Psychedelics Industry Seeks Financial Solutions Amid Valuation Plunge

DENVER — The Psychedelic Science 2023 conference in Denver revealed a challenging financial landscape for publicly traded psychedelics companies. Several financial experts at the conference highlighted the sharp decline in valuations over the past two years, attributing it to the prolonged wait for federal approval on drug treatments and the subsequent financial spiral within the sector. Despite optimism surrounding the efficacy of psychedelic treatments, the need for additional investment to complete the drug approval process remains a significant hurdle.

According to Andrew Chomer, managing partner at New York-based venture capital fund Integrated, public psychedelics companies have collectively raised nearly $3 billion. However, the majority of these funds have been allocated to drug development, leaving most companies still awaiting approval from the U.S. Food and Drug Administration (FDA) to bring their services to market. As a result, these companies face the challenge of securing additional capital to progress further, particularly at a time when investor enthusiasm has waned.

Chomer emphasized that the current financial climate poses significant obstacles, stating, ” $140 million, that’s only a fraction of what you actually need for one company to get through the entire drug approval process… There’s still an absolute ton of work to do.”

While financial experts reiterated the need for substantial funding to ensure the viability of psychedelic businesses, they also acknowledged the possibility of seeking assistance from large pharmaceutical companies. Despite the historical tension between natural medicine advocates and “Big Pharma,” some experts cautiously suggested collaborating with established pharmaceutical firms to overcome the financial and logistical challenges associated with drug approval and distribution.

Daniel Goldberg, managing partner of Chicago-based Palo Santo, highlighted the importance of interdisciplinary collaboration and actively listening to industry professionals from pharmaceutical backgrounds. Goldberg acknowledged the controversial reputation of “Big Pharma” but emphasized the need to engage with them, stating, “Big Pharma does some good things. They do some terrible things. And really listen to them and not just be in our own bubble. That’s super important.”

Patrick Trucchio, managing director at New York-based H.C. Wainwright & Co., added that large biopharma companies possess the necessary funding and infrastructure to navigate the FDA approval process and bring drugs to market. Their involvement could facilitate broader access to psychedelic treatments for patients suffering from conditions such as depression and post-traumatic stress disorder.

Lindsay Hoover, managing partner of California-based JLS Fund, emphasized the role of finance and investment in mainstreaming the psychedelics trade. Hoover noted that conversations with “Big Pharma” were already taking place within the industry, suggesting that their involvement could contribute to the sector’s growth.

Despite the cautious optimism, concerns were raised about relying too heavily on the success of the Multidisciplinary Association for Psychedelic Studies (MAPS) in obtaining FDA approval for MDMA-assisted therapy. Lindsay Hoover cautioned against assuming a foregone conclusion, as uncertainty surrounding such milestones impacts investor confidence. Hoover acknowledged the necessity of resolving such obstacles and expressed anticipation for the positive outcome that would follow FDA approval.

While financial experts grapple with the current challenges faced by the psychedelics industry, Andrew Chomer revealed that his firm has temporarily halted the process of raising new capital for psychedelics companies. Instead, they are focusing on closer partnerships and operational execution with existing investments. Chomer acknowledged the inherent risk associated with the psychedelic industry, stating, “Since there’s not a clear path to success in psychedelics… this is just pure risk in a lot of ways. We all want it to happen, and we’re all still figuring it out.”

As the psychedelics sector navigates its financial predicament, the search for additional capital and potential collaboration with larger pharmaceutical entities may prove pivotal in ensuring its future growth and the realization of its therapeutic potential