A Trip Worth Taking: A Primer on Psychedelics in Neuropsychiatry

THE COWEN INSIGHT

Banished for decades, psychedelic medicines and companies developing them are enjoying a resurgence. We take a deep dive to unravel the scientific, clinical, and commercial potential.

Backed by early, robust clinical data, psychedelics could address large unmet needs in neuropsychiatry with a $1B+ TAM, but logistics, reimbursement & IP challenges remain. This primer details the science of psychedelics, our investment thesis, and key takeaways from discussions with 10 KOLs spanning the clinical, payer, and IP landscape.

An Overview of the Current Psychedelics Landscape

Neuropsychiatry’s estimation of the clinical potential of a number of psychedelics is growing. In this report, we detail the science, regulatory considerations, and commercial potential behind the fast-expanding field of psychedelic medicines. We also cover the history of this class of drugs, recent clinical evidence of their benefit, and the uncertainties and reason for optimism surrounding the logistics, reimbursement, and IP challenges these products could face as they’re brought to market.

This comprehensive report includes:

• A detailed review of the scientific mechanisms underpinning the effects of psychedelics in the brain
• The history of this class of drugs
• The financing landscape
• A comprehensive list of companies (public and private) and programs in development
• Clinical data and anticipated readouts in the coming months
• Regulatory considerations including DEA scheduling
• Logistics of delivery and administration once the products are commercialized
• The reimbursement landscape
• A review of the existing IP and its defensibility for these first-generation psychedelics

Neuropsychiatric Support of Psychedelics Has Increased

Ultimately, we believe that this is no longer a fringe class of therapeutics. Instead, we find that there is increasing support from the broader neuropsychiatry community. This support is based on mounting clinical evidence from robust, controlled clinical studies of the potential benefit of psychedelics to address neuropsychiatric conditions ranging from treatment-resistant depression (TRD), to PTSD and eating disorders, and for which there is significant unmet need.

Commercialization of Psychedelics

We acknowledge that commercialization of the most advanced products is still a few years off, but also note that a second generation of clinical optimized psychedelics with new chemical entity (NCE) status could greatly simplify commercial potential. We believe the impact of these therapies will be more profound on later lines of therapy, with front-line therapy for many diseases such as major depression and even PTSD (where SSRI efficacy is notoriously poor) continuing to be dominated by cheap generic SSRIs.

Assuming reasonable access and reimbursement, we think these therapies could be adopted in second- and third-line therapies, after or in place of adjunct therapies such as atypical antipsychotics (many of which are generic). We think they could also see niche use in the front-line market for private-pay patients.

KOL Interview Results

Our research is underpinned by 10 KOL interviews with clinical, regulatory, reimbursement, and IP experts to deliver an insightful and first-of-its kind lay of the land. Topics cover the waterfront of issues investors in this space are most interested in understanding.

Financial & Industry Model Implications

We come away from this research with a constructive view of companies that are pursuing FDA approval of psychedelic drug therapies by designing robust, controlled clinical trials with established neuropsychiatric endpoints, and already are or plan to proactively engage with providers and payers to educate them on the proper administration and clinical benefits of their psychedelic therapies. Companies actively working on proprietary optimized second-gen compounds are even better positioned for the long term, albeit with added clinical development risk.

We believe that these strategies will go a long way in reducing the logistics and reimbursement challenges. With recent strong, positive clinical results for two of the more advanced psychedelic programs, we believe that there is significant upside potential as these programs advance in the clinic. These positive early results should also provide support for other similar programs we expect to read out over the next few years. Overall, we view this nascent future landscape as having market potential in excess of $1B.