children because the period of exclusivity granted by the patent system and medical regulators is 20 years, about the amount of time spent raising a child. If the goal of parenting is to raise a healthy child and set up conditions where they can have a successful independent existence in the world, he says Tactogen is taking a similar path with the development of entactogens.
“We want to not just to create a well-behaved molecule that is a good citizen, but we also want to make sure that there is a healthy broader ecosystem for them to interact with,” says Baggott. “This means caring about the healthcare system, broader healthy inequality, and even climate change, which is going to touch every aspect of our lives.”