The COVID Conundrum For Psychedelic Stocks

The COVID Conundrum For Psychedelic Stocks

There is a massive health crisis currently sweeping the planet.

Already, roughly 1 in 6 people worldwide are affected (well over 1 billion people) – and it’s spreading rapidly. No, it’s not the COVID pandemic. It’s the Mental Health Crisis. The mental health pandemic.

Check the latest global numbers on total COVID infections (including the 4 out of 5 who are already cured), and we see that only 125 million have been infected with COVID-19.

For every person who has been infected with COVID, there are ten people currently suffering from stress-related mental health disorders like depression, anxiety, substance abuse and PTSD. And the government-imposed lockdowns due to the COVID pandemic are rapidly and severely worsening this mental health pandemic.
 

In short, the mental health pandemic, which has always been much larger than the COVID pandemic, is worsening at an alarming rate.

Psychedelic drug development: as necessary as COVID vaccines

Investors in psychedelic stocks know that psychedelic drugs are not merely seen as the best hope in addressing the Mental Health Crisis. They are our only hope.
 

Current standards of care for (in particular) depression, addiction and PTSD are abysmal. Meanwhile, clinical studies on psychedelics-based treatments for all these disorders are yielding spectacular results.

Studies frequently report patients “ceasing to exhibit symptoms”, i.e. effective cures for these conditions. And this is a Crisis that demands the immediate attention of our governments.

Before COVID began, the Mental Health Crisis was costing the global economy over $1 trillion per year in lost productivity alone.
Before COVID began, substance abuse was costing the U.S. economy $740 billion per year.
Before COVID began, mental health disorders were the leading cause of disability.

Now all of these additional socio-economic crises are getting much worse, much faster. And medical science hasn’t even begun to assess the long-term impact on mental health, from the extreme and protracted government policies intended to control the COVID pandemic.

In short, there is at least as much urgency in getting psychedelic drugs to market to address the mental health pandemic as there is in getting COVID vaccines produced and distributed.

Yet our governments obsess exclusively and continuously about COVID vaccines, while seemingly oblivious to the mental health pandemic.

The COVID Conundrum

Many jurisdictions are currently re-intensifying COVID lockdowns in what is being called a “third wave”. Concerns have simultaneously emerged regarding both COVID vaccine safety and vaccine distribution.

The combined effect of this is that the mainstream media is also obsessing about COVID in its news coverage – while the mental health pandemic is grossly under-reported.

The impact of this on psychedelic stocks has been unfortunate.

Psychedelic stocks have been under pressure recently due to the significant pullback of NASDAQ tech stocks. This has been exacerbated by low volume for psychedelic stocks, which is at least partly due to the drop-off in media coverage.

The conundrum (and irony) here is obvious.

The longer the COVID pandemic lasts and/or the worse it gets, the greater the need for psychedelic drug development and psychedelics-assisted treatment facilities. By implication, the (potential) commercial value of this industry increases commensurately.

Yet the worse that COVID concerns get, the less attention that is paid to psychedelic drug stocks.

Most psychedelic stocks have now fallen by 50% (or more) from previous highs, despite the fact that news within the psychedelics industry has been uniformly positive:
 

  1. Increasing activity in the United States (at the state level) toward the decriminalization/legalization of psychedelic drugs
  2. Canada’s government is expanding legal access to psilocybin-based therapy
  3. Since Compass Pathways (US:CMPS) went public last September, over US$700 million in fresh capital has flooded into a sector that (in terms of public companies) is barely a year old
  4. The first psychedelic stock ETF is now trading (PSYK)

Meanwhile, individual companies have also provided numerous, positive investment drivers – just in recent weeks. This includes:
 

There have also been a host of tech/IP developments, too numerous to list: patent applications, drug synthesis, digital therapeutics, bioinformatics, etc.

Further improving the commercial potential of the industry, psychedelic drug R&D is already expanding rapidly beyond the boundaries of merely the Mental Health Crisis – into some of the largest of all medical treatment markets.

Psychedelic stocks on sale

Why would anyone want to be selling these stocks with the industry moving forward rapidly, as the potential size of the commercial opportunity increases exponentially?

Why aren’t more analysts already covering this sector and these stocks?

The fact remains that these stocks have sold off for reasons 100% due to market conditions and 0% in connection with the actual fundamentals in the sector.

Heavy-hitters like Peter Thiel, Bob Parsons, Mike Novogratz, Kevin O’Leary, and many others haven’t been pouring their own investment capital into this sector on a lark.

Institutions haven’t funneled $100s of millions into psychedelic drug development merely because psychedelics have become fashionable in Silicon Valley.

The fact that the U.S. Department of Defense is the world’s largest individual donor for psychedelic drug research should also be getting the attention of investors. The DoD wields a lot of influence with the U.S. federal government.

The medicines are real (and effective). The need is urgent and enormous. The commercial potential is huge.

But today, psychedelic stocks are “on sale”.

Investors have gotten so accustomed to chasing momentum with fully-valued (over-valued?) stocks that buying stocks at a discount is now strange-and-unfamiliar. However, once upon a time, a simple maxim dominated the world of investing.

Buy low, sell high.

There is no doubt that psychedelic stocks are objectively cheap.

Industry leader, Compass Pathways has fallen by nearly half from its 52-week high, despite indicating it should be ready to report its Phase IIb clinical trial results by year-end, being granted two U.S. patents and sitting with ~US$100 million cash.

Industry leader, MindMed Inc (CAN:MMED / US:MMEDF) has fallen by more than half, despite three psychedelic drug trials in Phase II, being recently added to the Russell Indexes, working toward uplisting on the NASDAQ, and sitting with US$162 million in cash.

Cybin Inc (CAN:CYBN / US:CLXPF) recently received a “buy” rating and CAD$8 price target from Canaccord and just after that, it announced a drug development deal with Big Pharma heavyweight, Catalent (US:CTLT). It’s currently trading at CAD$1.40, less than three times cash.

Mind Cure Health (CAN:MCUR / US:MCURF) is preparing to open its first mental health clinic in May, it just named a renowned neuroscientist to lead its ibogaine-based research for the $120 billion Traumatic Brain Injury (TBI) market. Yet it’s trading at less than two times cash.

In the United States alone, mental health drugs and services eat up $300 billion per year. That’s a lot of revenue dollars on the table for the psychedelic drug industry. Yet the collective market caps of these companies is only roughly $3 billion.

With drug development, even a single drug success can be worth $100s of millions. Psychedelic drug companies already have a half-dozen next-generation psychedelic drugs entering or in a Phase II trial. Dozens of other R&D initiatives are either in Phase I testing or at the pre-clinical level.

Psychedelic drug stocks are not merely a bargain. Today, they are (by far) the single greatest investment opportunity in life sciences.

DISCLOSURE: The writer holds shares in MindMed Inc, Cybin Inc, Novamind Inc, and Mind Cure Health. Mind Cure Health is a client of Psychedelic Stock Watch.
 

Published at Fri, 26 Mar 2021 06:00:02 +0000

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