Psychedelics startups racing to go public: Compass, Havn, Field Trip
- There is a “psychedelics renaissance” in motion, according to insiders in the industry, as shown by a rush of investor dollars and a number of public market debuts.
- Some of the investors and banks working in psychedelics are the same ones who were involved with the cannabis boom and subsequent bust.
- Despite the similarities, psychedelics insiders say that there are stark differences between cannabis and psychedelics.
- Business Insider spoke to five industry insiders, from company CEOs to investors. They said they don’t see psychedelics facing the same pitfalls that befell the cannabis industry.
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The psychedelics industry is booming.
Compass Pathways, a London-based psychedelics giant, raised $146.6 million in its US initial public offering last month, and is valued at more than $1 billion. Psychedelics companies Field Trip Health and Havn Life Sciences recently started trading in Canada, following MindMed, which secured a Canadian listing in March.
Meanwhile, the psychedelics industry is drawing attention from biotech investors, as well as from cannabis companies looking for fresh opportunities.
The total market for psychedelics-related medicines could eventually reach $100 billion, according to a report from Tania Gonsalves at Canaccord Genuity. Companies are working on psychedelics-based therapies for treatment-resistant depression, cluster headaches, opioid use disorder, smoking cessation, and PTSD among others, according to the report.
Ronan Levy, the founder and executive chairman of Field Trip, which is focused on setting up treatment clinics and on psychedelics-based drug development and manufacturing, called the uptick in investor interest and funding a “psychedelic renaissance.”
A focus on the importance of mental health has gone mainstream, Levy said. Other factors driving the boom include increasing research on psychedelics, big-name investors like Peter Thiel coming on board, skepticism around big pharma, and the headway that cannabis has made in challenging preconceived notions of drugs, he said.
The psychedelics boom has some parallels with the cannabis bubble
Levy’s firm started trading on the Canadian Securities Exchange on Oct. 6. Cannabis-focused asset manager Silver Spike Capital and Harris Fricker, the former CEO of GMP Capital, invested in the company before it went public.
GMP Capital is a Canadian investment bank that advised cannabis companies including Canopy Growth. Its capital-markets business was acquired by Stifel Financial in December 2019. Other Canadian investment banks that work with cannabis companies, such as Canaccord Genuity and Eight Capital, are now starting to advise psychedelics companies as they gear up to trade publicly.
“I think you have a lot of people who have seen what has happened in the cannabis industry from a capital markets perspective, seeing psychedelics as an extension of it,” said Levy. “You have a lot of people who either made a lot of money or were very interested in the cannabis industry, seeing the cannabis industry going through a bit of a trough from a valuation perspective and a reputational perspective and they’re looking for another great opportunity.”
Though there are some parallels between cannabis and psychedelics, they don’t run as deep as many people would think, Levy added.
Should the psychedelics industry be compared to cannabis, or to biotech?
Many players in the psychedelics space say that comparing cannabis to psychedelics isn’t appropriate, despite the overlap in financial backers. The cannabis industry is focused on expanding the number of customers who use the drug recreationally, while psychedelics companies are generally working to win approval from regulators to sell medications.
“We ought not to draw parallels with cannabis,” Canaccord’s Gonsalves wrote.
The better comparison would be to the biotechnology industry, she said.
Tim Moore, the CEO of Havn Life, which is focused on building a supply of compounds to support psychedelics research, said the psychedelics industry’s focus on medical research sets it apart from the cannabis industry.
“The science here is much more solid than it is on the cannabis side,” said Moore, whose Vancouver-based psychedelics company recently started trading on the CSE. The company was also recently accepted to list its stock on the Frankfurt Stock Exchange.
The CSE is a secondary Canadian stock exchange that typically provides a venue for trading the shares of smaller companies.
Lessons learned from the cannabis boom
Moore was formerly the CEO of Canadian cannabis company Green Growth Brands, a position he stepped into when GGB went public on the CSE in 2018 through a reverse takeover.
He said psychedelics companies have learned lessons from the early boom-and-bust days of the cannabis industry, and are taking steps to avoid repeating them.
“They had the stock promoters and they had growers, but they didn’t have anyone who had actually run a business,” he said of many companies in the cannabis space back during the boom. “And so when somebody gave them millions of dollars through their raises, their best idea was ‘let’s build a 2 million square-foot greenhouse.”
Moore says that companies like his have already brought in business operators to make sure that they can execute a commercially viable business model, which should help them avoid some cannabis firms’ fate.
Simeon Schnapper, managing partner at psychedelics-focused fund JLS Fund told Business Insider that the current flurry of activity is driven by a “perfect storm” of events: Canada’s easily accessible public markets, a few successful IPOs that have paved the way for others, the recent $10 million in donations raised by MAPS, as well as a wider focus on the importance of mental health.
‘There’s a hunger for this in the world’
“There’s a hunger for this in the world and if there’s a hunger for anything in the world, capital markets seem to mirror that and create investors and create entities and credit companies at a very meta level,” Schnapper said. JLS oversees $50 million in investments.
In the first three quarters of 2020, psychedelics companies garnered $163.6 million in investor dollars, according to data from PitchBook. This total includes investment from pharmaceutical company Otsuka, which participated in Compass Pathways’ $80 million Series B investment round in April.
Michael Hoyos, co-founder of The Conscious Fund, a psychedelics-focused fund that manages 50 million euros ($58.5 million) in capital, says that it’s true that the psychedelics space is still relatively early in its formation, but that the potential for returns is compelling to a lot of people.
“I think valuations are going to start reflecting that sooner rather than later,” said Hoyos, who added that he thinks the valuations of some of the companies that have gone public as of late haven’t reached their maximum potential yet.
“Pretty soon you’re going to start seeing valuations get a lot higher as this case continues to be built for these companies and these substances in this industry,” he said.
The psychedelics industry could consolidate
Doug Drysdale is the CEO of Cybin, a Canadian company focused on developing a psilocybin-based drug to treat major depressive disorder. Cybin recently said it plans to starting trading on the CSE through a reverse takeover.
Drysdale says he sees a lot of people and companies “jumping on the bandwagon” and going public, especially on the Canadian exchanges, because of a high level of interest in psychedelics.
Drysdale said that although it may seem like there are many psychedelics companies coming online, there are different kinds of companies with different business models appearing on the landscape. While some are building clinics, others are developing drugs and trying to get approval to sell them.
“Some of them will have more substance than others,” Drysdale said.
He said it’s natural that in the early stages of an industry, there will be a lot of startups trying to make a mark, though that won’t last.
“It’s good to see all this activity but I think you’ll see the market consolidate somewhat over the next 12 months,” he said.