The psychedelic renaissance hits a rough patch as major companies look to tighten their belts or face total collapse. What’s happening with Psychedelic Stocks?
After nearly half a year of relative quiet for psychedelic stocks, the last month has seen an earthquake of movement for psychedelic investors. In the last week alone, we received news that both MindMed and atai Life Sciences, two leaders in the publicly traded psychedelic stocks sphere, would be drastically cutting their pipelines. Then, in a development that surprised no one —or at least no one who’s been paying attention to the company’s financials— Mydecine Innovations essentially collapsed in on itself.
In this article, I will walk through each development, and provide analysis for where psychedelic stocks in this sector are heading.
Starting with MindMed (Nasdaq: MNMD, NEO: MMED), on their quarterly conference call the company shockingly announced that they were shelving their 18-MC for opioid addiction program, pausing Project Angie —attempting to treat pain with LSD— and cutting much of their early research and development projects.
I won't go too into detail, as I have already written a full breakdown and analysis of what MindMed is cutting, why, and where they go from here. But suffice it to say that the company has changed tact, going from a company simultaneously working on many projects, to one that is hyper-focused on just two: using LSD (MM-120) to treat Generalized Anxiety Disorder and Adult ADHD; and using R(-)-MDMA (MM-402) to treat symptoms associated with Autism.
Almost as if coordinated, three days later, atai Life Sciences (Nasdaq: ATAI) announced they were embarking on the exact same process. On their conference call they announced that they were cutting many of their programs to expand their financial runway and focus on areas they believe have the most likelihood of bringing value to shareholders in the near(ish) term.
Specifically, atai cut three programs —though any current financial obligations for these programs will be met before the money dries up. To start, they are cutting their noribogaine program, run by DemeRx NB. Interestingly, their research into regular ibogaine, conducted by DemeRx IB, remains. Next, the company is slashing research into the non-psychedelic drug N-acetylcysteine, which they hoped to use to treat mild traumatic brain injury. Finally, atai has put Revixia’s Salvinorin A, which they hoped to use against forms of depression, on the cutting block.
Now the psychedelics umbrella company is only funding 8 drugs (not all of them are psychedelic) that we know of. Included in this is Compass Pathways’ psilocybin (Comp-360), r-ketamine (PCN-101) and DMT (VLS-01).
Taken together, atai says that these cuts, combined with a new loan of up to $175M, will allow them to expand their financial runway by one year, into 2025. This is one year ahead of MindMed, which believes their cuts will allow them to fund themselves into 2024.
Both companies have left the door open to revisiting their cut programs, assuming they can find partners willing to pay for some/ all of the costs.
Before moving on to the Mydecine collapse, let’s take a moment to try to dissect whether these cuts will be positive or negative for MindMed and atai. On the positive side, they allow the companies to substantially expand their financial runways. Both companies’ market caps have taken a battering over the last year, and though either can raise capital through dilution, the longer they can go before having to do this the better. Perhaps in the coming years, positive news surrounding clinical trials will boost their market caps, making dilution less expensive.
Also, by focusing their efforts on programs which they believe have the highest likelihood of success, there may be a greater probability of these medicines ultimately succeeding. The appeal of both these companies was that by researching many molecules simultaneously, even if some didn’t work, they would have many others. This appears to be what we are seeing here.
In short, though it’s sad to see these programs go, my own personal belief is that in the long-term, these moves maximize the potential for MindMed and atai to succeed, and will ultimately be beneficial for shareholders.
That being said, it is important to guard against cognitive biases. I truly WANT these companies to succeed. If they do, potentially hundreds of thousands of people’s lives could be improved by their medicines, which is why I became interested in the psychedelic space in the first place. I also would somewhat benefit financially, as I hold a small amount of stock in the companies —for full disclosure, my total holdings in the psychedelics sector are small, now representing around 2% of my portfolio.
Since I badly want MindMed and atai to succeed, it is likely my interpretations of any developments will be tinted by rose-colored glasses. Therefore, it is essential to look at the other side of the coin as well.
A company cutting programs it has touted as potentially revolutionary in the past is never a good sign. Specifically with MindMed’s 18-MC, we were all high on hopium as recently as May of this year, when they reported positive Phase 1 data. If all signs from the company regarding that drug were positive right up until it was smothered in infancy, there is no guarantee that a similar fate won’t meet other programs.
Likewise, while the cuts expand the companies’ financial runways, they may also signify fear that said runway is not going to be enough. There is no guarantee that stock prices will rebound in the near future, making dilution more painful for investors.
Now, knowing the two interpretations, you must make your own.
Moving to Mydecine (NEO: MYCO, OTC: MYCOF), it appears what I have been predicting —publicly at least— for more than 4 months is coming to pass. The company appears on the verge of shuttering its doors forever. The reason is really quite simple; they ran out of money.
As of their most recent financial statement, published August 15th, the company only had $324,146 in cash and cash equivalents. For a company spending more than $8 million a quarter, it was clear to anyone who passed grade 1 math that there was a serious problem. Perhaps this is why four of their directors resigned before the conference call.
Starting in June, the company stopped research in its Denver facilities, and traded some of its equipment for rent. They also have cut back on their digital medicines platform. In essence, the company has basically halted all operations.
Despite cutting nearly all actual operations, as Psychedelic Alpha snarkily points out, “not all areas of spending were cut back… management's cash compensation remained high throughout the company's troubles.” So, in other words, management paid themselves high salaries, while driving the company into the ground.
It is unclear if the company has any genuine innovations it will be able to sell off when they eventually enter bankruptcy. Hopefully, its claims of a next-generation MDMA with a duration of 1-2 hours are true, and not wishful thinking. This would be an amazing innovation that would make MDMA therapy more affordable and accessible. Even if Mydecine collapses, this IP would be sold, and the innovation would live on. But I don’t know how genuine these claims are, only time will tell.
Taking a step back, as an investor in psychedelic stocks, what lessons can we draw from the Mydecine collapse, and MindMed and atai cutting their pipelines?
The first is just echoing what I have been shouting from the rooftops for years now. Though this is not financial advice, it is likely not a great idea to invest in a company, like Mydecine, that has no money in the bank, is spending millions a quarter, and has a low market cap and therefore no way to fund itself. That is a recipe for disaster.
Next, I want to make sure I caution prudence. Personally, I believe in the balance of probabilities, companies such as MindMed and atai will emerge victorious. But I could be wrong. If you are invested in psychedelic stocks, be careful, and don’t put too much of your overall net worth into a highly speculative field, even if you believe in it deeply.
I personally view my investment in the sector as somewhat of a lotto ticket. If it pays off, then fantastic. I will have a nice little payday, and —more importantly— I will have slightly contributed to the development of life-changing medicines that make the world a better place.
As for a wider meta-analysis of the industry, we are likely seeing the continuation of a couple of trends.
First, we are seeing companies becoming more focused on fewer projects. We have seen this in the past with Field Trip splitting into two companies, and Wesana looking to offload its clinics in favor of drug development. With MindMed and atai following this trend, it is likely we will see many more companies follow suit.
Second, with the imminent collapse of Mydecine, we are continuing to see the companies that I have labeled as “aspirational” fall. That is, companies who say they will do all these amazing things in the psychedelic stocks space, but don't have the capital to back up their words. This has already happened with Mind Cure.
Big moves are coming left and right in the psychedelics industry. To make sure you don't miss a beat, follow PsycBiz on Twitter, under the handle @PSYCBiz. You can also follow the author of this piece, James Hallifax, @PSY_Invest.