Psychedelic therapy: Investors brace for paradigm shift

Proof of the efficacy of psychedelics in helping people with mental illnesses previously deemed untreatable is building beyond the anecdotal evidence, but researchers continue to face an uphill struggle while investors wait for more opportunities in the psychedelic realm.

Many of the psychedelic compounds researchers are working with are still classified as Schedule 1 under the 1971 UN Convention of Psychotropic Substances, meaning they are lumped into the same category as heroin, cocaine and amphetamines.

“Schedule 1 is meant for drugs that are an especially serious risk to public health in terms of use liability, and have very little or no therapeutic value,” explained Chris Kodderman, co-founder and chair of the International Therapeutic Psilocybin Rescheduling Initiative, which is working with the UN to address current international drug scheduling regimes.

When UN international drug treaties were implemented, there was no evaluation behind them. Restrictions on psychedelics such as psilocybin and LSD were “just based on political considerations,” said Kodderman.

A systematic approach to thematics

But headway is being made, even though the process is long and riddled with regulation, red tape and stigma.

For many investors watching developments in the psychedelic space, it is a matter of when, not if, substances such as psilocybin will become more widespread in the treatment of serious mental illness and addiction. There are already three exchange-traded funds that focus on the use of psychedelics in healthcare.

“The evidence is pretty clear today that there is certainly a high degree of therapeutic potential,” said Kodderman. “I use the term ‘potential’ because, obviously, we are just getting to the phase three clinical trials on some of these products.

“These drugs are not a particular risk to public health in terms of abuse liability. They are not addictive. They are not toxic. They do not create dependence, and so on and so forth. That is not to say there are no risks, but certainly there are not any especially serious ones.”

Nevertheless, for psychopharmacology expert professor Jo Neill, chair of Drug Science’s cross-sector collaboration the Medical Psychedelics Working Group, it can be a case of one step forwards, two steps back.

Founded in 2010 by professor David Nutt, the initiative is made up of scientists, academics and policymakers and aims to create a ‘rational and enlightened’ approach to psychedelic research and clinical treatment. Professor Nutt was sacked as the UK’s chief drug adviser back in 2009 following comments that LSD and ecstasy were less dangerous than alcohol.

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Decriminalising psychedelics

“We need to change the law,” Neill told Investment Week. Dated drug classifications mean many researchers wanting to delve deeper into psychedelics to explore their therapeutic value are hindered because they cannot get their hands on the compounds they need. Getting licensed to handle Schedule 1 substances does not come cheap, either.

It cost Professor Neill £3,000 and took one year to obtain a controlled drugs license, she explained. Another researcher, Dr James Rucker, carrying out trials on the efficacy of psilocybin in the treatment of depression had to fork out £20,000 “because he needs a licence in every place the psilocybin is stored or put into capsules”.

The budget is beyond reach for many looking to legally research the power and healing potential of psychedelics. “It is ridiculous,” said Neill.

Despite the hurdles, the investment case for psychedelics in healthcare is compelling, but what will it take to see more widespread adoption?

For Clara Burtenshaw, founder and investor at Neo Kuma Ventures, it is a question she asks herself often. Neo Kuma invests in early-stage psychedelic healthcare companies at the cutting edge of clinical research.

“As far as the UK and Europe are concerned, they will likely follow the US,” she said. “What we see in healthcare where the US leads, the rest of the world follows, and the US is definitely taking the lead here.”

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In 2019, for example, the FDA approved the use of esketamine – derived from ketamine – in a nasal spray to treat depression. This, according to Dr Gareth Blades, an analyst at Amati Global Investors, was a “watershed moment”. Also in 2019, the FDA said psilocybin was a “breakthrough therapy” for serious depression.

In January this year, Oregon became the first US state to vote for the legalisation of psilocybin. Legally medicinal and recreational use of cannabis is already widespread across the country, with many funds investing in the sector, including the HANetf Medical Cannabis and Wellness UCITS ETF.

For HANetf co-CEO Hector McNeill, an ETF investing in psychedelics “is definitely something we would like”. The critical mass to launch such a fund would be “ten companies and above”, McNeill said.

As of yet, many of the companies working with psychedelics are at the venture capital stage. Dr Blades highlighted the regulatory landscape these firms navigate as they work with potentially life-changing compounds.

“How do you get over those barriers to wider distribution allowing [psychedelics] to become a mainstream thing people can administer at home?” he asked.

“You cannot just dispense the medicine from a pharmacy, it has to go through a qualified or registered specialist”, said Blades. “Then you have to take the drug with that specialist… You cannot just take the drug at home, you have to be guided through the therapy.”

Psychedelic solutions

Unlike traditional therapy, a psychedelic session can last hours. This poses another challenge for more widespread adoption, according to Blades.

“You need to be able to characterise what those naturally occurring substances do, what the desired effect is, and why it is better than what is currently available, before you can improve your understanding, and design specific more user-friendly derivatives of those drugs,” said Blades.

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Companies such as California’s Psybio are working on this, “developing biosynthetic psychoactive compounds which offer a new paradigm of treatment to reverse the course of mental health issues,” according to their website.

Neo Kuma’s Burtenshaw said: “Our ultimate goal would be to find a way of rolling out treatment that works and is acceptable for regulatory safety, healthcare, and from a social-political perspective.

“The best solution would be a regulated regime where you have moved the key drugs psilocybin, MDMA and ketamine that can unlock these treatments, which have been recognised by the FDA, to a regulatory environment where they are available properly through regulated clinics, with qualified therapists and psychiatrists involved and proper patient care pathways. That would be a massive first step.

“If we just look at the UK and Europe, one of the biggest blockers now is that psilocybin is still Schedule 1,” added Burtenshaw.

Kodderman pointed out “the more evidence that comes in from the stage three clinical trials, the stronger the case” for reclassification.

“And there is a very strong case already – stronger than there was for cannabis in terms of therapeutic potential – given the research carried out at Hopkins, Imperial and elsewhere,” he added.

More widespread use of psychedelics in the treatment of mental illnesses and addiction would be “a complete paradigm shift”, noted professor Neill.

“We cannot have people struggling and not living their lives because they are so mentally unwell,” she said. “People we have sent to war, people who were traumatised as kids, suicidal people.

“We cannot go on like this when we know that there is something that can heal people. It is not going to work for everybody, that is for sure, but you really have to go with it and accept the therapy.”

Stage three clinical trials are the “gold standard”, as Kodderman stated. Investment is crucial, providing the “symbolic support” needed for the sector to grow.

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