A new report from Water Tower Senior Research Analyst Robert Sassoon predicts a continued sector shakeout in the psychedelics market. Sassoon believes there will be an ongoing consolidation in the industry and that there will be a significant reduction in the number of publicly traded psychedelic companies.
“A continuing shakeout in the psychedelics sector and a likely significant shrinkage in the universe of publicly traded psychedelic companies are in the cards until the trough of disillusionment in the hype cycle is reached,” Sassoon wrote. “Moving beyond the trough onto the recovery slope will require multiple triggers, including the advancement of more clinical trials through the approval process, the removal of bottlenecks (i.e., infrastructural and payor reimbursement) that threaten to slow the pace of the rollout of psychedelic-assisted therapies (PATs) once approved, starting with MDMA-AT for PTSD, the emergence of big pharma interest in psychedelics, and a possible MAPS IPO as it looks secure quick access to the substantial funds it will likely need for the rollout of its MDMA therapy once approved.”
Psychedelic Stocks Winter
The analyst noted that the number of clinical studies taking place around various psychedelic drugs would seem to bode well for the company valuations, but that hasn’t been the case. The stocks have been mired in a bear market along with the cannabis industry. The report pointed out that AdvisorShares Psychedelics ETF (NYSEArca: PSIL) has lost more than 85% of its value since its listing in mid-September 2021, and Canada’s Horizons Psychedelic Stock Index ETF (NEO: PSYK), t has dropped by a similar degree since it was first listed on the NEO exchange (now Cboe) in January 2021.
Catalysts
Sassoon thinks the timing is too soon for investors to benefit, but does see catalysts further out on the horizon. However, those catalysts are multiplied. There needs to be the advancement of more clinical trials. There are currently only two programs set for Phase III trials with most of that news happening in 2024 with final results not occurring until either 2026 or 2027.
Another issue is the actual launch of a product. MAPS MDMA therapy is finding stiff competition from J&J’s (NYSE: JNJ) Spravato, which has been a big hit and is already available to patients. MAPS will be the first from the psychedelics industry to figure out this new process of combining therapy and psychedelic drugs. Once it figures out the roadmap, others will be able to follow. So MAPS will be under a lot of pressure to roll out the drug treatment properly and quickly.
Then there’s the insurance companies. The treatments are expensive and traditional payors have been reluctant to tackle an entirely new form of assisted therapy sessions. If this issue got resolved and more insurance companies began offering reimbursements, that would certainly jump-start interest.
Finally, the leader of the group MAPS has been reluctant to do an IPO (initial public offering) so that it could remain aligned with the interests of a nonprofit. However, Sassoon suggests the company will inevitably need to raise more money to be able to market its MDMA drug if approved by the FDA.
“A MAPS IPO would very likely be the largest to date in the psychedelics sector and a major boost to the publicly traded psychedelics market,” said the analyst. “Alternatively, MAPS post FDA MDMA approval might be a sufficient carrot for a big pharma company to get its feet wet in psychedelics.”
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