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Transcript
Rena Sherbill: Okay, Alex. Welcome to the Cannabis Investing podcast, psychedelic edition, psychedelic Sundays. Welcome to the show. Thanks for coming on.
Alex Carchidi: Hi. I’m so grateful to be here, and thanks for giving me this opportunity to talk about psychedelic stocks.
RS: Absolutely. I know you because you write on Seeking Alpha and you write about psychedelic stocks. I’d love to hear and I’m sure listeners would love to hear, kind of your background to how you got to investing, I guess, maybe in general if you want to share that, but also how you decided to focus on the sectors that you focus on?
AC: Yeah. So, I had the advantage of, kind of being started with investing very early in my life.
RS: Lucky.
AC: Yeah.
RS: I’m always jealous of people like that.
AC: Yeah, right. My dad set me up with a very – like, a tiny little portfolio when I was, I think, late middle school, actually. So, he was the one doing the actual trading. He did listen to me and did lose some money as a result of my very early ideas, thankfully not too much. And then that’s kind of my first career. I did biomedical research at the at the bench, basically. So, I was the one doing the experiments and planning the experiments. It was not in psychedelics.
It’s in immunology. And I worked in a few biotech companies as well. And so, that kind of gave me a lot of insight perspective on, kind of the way the [sausage is made] [ph] in the industry. And I kind of transitioned into covering, you know, being more of an analyzer and disseminator of information rather than someone who kind of produces the data firsthand, did some science journalism, and eventually kind of delve more into the business side of things. And that’s kind of, that’s been the arc of my professional experience. That has also been the arc of the perspective that I’ve brought to my investing activity.
RS: I was going to ask, like, how has that fed your investing, I guess, hypotheses or how you’re looking at the sector?
AC: Oh, it’s fundamental for me. So, the way that I think of it is very grounded in what the scientific literature is, kind of saying, this is what’s going on within this therapeutic field, whether it’s psychedelics or any other, kind of you know, biomedical field that you could be doing therapy development and big emphasis on the literature. And also, I think of a very keen sense of, well, if you have a press release documenting your clinical trial results, you say these three things, but you didn’t mention this other thing.
So, then, of course, I will do the digging and find out what didn’t they mention, what are they not talking so much about. It’s not always a big discovery. But it that’s kind of the perspective that I bring to a – try to stay grounded. And as far as the business side of things, for that, it’s very much look at the data, look at how biotech companies usually do stuff, how they usually perform, what percentage of clinical trials can you expect to succeed, and in what phase?
So, obviously, there’s a lot of attrition rates depending on the phase and depending on the field that you’re doing drug development in, and all of that is, kind of part of my mental math of, okay, so this company has 10 programs, they’re all in Phase 1, you’d expect two of them to make it to market. Maybe. Maybe. So that’s kind of a little bit how the interaction between my background and my investing style goes there. Does that make sense?
RS: Yeah, very much so. I was going to ask for the ones that you followed up for, that you have seen kind of like a nefarious reason why they left it out of the press release that let’s say, would there be companies that you would say, like, avoid these companies?
AC: Not in psychedelics specifically so far. In the other areas within biotech that I cover or especially in Alzheimer’s disease therapies, yes, then it is kind of disqualifying because the reputable companies are always upfront their data, even if it’s bad. That’s true in psychedelics as well, by the way.
RS: What kind of other similarities or maybe where they depart in terms of comparing those sectors?
AC: Well, I would say the – for me, the biggest thing that, kind of differentiates the psychedelics sector from the rest of the biotech sector is, psychedelics, it’s – because there’s a stigma involve the psychedelics. And that stigma, I think it kind of deters investors at the margin from, kind of considering biotech companies investigating psychedelics as being within their investable field, so to speak, because they think, oh, it’s just some hippy thing or, like, oh you know, it’s illegal. This is, you know, these are – there’s a range of validity to these objections, right, but that’s kind of the big difference that there is a stigma.
There are some regulatory obstacles that have yet to be navigated as far as, you know, allowing the research in the first place to proceed beyond a certain point and getting it commercialized and for what indication. One parallel that I find to be very interesting to discuss at least. Many people, kind of seem to approach psychedelics industry as being like, oh it’s going to fall the same trajectory as cannabis where you will kind of start with the medicinal side of things. And it’s a fairly clear road from going from medicinal use only to recreational use or widespread adult use.
