In November 2020, Oregon became the first U.S. state to legalize psilocybin, the active ingredient in so-called “magic mushrooms.” Much like cannabis, psychedelics are now becoming more mainstream, and investors are sizing up what could be a major long-term opportunity. Research and Markets recently estimated the psychedelic drugs market will grow 12.4% annually over the next seven years, reaching $10.75 billion in 2027. In May, Defiance launched the Defiance Next Gen Altered Experience ETF (ticker: PSY), a collection of top stocks focused on psychedelics and cannabis.
But much like the early days of public cannabis stocks, the nascent psychedelic drug stock group is a high-risk, high-reward space, with plenty of potential pitfalls for investors. Here are five of the top psychedelic drug stocks held by the PSY exchange-traded fund that investors should watch in the years ahead.
— Mind Medicine (MNMD)
— Compass Pathways (CMPS)
— Field Trip Health (FTRPF)
— Cybin (CLXPF)
— Numinus Wellness (LKYSF)
Mind Medicine (MNMD)
Mind Medicine is a biotechnology company that is running clinical trials on multiple drug candidates, including an LSD experimental therapy nicknamed “Project Lucy.” The therapy is in phase 2b trials, while Mind Medicine’s LSD microdosing and opioid withdrawal projects are both entering phase 2. The company is also beginning a new project to research the effectiveness of LSD and other psychedelics in pain treatment.
Mind Medicine’s target indications — which include depression, attention deficit hyperactivity disorder and addiction — are massive and could provide tremendous long-term upside for investors if one or more of its pipeline treatments is eventually approved. Mind Medicine isn’t expected to complete most of its phase 2 trials until sometime this year or later. In the meantime, the company generates virtually no revenue and is burning through cash, making it a high-risk play.
Compass Pathways (CMPS)
Compass Pathways is researching psilocybin in treating patients that suffer from treatment-resistant depression. Compass’ COMP360 is synthetic psilocybin that is in phase 2b testing. The patients in the trials take the drug in a controlled environment and a therapist talks them through the experience.
Compass is still a long way from Food and Drug Administration approval, but a similar phase 3 study by the University of California–San Francisco, using MDMA in treating post-traumatic stress disorder recently yielded some encouraging results.
Compass Pathways completed its initial public offering back in September 2020 at $17 per share. Since its debut, the stock has traded at more than $60 but is back down to around $36. Given the unpredictability and headline risk in the psychedelics space, Compass investors should expect even more volatility ahead as it works through its trials.
Field Trip Health (FTRPF)
Field Trip Health is another company researching a synthetic psilocybin molecule, drug candidate FT-104. Field Trip believes FT-104 has a similar potency as psilocybin but generates a shorter period of psychoactivity, potentially making it preferable for use in treating patients.
In February, Field Trip Health opened its Field Trip Natural Products Limited Research and Development Laboratory for Psychedelic Fungi in Mona, Jamaica. The new facility is the world’s first legal research facility dedicated exclusively to psilocybin and other plant-based psychedelics.
Field Trip investors also got some good news in June when the company officially applied to list its common shares on the U.S. Nasdaq exchange. The stock currently trades on the TSX exchange in Canada and on the over-the-counter market in the U.S., but a Nasdaq listing could potentially raise the stock’s profile significantly and go a long way in boosting the company’s credibility as an investment.
Cybin is a clinical-stage Canadian pharmaceutical company developing psychedelic medicines for the treatment of mental illnesses such as depression, anxiety and addiction. Cybin will soon begin phase 2a testing of its lead drug candidate CYB001 in treating major depressive disorder. CYB001 is the company’s formulation of psilocybin, a compound which at least four scientific studies have found to produce significantly positive results in treating anxiety and depression.
At this point, CYB001’s depression study is the primary driver for the stock, but Cybin is also conducting preclinical research on alcohol use disorder and treatment for therapy-resistant psychiatric disorders. The launch of clinical trials for either of these preclinical programs could be a bullish catalyst for Cybin stock.
Cybin also has two preclinical drug candidates in CYB003 and CYB004. CYB003 and CYB004 are deuterated tryptamines, a naturally occurring hallucinogenic class of drugs found in a wide variety of plants.
Numinus Wellness (LKYSF)
In June 2020, Numinus Wellness made history by becoming the first public company in Canada to be granted a cultivation license to produce and extract psilocybin. Numinous has import, export and distribution licenses for DMT, psilocybin, MDMA and other psychedelic drugs.
Numinus was an early leader in psychedelics-focused research, opening up its licensed bioscience lab back in 2012. Numinus has partnered with MAPS Public Benefit Corp. to conduct compassionate access trials of MDMA for post-traumatic stress disorder and psilocybin for substance-use disorders.
In April, Numinus launched a new phase 1 clinical trial in partnership with KGK Science to test its own naturally derived psilocybin formulation on patients. The trials could provide useful information on the potential benefits of natural psilocybin compared to synthetic versions.
Numinus also generates revenue from third-party cannabis testing, which the company reinvests in its psychedelics initiatives.
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