Psychedelics Business Model Trends in 2021: Tips for Investors

The psychedelics market is expanding with a compound annual growth rate of 16.3%. The vast market promise of the psychedelics industry is further underscored by the companies playing niche roles in the expansion and rollout of treatments. With depression numbers skyrocketing, recognized by the WHO as a leading cause of disability, with 264 million reported sufferers worldwide, the diverse industry is tackling these societal ailments and the companies doing so are segmented into various operating models.

The industry is primarily segmented into 3 main business models. There are companies that focus on the clinical research side, those companies that develop the treatments (and outsource their formulas to manufacturers), and the consumer-facing distributors.

Each business function offers investors potential benefits and drawbacks within each type of model.

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Pioneering Clinical Research

The most revered branch of the psychedelics industry is made up of the companies that are doing the work of developing synthetic versions of LSD, psilocybin, ketamine, and other psychoactive medicines. During early-stage development. pharmaceutical companies conduct Phase I & II clinical trials. Currently, there are more than 50 clinical trials that are attempting to shed light on the medical uses of psilocybin; and 270 trials that fall under the psychedelic research umbrella, the trials underway focus on formulating treatments for depression, drug addiction, PTSD, and a plethora of other psychological and physical ailments.

About 14% of drugs that are assessed in clinical trials will achieve drug approval. Thankfully, the approval rate for drugs that make it to stage 3 trials is at about 58%, overall. If treatments are found to be successful and safe for patient use, then these pioneering companies often partner with large pharmaceutical companies that have the capital and wealth of expertise needed to conduct Phase III clinical trials to approve and take the drug to market.

Qualities of Clinical Research Business Model to Keep In Mind
  • High investment margins
  • Large market opportunities
  • High execution costs
  • Risks of timely execution during drug approvals and launches
  • Barriers to entry
Not A One Size Fits All Approach

In the same way that some people are allergic to aspirin or penicillin, some people who live with disorders like schizophrenia, are generally advised against taking hallucinogenic drugs, as well as people who should avoid a rise in blood pressure. These companies are paving the way to find alternative treatments for the population, and if successful, their advent to the market could disrupt the 21st-century healthcare industry.

Investing in the right company within the psychedelic research industry could yield big returns in the not-so-long term. Compass Pathways Inc. (NASDAQ: CMPS) is among the best-known player backing clinical trial research within the psychedelic space and is currently undergoing a trial Phase IIB for a drug known as COMP360. CMPS´s price per share has surged more than 182% since its initial listing price of $17 USD. A successful drug launch of COMP360, numbers projected for late 2021, could send the stock soaring.

MindMed’s (NEO: MMED) micro-dosed LSD drug, intended for ADHD treatment, is currently in phase 2A of clinical trials and has already been cleared for the initial basic safety assessment. This is just among one of their ongoing research projects.

While there is a long way to go before we can standardize treatments for the masses, there are companies that are undertaking the massive feat of cracking the code to unlock the potential of psychedelic treatments.

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Treatment Development & Licensing

Another kind of business model includes psychedelic biotech companies that focus on drug discovery and out-licensing to help cushion the risks faced during the drug development process; for both the companies and investors. By leveraging patents and intellectual processes companies can formulate new molecules for market use. These biotech companies can out-license this knowledge of the synthesized treatments to outside partners that already operate within the industry.
MagicMed, is an example of a biotech company that is currently underway to out-license treatments based on the basic chemical scaffolds of natural psychedelics such as psilocybin, DMT, and mescaline.

Qualities of the Out-Licensing Business Model to Keep In Mind
  • High pay-off potential
  • Execution risks
  • Reduced marketing risks
  • Flexible due to their multiple partnerships

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Consumer-Facing Products

Another business model operating within the psychedelic market is known as a Consumer Packaged Goods (CPG) company. These companies specialize in launching products to the market for wide consumer use. The benefit of this business model includes less “red tape” within the approval process; as with drugs approved for medical treatment. The cannabis industry in the United States estimates the market will reach 25 billion dollars in revenue by 2025. As a prime example of the CPG model at work within the United States, there is a large potential for the psychoactive CPG model to mimic cannabis’ success in the future.

We are already starting to see the legalization of magic mushrooms for consumption in the United States. With a lesser emphasis on consumer goods, regarding regulatory approvals, these products and companies offer an opportunity to invest in products that are about to launch, rather than awaiting the arduous process of clinical development or the bureaucracy expected within licensing business models. There is also a large global potential for this model as some companies may choose to operate within markets outside the US and Canada.

Qualities of the CPG Business Model to Keep In Mind
  • Quick potential for ROI thanks to reduced regulatory requirements
  • Fewer barriers of entry
  • Lower Margins due to lack of patent protection
  • Large demand among modern populations for psychedelic products
  • Early investors who get in early can reap large benefits if a product dominates the market
Still to be Determined

While we are still in the early Phases of the Psychedelic Renaissance, we have still yet to determine which one model will dominate the growth in the market. Will a model of 100 clinics widespread, or will one company take the reigns as the ruler of the market?

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Microdose Psychedelic Insights

Microdose Psychedelic Insights

Your Guide to the Business of Psychedelics. Our mission is to shift the world's perception of psychedelic medicine.