Many people have proposed this, and I’ve always, kind of said, this is not a similarity. It is not going to work that way. Because it’s a very – it’s a different subject matter entirely right? You know, the – you could perhaps say, you do not need the most articulate the dosing protocol with cannabis medicinally. You say to someone, okay, you’re in pain. This could help you deal with your pain. It’s a cannabis product. You can use it as needed, and it will not necessarily harm you. Then obviously, the jump to the recreational way of using that product is not that different ultimately.
In psychedelics, it’s absolutely, I don’t see any path to, kind of that same widespread adult use simply because it’s, you know, if you develop these molecules for therapeutic use, those are potent that need to be administered in a controlled environment with the appropriate clinical protocols and trained people to help the patient through the process as needed, even if you do all sorts of crazy things to make it more controllable and more manageable.
These psychedelic molecules are powerful. And I don’t believe that there is any road to having them just be everywhere in society made by public companies that are, kind of using you know, making them as a product. I don’t think there’s any road from medicinal to widespread recreational. So, that’s like an anti, not the way that I see things developing, but I think that is kind of a common perception that people have. A long winded answer. Sorry.
RS: No. No. No. Long winded answers a.k.a. podcast. No. But it wasn’t long winded. It was informative. And well thought out, I think. And I would agree. I think that’s what I hear from most people that there’s not the retail option. I guess how I question, you know, that statement or that thinking is a, what are your thoughts about the, like we saw in Colorado that people are allowed to grow their own? And, you know, I would think that that’s part of most bills that will come in the future.
A, do you think that will be widely used by people or it’s going to be – because I will say, like, having used psychedelics and talk to a lot of people and heard a lot of things like and heard from a lot of people that did it in, kind of clinical settings and feeling like that there’s something missing in that type of setup even though it works for many other people, but I’m thinking it doesn’t work for everybody and people that have experienced it, let’s say, outside of that setting, they’ll want to keep on experiencing it outside of that setting.
So a, my question is that on its own, but also thinking about, let’s say, years, maybe even a generation if I’m being, you know, really far into the future, but thinking about more and more people having these experiences, some people growing it at home, does it develop into this? Like, okay, it’s more a, people have a higher tolerance for it. Micro dosing has caught on. There’s, you know, more research into that. What are your thoughts about that?
AC: So, it’s interesting. As far as people are growing their own, I’m really not sure what to make of it because from what I understand, it’s not the easiest process. It’s also not the most difficult process. For me, the bigger idea of it is probably there’ll be a hobbyist, kind of thing. It’s like it’s a niche. I don’t believe that that will be any major threat to the companies that are considered to be the leaders in this space either now or in a generation. This is, kind of like a divide that I’ve noticed where there’s kind of like the “lifestyle approach”. And then the – you know, then the biomedical kind of strong western medical tradition kind of approach. I think they can co-exist.
However, can they co-exist in the industry in a way that, you know, an investor might want to consider, okay, I could invest in this company that kind of makes whatever mushroom grow kits or something? This is something that there are some companies doing. I don’t believe there’s too many public companies doing that, but perhaps in the future there could be. And then you could say that company could co-exist with one that is developing psilocybin for administration in, you know, a clinic of some kind.
I don’t see any conflict there if I was going to say to an investor, what should you invest in, it would definitely be the clinical biopharma model companies. More than the ones kind of targeting lifestyle market. Just because I don’t have a strong feeling for how large the lifestyle market even is, and also if it’s illegal in most places, right, in a generation from now that could change, but even then, I don’t ever see psychedelics being something that has the scaling potential of something like the [beer industry] [ph] or even cannabis for that matter.
RS: Yeah.
AC: It’s just a niche thing, I think, kind of inherently, and for whatever reason, I – my sense of it and I believe the data backs us up, people will go and they’ll buy their favorite brand of beer. They could buy it once a week, once a day, once a month, regular schedule, point being. And with micro-dosing, okay, perhaps people will be purchasing some kind of products, either on prescription or not who knows in a generation [from now] [ph]. They could be doing that frequently purchasing it frequently.
However, as you mentioned a little earlier, people become tolerant to these substances. Even, if I’m tolerant to alcohol as well, but people will keep buying it, right? I think if you become tolerant to these psychedelics the points of having them in the first place becomes very much diminished. I don’t really understand how sharply tolerance might scale up or how economically relevant, that would really be, but in the long term, I think that could be kind of a challenge.
