Measuring the investment opportunities in psychedelic drug R&D is an exercise in multiplication
The number of diseases/disorders included in drug R&D multiplied by the number of treatment end-points, multiplied again by the number of psychedelic drug options needed for each
Dozens of R&D opportunities presently available, (potentially) hundreds more on the horizon
Valuations for most psychedelic stocks have been flat to lower in 2021. Trading volumes for most of these companies have also been anemic.
This has caused some to question whether the industry (and the opportunity) is big enough for more public companies – or even all of the players who are currently trading.
Let’s be unequivocal here.
Over the longer term, there is more than enough opportunity for ten times the number of public companies that currently exist. What is “insufficient” in this sector is not the degree of opportunity, but rather the number of investors who recognize the scope and magnitude of this investment opportunity.
This becomes apparent as soon as we hold a magnifying lens up to the sector.
Forget (for the moment) about the 2 billion people
globally that currently have a treatable mental health disorder. That was the figure that Psychedelic Stock Watch arrived at in a recent article, tabulating existing mental health disorders plus estimating the Covid-related surge in new disorders.
It’s obviously nice to invest in an industry with nearly an infinite supply of potential consumers. But even the largest individual
markets can be dominated by just a few large players.
What makes the psychedelic drug sector ripe for many new corporate entrants are the multitude of opportunities
that are being provided by the Psychedelic Drug Revolution.
Several psychedelic drugs required for each condition
Newer investors to this sector are familiar with the Mental Health Crisis: stress-related disorders like depression, anxiety, addiction and PTSD. But it was never a rational possibility to seek to treat “depression” (or these other disorders) with a single psychedelic drug/therapy.
For one thing, depression is the broad medical term for a mental health disorder that has multiple discrete treatment markets. Treatment-Resistant Depression and Major Depressive Disorder are the two largest treatment categories that most investors will already know about.
More importantly, however, even for each individual treatment market a single psychedelic drug-based therapy cannot possibly be sufficient. For several reasons, patients will need access to multiple psychedelic-based therapies for each and every individual treatment market.
b) Genetic screening
c) Drug contraindications
Psychedelic drug therapies that require “experiential” dosages (and full medical supervision) are intense. This is why
psychedelics are able to “rewire the human brain” and achieve therapeutic breakthroughs far beyond conventional mental health therapies.
The flip-side to this is that for some people these therapies are simply too intense. Here it’s important to note that the “psychedelic trip” differs in both intensity and duration between different psychedelic substances. Thus a patient who may be unable to tolerate an ibogaine- or DMT-based therapy may find a treatment using (for example) MDMA to be tolerable.
Patient screening is also imperative for potential patients of psychedelic medicine. Among the reasons why careful screening is necessary is that some people have genetic factors that make them ill-suited to particular psychedelic drug therapies. Again, if there are several therapies from which patients can choose, there is greater likelihood of meeting the needs of the majority of patients.
Lastly, in societies that are already heavily medicated (often with more than one prescription), drug interactions are also a critical factor in patient screening. Different psychedelics will be contraindicated with different (other) pharmaceuticals.
The bottom line is that it will likely be necessary (and profitable) to develop several different psychedelic drug therapies for each treatment market.
Immediately, this multiplies the number of opportunities in the sector – and the number of public companies that the industry will support. However, this may not even be the largest multiplier of commercial opportunities in the psychedelic drug sector.
Multiple treatment categories for each disease/disorder
As alluded to previously, “depression” is not just a single treatment market. In fact, it is many treatment markets.
Major Depressive Disorder and Treatment-Resistant Depression represent treatment markets that include 100s of millions of patients globally. But there are several other important (and potentially lucrative) depression treatment markets.
For terminal cancer patients, the end-of-life distress that accompanies this diagnosis is a separate treatment end-point (requiring additional drug development): cancer-related depression. This is a critical term (and concept) about which all investors in psychedelic stocks need to know.
In order to get a drug candidate into a formal clinical trial, the drug must address a recognized treatment end-point
(by the FDA or other governing body).
Depression, itself, is not
a recognized treatment end-point. Thus there are commercial opportunities of differing magnitudes available with each and every depression-related treatment end-point that is recognized by the health authority of that jurisdiction.
In the case of substance abuse, each and every form of substance abuse becomes a separate treatment market for the psychedelic drug industry. Each addiction has different properties. Each is a recognized treatment end-point.
Now multiply each of these substance abuse markets with (perhaps) two or three different psychedelic-based therapies needed for each. Opportunity squared.
