Q3’24 Survey: What are Psychedelics Investors Concerned About? – Psychedelic Alpha

While regulatory and legislative developments were formerly among the most cited reasons for excitement among psychedelics investors, this theme is now the primary cause for concern across investors of all stripes.

The responses generally have two flavours:

1. a fundamental skepticism of the FDA and/or DEA’s willingness to approve and reschedule a psychedelic-based medicine; or,
2. an acknowledgment that psychedelic drug development and commercialisation raise unique challenges for both developers and regulators.

i.e., the former comes from a place of skepticism of regulators’ appetite or political will to see psychedelics (re-)enter the medical field, while the latter focuses more on the agency and developers’ competency or remit.

The notion that the FDA is continuously ‘moving the goalposts’ regarding what it wishes to see in a psychedelic-based new drug application (NDA) was a popular one, expressed by everyone from VCs through to retail investors.

Through more in-depth interviews on this matter, it’s clear that some accept this is a natural part of the agency’s evolving understanding of the class of drugs as well as its developing standards for psychiatric drugs more broadly (e.g., greater scrutiny of things like functional unblinding and an expectation to see data on the durability of effect), while others believe it’s a deliberate attempt to skirt psychedelics’ approvability. Some investors reported a mix of these sentiments, suggesting that the two ‘flavours’ outlined above aren’t always discrete.

One retail investor cited the FDA as their biggest concern, “because its processes and programs are structured in such a way that psychedelic assisted treatment will never fit into their models.” Again, it’s hard to appreciate whether this is a concern about the agency’s remit (i.e., psychedelics don’t fit into its ‘models’) or indicative of fundamental skepticism about its willingness to approve a psychedelic (i.e., FDA is unwilling to adjust its ‘models’ to fairly appraise psychedelics).

This concern doesn’t always fall at the feet of the agency, however. One retail investor expressed concern about the sector’s ability to figure out “gaining FDA approval with the combo of drugs + psychotherapy”, adding that this is a “new frontier.” This investor wasn’t alone: a reasonable portion of respondents were not only concerned about the agency’s willingness or ability to appropriately assess a psychedelic-based therapy (especially a psychedelic-assisted therapy), but also companies’ (or, more nebulously, the ‘sector’s’) ability to play by the agency’s rules.

Similar sentiments were expressed by other investors who said, more plainly, that they are concerned about things like ‘FDA bureaucracy’, ‘government red tape’, and ‘over-regulation’. The DEA was also cited as a concern, though to a lesser extent and often indirectly, as was ‘the government’ more broadly.

Why has the mood shifted so much since our last survey? The most glaring reason is FDA’s rejection of Lykos Therapeutics’ NDA, as well as the hubbub in the run-up to the decision which included a very public airing of grievances and critiques at forums ICER’s review and the FDA Advisory Committee.

“The FDA-Lykos decision was really disheartening”, one family office investor responded, adding: “It really makes me wonder if anything can get approved.” Many other investors highlighted the Lykos decision as a cause for worry, which might have made concerns like those around the FDA’s willingness or ability to approve a psychedelic, and companies’ ability to play by the agency’s rules, particularly acute in this series.

While the majority of respondents cited very reasonable concerns around regulatory barriers to the approval and roll-out of psychedelics, a small minority shared more speculative sentiments. A few investors implied that ‘big pharma’ is plotting to prevent the market entry of psychedelics, while another said that there is ‘no money in healing.’

It is important to remember that our survey was carried out prior to the U.S. election, and that investor sentiment may have changed since that time.

According to a Psychedelic Alpha reader poll, 50% of respondents were pessimistic about the potential for psychedelics under a Trump administration, but 40% were optimistic and 10% were unsure. Another poll found that around half of our reader-respondents believe a Trump administration could catalyse psychedelic drug development. It is reasonable to think, then, that this most recent Psychedelic Investor Survey might over-index on concern in this realm…