So, that’s just my idea there, who knows? As far as micro-dosing in general, I’m aware of one small public Australian company in the space that is, kind of compelling, but they’re still very early stage. And overall, I don’t necessarily see micro-dosing as something that is within a few years of making people money. Put it that way. Within 10 years, I think there could be something there, but not within the next 3 or 4 years that I know of unless there’s some program that I’ve never heard of.
RS: When you say compelling, what’s compelling about it to you?
AC: A few things. I mean, number one thing is having the good scientific research staff be part of their company and part of the active development process and also compelling scientific rigor is something that I find to be very compelling in the psychedelics space specifically. Because there is such a mix of, kind of the once again, well, there’s traditional methods, right? And then there’s the lifestyle kind of – are you familiar with the Shulgins, by any chance? Ann Shulgin, and Alexander Shulgin. They’re the – there’s this famous chemist Alexander Shulgin responsible for determining the structure of – and the synthesis methods for many of the common psychedelic molecules. So, he was one of the first ones to kind of, he tested many of them on himself and his friends of him consensually…
RS: Like all the good psychedelic researchers do.
AC: He was kind of the one, the guy to really do it first. And there’s that kind of once again rigorous scientific perspective, which is able to, kind of talk about the human emotional components of these things. With an appropriate objective framework. And then there are the people who are kind of experimenting, writing some stuff down, they don’t have the objective rubric. And there are companies, smaller ones, less reputable ones, ones that I don’t find compelling.
They’re leaning more heavily on this “anecdata”, which, you know, you can do a lot with anecdotes and you can get a lot of good ideas from the experiences that people have had and kind of their [lay therapy] [ph] protocols that they’ve been able to get a lot of progress with. That’s great. That’s not what you build, you know, a billion dollar company with. You need the objective rubric for that.
So that’s one of the things that I really look for really intensely is, how serious are these companies about doing drug development? More rigorous they are, the more serious they are. The more they’re kind of talking about intangible things, the more I’m kind of skeptical about them because I – it’s nice. Intangible things are the spice of life, but you can’t commercialize a therapy, you can’t go to the FDA with these intangible things and say, oh yeah, people say, you know, it helps them a lot. It doesn’t really work or at least, I don’t know. I don’t believe it at all, no one has tried.
RS: Yeah. So, investors would be wise to look for things like clinical trials?
AC: Yes.
RS: What research? How many scientists they have on board?
AC: Yes. And also, so the clinical research, you know, these data updates the companies will give very important to follow whatever they produce and to scrutinize the results they talk about. As far as their researchers, I would say, number of researchers, number of scientists on staff, not as important as who. Because if you know who, then you can look up their publications in Google Scholar or any other thing that you prefer. And then you can see, kind of what is this – one of the lead researchers would be one of the people who do this for.
What is the area of expertise? What are their previous results found? Who funded their previous results? Is there some conflict of interest or are these results endorsed, kind of by the usually, the way to tell is if other [papers] [ph] are citing them a lot, if the scientific community kind of endorses their results and it’s hard, I would say, for an average investor to, kind of approach that kind of research task of evaluating the provenance of these companies scientists. I do find it to be very worthwhile task, certainly, because you know, not all researchers are created equal.
I say that having been one, not that our people are, you know, not that there’s terrible people that companies are hiring and they’re doing fraudulent research. No. No. No. It’s just that to have a researcher on staff who is prolific and very much a pillar, kind of the area of inquiry within psychedelics in the scientific literature, that’s a huge asset. Because then, I mean, for one, people listen. When they’re attached to a study and a company funds the study and it comes out with results, that makes a splash. That builds a lot of legitimacy.
And that’s really important, especially if they’re looking to raise more money in the future, because the companies that don’t have that basis of scientific legitimacy from the researchers and the publications that they’re making, it’s much harder to say, look at how productive this asset of ours, this human asset will be in the context of developing a psychedelic therapy. It’s a very complex, kind of approach to things. Does it make sense what I said? Do I need to clarify?
RS: Yeah. Very much. I was – for me, like, the comparison would be like a good grow – a great grower, like world-class grower in cannabis. Like that’s what you want to have on board, no matter how well you’re stewarding the financial side of things.
AC: Yes.
RS: And it sounds akin to that in the psychedelics space.
AC: Definitely. If, yeah, my biggest watch word when I’m evaluating companies in the space, quality of their science, quality of their researchers, and just how accepted they are within the circles that they’re trying to, you know, advance whether it’s literally just designing psychedelic molecules. There are biochemists that are tremendously respected. They’re on staff with some of these companies. Huge asset.
