The hotly anticipated decision from the Food and Drug Administration on MDMA could be the watershed moment that either cements the psychedelic health care sector’s legitimacy or reinforces its speculative nature.
Despite positive trajectory in psychedelic research, particularly for mental health applications post-COVID, publicly traded companies in the domain are not seeing that reflected in their financial statements just yet.
“It’s very typical of new emerging technologies or disruptive technologies. … You get a lot of excitement, and then that excitement comes down, reflected in the pool of some of the stocks,” Robert Sassoon, an analyst at Water Tower Research, told Green Market Report.
It’s a classic scenario for an emerging sector: huge potential shackled by market hesitancy and regulatory uncertainties.
“I think the public-trading sector bringing psychedelics to the public trading came too soon,” Sasson said. “It’s really a venture capital market. A lot of the venture capital guys are very passionate about psychedelics.”
A key factor influencing the outlook is the evolving regulatory environment. A shift towards the decriminalization of previously banned substances has been gaining more traction.
However, the most anticipated event this year is the potential FDA approval of MDMA for PTSD treatment. An approval like that could serve as a litmus test for the sector’s viability, and with that, a chance for unlocking new investment and research.
At the same time, growth in psychedelic therapies demands corresponding expansion in clinical infrastructure. Sassoon noted the rise in the number of ketamine clinics, which has grown from less than 100 in 2015 to an estimated 750 to 1,000.
But market saturation and inevitable rightsizing has cast bleak shadows over the scene at times.
The psychedelic market is not monolithic, either. A variety of substances, including ketamine, MDMA, and psilocybin, are vying for clinical and commercial gain. Such diversity could drive innovation, but it also requires strategic differentiation by companies.
Last year, Numinus Wellness Inc. (OTCQX: NUMIF), which is involved in wellness clinics, training, and clinical research, rolled out an asset-light clinical direction by developing an online certification pathway for existing practitioners. Instead of expanding physical clinics, which is capital-intensive, the focus is on high-margin, scalable training programs and supporting clinic setups for new therapies.
According to CFO Nikhil Handa, the overall goal for Numinus this year is to reach true profitability by focusing on responsible client acquisition and margin expansion by staving cash burn.
“We’ve got nine clinics and two clinical research sites, but we’re not going to grow those,” he said. “It’s a very capital-intensive way to grow. We think running those type of clinics, in which the majority of the revenue is still traditional mental wellness services, is not also the best way to participate in something like MDMA therapy.”
The Big Dogs
For everyone else, there will be rising need for big investment in clinic infrastructure to support the expanding patient base and to incorporate new psychedelic therapies as they become available.
“At the end of the day, it’s the client facing entities like the clinics that going to be seen as beneficiaries of MDMA,” Sassoon said.
The potential entry of major pharmaceutical companies into the space could bring in that much-needed investment and credibility to catalyze growth and mainstream acceptance. But apart from Johnson & Johnson’s (NYSE: JNJ) Spravato ketamine nasal application and Japanese holdings giant Otsuka Pharmaceutical Co.‘s acquisition of Mindset Pharma Inc. (CSE: MSET) (OTCQB: MSSTF), the industry hasn’t arrived there yet.
“Big Pharma has really been conspicuous by its absence, because typically, (it) tends to buy clinical stage companies for the most promising drugs – usually when they’re at a more advanced stage of development,” he said.
Short-term, the likelihood of traditional pharma approaches, such as pipeline transfers, could increase, especially as the psychedelic sector matures and more drug candidates progress through clinical trials.
“I think what you’re going to see is maybe some pipeline transfers from small companies,” Sassoon said. “The most interesting pipelines might be transferred to bigger companies as they expand.”
For larger companies, acquiring a drug in the later stages of development mitigates some of the initial risks involved in drug discovery and early-stage development.
But at the end of the day, the idea behind it all is for psychedelic therapies to become more integrated into mainstream healthcare, which could lead to wider insurance coverage and collaborations with larger healthcare institutions.
For example, FDA approval of MDMA for PTSD treatment could encourage insurers to reconsider their coverage policies, especially now that the American Medical Association’s new set of codes for psychedelic medication therapy are officially in effect.
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