Then there is Traumatic Brain Injury (TBI), the most common form of which is concussion. Psychedelic Stock Watch has previously identified TBI
as the single-largest “individual” treatment market in the psychedelic drug industry. This is based on market research that the overall treatment market for TBI is currently ~$120 billion, forecast to rise to $182 billion by 2027
But “Traumatic Brain Injury” is not itself a treatment end-point with the FDA. This means that psychedelics-based treatments for TBI have to address (individually) the various symptoms experienced by sufferers of TBIs.
Specifically, with TBIs that don’t clear up on their own, patients typically experience “post-concussion syndrome”
. These persistent symptoms include (among other things) both mood and cognitive disorders.
Difficulty with memory, or remembering new information
Difficulty with attention
Difficulty with thinking clearly
Difficulty with focus or concentrating
Feeling slowed down mentally
Irritability that didn't exist before the concussion
Sadness or depression that didn't exist before the concussion
Anxiety or nervousness that didn't exist before the concussion
Apathy that didn't exist before the concussion
Post-concussion syndrome will also aggravate any pre-existing mental health disorders.
Psychedelic drug research is already active in R&D for both mood and cognitive disorders. So, for example, there is a drug development opportunity for “concussion-related depression” which is a treatment end-point. And separate treatment markets (and R&D opportunities) for each treatment end-point associated with TBI/concussion.
Given the overall size of the TBI treatment market, each of these individual R&D initiatives represents a potential multi-billion-dollar revenue stream. Not only a multitude of R&D opportunities for public companies to chase, but a multitude of lucrative
Given that no R&D initiative enjoys a 100% probability of success, we will see multiple R&D programs for some/many of these individual treatment markets (over time).
Let’s frame the Big Picture here.
- Multiple mental health disorders for which psychedelics are proving to be a (vastly) superior therapeutic option.
- Multiple individual treatment markets for each of these mental health disorders.
- Multiple drug candidates needed for each individual treatment market.
- Multiple R&D initiatives possible with each drug treatment.
That’s a lot
of opportunity. A lot more than can be exploited by the roughly three dozen public companies in this space today.
Can it get any better than this? Yes.
Psychedelic drug R&D is rapidly expanding into many other major diseases/treatment markets
As already noted, the R&D opportunities for the psychedelic drug industry in mental health
are not merely vast, but almost unlimited.
However, medical research is showing that psychedelic drugs are much more than mere mental health drugs. In fact, it is becoming more and more obvious that psychedelics are simply the ultimate brain-repair drugs.
Are Psychedelics The Ultimate Brain-Repair Drugs?
Scientists have discovered that psychedelic drugs have unique medicinal effects. Most commonly, this is described as the capacity of these drugs to “rewire”
the human brain.
More specifically, psychedelic drugs appear to be able to “repair broken neural networks”
or simply “rebuild broken brains”
This is where psychedelic drug R&D gets really
exciting. Medical science is discovering a “brain” connection with increasing numbers of the most-common diseases/disorders (and largest treatment markets).
For example, doctors will often seek to prescribe (minimally effective) anti-depressants for chronic pain, because happier people feel less pain. That’s an obvious example where psychedelics can offer a potentially superior therapeutic option. Migraines and cluster headaches are other, obvious R&D opportunities.
However, researchers are becoming increasingly convinced that changes in the brain, leading to chemical imbalances in the body, eventually cause a multitude of major diseases/disorders. This includes everything from gastrointestinal disorders to autoimmune diseases
If the brain really does prove to be the origin of many (most?) diseases and disorders, then psychedelic drugs may prove to be more than the focal point of mental health care. These drugs could become the lynchpin for our entire healthcare system.
How many public companies would that
Short-term consolidation, long-term mega-expansion
Most psychedelic stocks are currently struggling to generate substantial trading volume (and share price traction) not because of a lack of opportunity. It is solely due to the lack of investors
who can see the magnitude of the opportunities that are present in this emerging industry.
Over the short term, this could start (and is starting
) to produce some M&A consolidation within the sector. It many also delay the decision to go public for some of the dozens of private players already entering this industry.
Longer term, this industry can only get much, much larger.
The Mental Health Crisis is now a health catastrophe
, a pandemic which dwarfs the Covid-19 pandemic in both scope and lethality
. It is a health emergency that our governments must address over the near term. Psychedelic drugs are the only
The numerous other multi-billion-dollar treatment markets already being targeted by the psychedelic drug industry simply represent more (long term) blue sky – for an emerging industry that represents the largest investment opportunity in life sciences of this century