Beyond that clinicians, people like therapists, therapists not only for how good they might be in the context of working in, you know, this company’s clinical trial to administer their psychedelic molecule and then to talk with the patient. That’s important if you want to get a good result from the trial, but more than that, they have, kind of clinicians who are therapists, researchers, or therapists who have done a lot of work, training other therapists.
Now that is especially huge for psychedelics, especially for the leading companies where their model is going to be to, kind of administer a psychedelic molecule, have a trained therapist, give a – basically clinical therapy protocol to potentiate the therapeutic effect for the patient who designs the protocol to train those therapists. Well, if you have, you know, an illustrious therapist that has contributed to the scientific literature developing your training protocol that is a thing that’s going to be, kind of distributed to scale the therapy, and that’s how your business will grow, right.
If you have a lot of different people that are being prescribed your therapy, that brings in a lot of money. So, if you have a, you know, really good therapist to develop the clinical protocol, that’s also huge. Very hard to evaluate that. That’s kind of an outside investor. That’s not my strength. However, I recognize that it’s important. So, these are other, kind of aspects. It’s part of the scientific rigor, but it’s also who can, kind of codify the human talent of being a good therapist with the patient into a protocol that is scalable and it makes for a decent business model at the end of the day.
RS: So, on Seeking Alpha your psychedelics stock that you have a Buy on is Cybin (NYSE:CYBN) – would you say that that those things are the reason why you feel strongly about Cybin? And I will say, on the other side, like, something that people say about Cybin is exactly that they don’t have enough clinical research. So, I’m wondering, like, your thoughts on that?
AC: So, for Cybin, my thesis is a little bit different, but it’s another really important thing. So, it’ll be good to discuss. I would say, for them specifically, the therapy element is not the element that I would focus on. The element that I would focus on is technology development. So, there’s a few different ways to think about technology development. One of them is drug delivery systems for psychedelic molecules. Super important, because with that, you can kind of tune the psychedelic experience to make it short.
Shorter is probably better from a therapeutic perspective and to have a lot of people being able to actually take it because it’s more – it’s easier to have a shorter experience in terms of the resources that it will take to support the patient during that time, potential probably higher. So, they have the drug delivery systems that they’re working on.
RS: Indigenous communities all over the world are rejoicing.
AC: I know, right. Yeah. Typically, they are the ones who…
RS: Let’s get them out. Let’s get them out. Let’s get them out.
AC: Yeah. Basically, they get nothing from all this is what it [indiscernible], which is very unfortunate.
RS: I’m laughing, but it’s not funny.
AC: Yeah. Well, when you think about it, some of the Indigenous technologies for drug delivery, actually, they do actually have some, I believe it’s with the [ayahuasca tea] [ph], it’s some kind of thing – mixture in the tea. The specifics are [eluting] [ph] me right now. That basically, you know, it potentates the experience in a certain way. So…
RS: Interesting.
AC: So, [aside from] [ph] the technological development is almost in the opposite way, to tune it downward. So, there are other companies working on this as well. I find Cybin’s iteration of this technology to be the most compelling so far. However, that’s not the only technology development that is relevant. So, obviously, when people take a psychedelic of some kind, their brain does all sorts of stuff. And until quite recently, the way that we’ll be able to evaluate what kind of stuff is going on in that person’s brain is by patient reporting. [They’d say] [ph] what’s going on.
However, now that there are things like MRI, you can do better, but one of the things about MRI is that it’s cumbersome to use. It’s – and it will probably – if you’ve ever had an MRI, it’s not a comfortable experience. It will kind of disrupt your head space. So, Cybin has teamed up with this other company to develop, kind of this headset to take measurements from the cortex of the patient’s brain, while they’re having a psychedelic experience. It is not the same data that you would get as from an MRI.
However, the point is, it is not as invasive either. So, what Cybin is working on in conjunction with this company is a device that will get them more granular data from the patient’s brain when they’re on a psychedelic. And with that, the door to possibilities for drug development is massively blown wide open in comparison to before, when the only data that you really had to work with was what the patient would tell you and whatever vital signs that you could take from them. Because really, you’re not going to be able to put every patient into an MRI or sorry, into an MRI machine.
