Investing in Psychedelics: Four Tips to Get Started
By Dennis O'Neill
Image credit: Gerd Altmann from Pixabay
Due to increasing cases of depression, anxiety and other mental health disorders (nearly 1 in 5 Americans live with a mental health illness), there is rapidly growing acceptance of the flourishing psychedelic medicine market. With growing mainstream acceptance and decriminalization, the psychedelics market is projected to reach $7 billion by 2027.
However, you need to be incredibly careful when entering into new and unknown markets such as psychedelics. The major issue is that there are over 30 new companies claiming to be in the market, and many of these are no more than very weak concepts.
Although the potential for psychedelics for treating a vast array of mental health problems is significant, there will be ultimately no more than a handful of companies that will be successful long-term. Here is a guide of what to look for before investing in this market sector.
Research the management team to ensure they have the experience and track record of success to execute on the business model.
Producing pharmaceutical psychedelics takes a very specialized knowledge to be successful. Management is what all successful investors look at first before investing because once you have identified a viable technology, the next biggest risk is execution. This is where most companies fail. Experienced management teams with a track record of success are much better equipped to be able to modify, optimize or pivot to deliver a successful outcome.
Technology is what differentiates the winners from the losers in almost every market.
Make sure the technology is the best of breed in the market to ensure a significant market advantage. There are several different technologies being deployed to produce psychedelics, many of which are unproven or concepts at best. This may prove to be the most difficult part of making an informed investment decision, since so many companies are claiming to have the next great technology in the space.
The best way to discern who is real and who is not is to first look at the management team and see what kind of experience they have, specifically in psychedelics. Secondly, find out if they developed the technology with third-party validation of the results or if it's just a concept that they hope will be true at some point in time. The best companies will be utilizing technology that has unique intellectual properties/patents and processes.
Clinical trials will be especially important in getting a pharmaceutical psychedelic approved for the wider market.
There are some small countries that allow for psychedelics for treatments in medical spa-type situations, but where the real money will come from is FDA pharmaceutical-approved treatments. Companies will need the experience and capital to go through clinical trials and receive approval from the FDA. Clinical trials take a significant amount of time and money. If you make even the smallest of mistakes, it can invalidate all the results, which means you need to start over. Most of the companies currently in the psychedelics space have little to no experience in this arena, thus making them very risky.
Distribution will be key once the products are approved by the global regulating bodies.
Make sure you understand what the distribution strategy is and whether it has a high probability for success. Distribution of pharmaceutical psychedelics involves securing thousands of doctors who are willing to write prescriptions for psychedelics for a vast array of mental health conditions. This means you need to show that your psychedelic treatment is one that doctors will prescribe, which means it's best to use already established distribution networks that have a pipeline of other products they are selling to doctors, making psychedelics an add-in product, not a brand new sale to a new relationship.
Dennis O'Neill is President of BIOMEDICAN, a biotech startup designing patented low-cost methods of growing high-value compounds at scale with proprietary yeasts. In over 30 years as an Investment Banker, he helped start two of the largest regional investment banks in Chicago, has been involved in over 70 public companies and raised over $2 billion in capital for early-stage companies.
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