It’s not – the resource is there for a big trial, it’s going to be very expensive to do that. And I don’t believe that it would be possible. But if you have a small compactable unit, they can take measurements from the patient’s brain, whether having their therapy that you can really do something like, okay. So, we can correlate this reading that we’re getting with good response to the treatment or good response to the treatment plus therapy or – and then you can also do really interesting things like just have a therapy session, measure, then introduce psychedelics without therapy controlled experiment, measure.
Then add them both together. And you can see, oh well, this molecule that we, here at Cybin developed, increases the positive impact of a therapy session by x percent across these metrics that we’ve been measuring with our little [indiscernible]. So, the technology development angle there with Cybin, I think, is very strong. That’s core to my thesis for it is that they’re pushing hard on these enabling technologies that give them a huge edge not only in delivering their therapy and have it be controllable, but also in developing therapies in the first place from a very early stage through the entire clinical process because they can have a whole universe of data that no one else really has yet.
I think probably people will try to copy or invent similar technologies that give data that could be constructive during the drug development process. I believe [indiscernible] is working on something comparable. I don’t believe that there is far ahead, though. So, that’s my perspective on that. It is – the technologies are very early stage, but they’re going to be absolutely core to any kind of competitive advantage in the future.
RS: And are you bullish also because of the management? Like, I know a lot of people point to the CEO as, you know, a reason to be bullish on that company. Would you say that’s another reason, or would you point to other factors leading to your bullishness?
AC: Yeah. I would say, Doug Drysdale is, I always hesitate to say that management in and of itself is a reason to be bullish. However, he does – he understands what it takes to commercialize a drug, and he seems to appreciate the unique factors within psychedelics and how to attend to those, by investing in technology development, investing in several different [indiscernible] molecules with, you know, either overlapping indications or different ones. And also one thing that gave me a bit more faith, not to say that I’m short of it, was kind of the last year they did kind of a pivot where their lead program, I think, was, kind of lapped by one of their other programs, which was targeted towards the same indication.
So, basically they said, okay, well, we’re going to switch tracks. We have something more effective that appears to be proceeding at a faster rate. We’re going to do that instead of the one that we know to not be as good. So, that to me, that was pretty big.
RS: The ability to navigate that to be nimble like that?
AC: Yeah. Yeah. Because I think that really kind of goes against the traditional biotech cannon of, you got a program going, don’t stop it until you really have data that says hard stop. Just keep it going because it’ll take too long to spin up anything else and to have a catch-up. And you can’t, you know, you can’t put all your eggs in one basket. So, just leave it going. And then if you can do better, hey, there’s an opportunity to commercialize another drug a few years after you get that one off the door, maybe. Just a general thing for me.
I feel and biotech and biopharma, specifically, there’s – just people have an instinct to kind of say, oh the figurehead of the company appears to be good, therefore, the company will succeed. That, you know, there’s a reason why that’s a common thing that people think because if you have a bad management team, things probably won’t go well. I think that’s true, but in biopharma, it really does, the science is kind of the bedrock, right? If it’s not working, there’s nothing that a good management team can really do fundamentally to change that.
They can try to raise more money and approach things from a different angle that can make the decision to not keep digging if they find themselves in a hole, so to speak. And that’s great. That’s kind of what I think Cybin’s CEO did. Not really. They weren’t in a hole, but, you know, same kind of idea. And especially in a field like psychedelics where it’s early, it’s not a mature industry.
There’s a lot of unanswered questions, as far as the science, as far as clinical protocols, as far as business models, what is going to be viable, and no one really knows yet. And that’s why it’s – things can seem very smart in the moment, and then, of course, later on, you can say, okay, well, maybe it wasn’t the best decision.
So, I think that it’s great to have good management, certainly. It’s bad to have bad management, but at this point in the industry, [indiscernible], it’s great wisdom here. At this point in the industry, management is not the thing that is making companies live and die, it’s how good their clinical programs are and how good their technology is. And you can say, management is saying we should investigate more in this technology or, you know, try to do this kind of financing, sort of that kind of financing.
Relevant decisions, but I have not seen a huge advantage emerge such that I would say, wow, this person is a visionary or wow this person is doing a terrible job. I’ve not seen that in either case. So, that’s why I try, you know, that’s not the area that I spend most of my time on for these companies, at least. Once the companies are commercial, then things are obviously a little bit different. So, if more resources to work with and also more demands, but early stage, I really do try to stay focused on cash, cash burn, the science and the researchers and the technologies, of course.
RS: I was going to say also like in the cannabis sector, I would imagine that like the next stage of growth is going to see a whole different crew of leaders there as the company is, kind of like mature and as the industry matures. Yeah. Would you like to share, kind of like your thoughts on, I mean, we focused, we’ve barely touched the surface, but we focused a little bit on the psychedelic Sundays on the Top 4 players on Compass (NASDAQ:CMPS), on Atai (NASDAQ:ATAI), Cybin, and MindMed (NASDAQ:MNMD). Do you have thoughts on those other 3 or do you have thoughts on other companies in general? And sorry, I just wanted to ask, is Cybin the first article you wrote about, because you’re the most bullish on it?
AC: Yes. To that last question, yes. I am the most bullish on Cybin. As far – so those four, I think everyone will say they’re the leaders in the space. And so, we talked a little bit about Cybin. MindMed, I used to be an investor, and however, I have essentially fallen out of love with them as a result of their big management shakeup, which kind of it’s a different company at this point.
It’s not just one person, the CEO, who was replaced, it’s really the entire cohort. And this was occurring around, you know, they’re having some kind of internal difficulty and that kind of – the width of having some kind of internal conflict between – amidst management and perhaps their board. This is the kind of thing that scares me away from a company, especially an early stage company.
RS: Because you were – because you think it reflects, kind of instability or that there’s not one clear direction?
AC: Both. Both. Yeah. So, MindMed, it is still a leader, I would say. However, in my opinion, it used to be the leader. Now, it is kind of like trailing the pack of leaders. Still a leader, compared to anyone else.
Compass? I like a lot. I think their emphasis on clinical operations, clinical protocols, and doing good clinical science, good clinical investigations, all of these are really great. They’re the leaders for those elements of their business, it remains to be seen whether that will result in a competitive advantage or not.
Given what I’ve seen from them, they’re experiencing at the moment a first mover advantage in the sense that their clinical protocols and their clinical people are – they’re kind of setting the pace, and like, they’re the act to follow. And I don’t believe that anyone has the resources to beat them on those specific capabilities. And the clinical protocols they’re developing for how therapists will be engaging with patients.
My understanding of these is that they will be used as a blueprint for many of the regulatory issues that need to be navigated. And also, for other companies in the space ultimately. And perhaps you’ll see professional associations adopt or work with them to kind of articulate their protocols and mainstream them and things like that, so that they could really shape the whole landscape with what they’re doing with their clinical development, and also their training of therapists.
So, that’s huge. I would say, as far as their technology development goes, that’s not really their strong point. And my – I think I would say, if you’re looking for a company, they’re a good option to invest in as are any of those leaders, but they’re, the big question that I think is especially pointed in Compass’ case is business model. Because they are planning on COMP360 [therapy program] [ph]. It will require a lot of resources to administer this therapy in the way that they’re envisioning. And it’s more resources than what their competitors are kind of allocating. So, at the end of the day, they could potentially struggle to be profitable in my mind because of how many resources their planning on having committed to being able to administer their therapy at all. So, that’s one, that’s a few points for Compass pro and con.
Atai, I find to be very interesting and I could see them being the blueprint for almost like a VC model of how to do psychedelic drug development, which could be really appealing because you can, kind of say, okay, so there’s a million different psychedelic molecules that we can investigate for a million different indications. That’s too much for one company to handle. You can’t have all the experts for all of those different things.
You’d need to hire, you know, tens of thousands of people not viable, but if you have these little, kind of business units that are kind of independent little companies that can kind of borrow resources as needed from the greater unit, you really give them room to, you know, sink or swim. And if one of them, for instance, if one of them looks like, hey, they’ve developed some kind of enabling technology. That’s great. The other company is in their ecosystem get to borrow it, and they get to use it, and that will advance their development, where if one of them is, you know, is doing more clinical stage.
Obviously, it’s all under the same type banner, right? But the molecules are being developed by these little units, and if one of them seems to be able to accumulate the right group of people, the right protocols, the right system for pushing this one little thing forward, that’s great. They can invest more resources into that and they can push it further.
One risk that I find with that kind of approach is the prospect of overlapping effort. And I don’t really have so much insight into their internal operations where I can say, that’s happening that there are overlapping efforts between all their little bets that they have, but it’s a possibility.
And the other possibility is that it’s, kind of like it could be a disorganized in some other fashion because there’s, you know, they’ve got a few different – they’ve got a million different little pots. And are all those going to be able to get enough resources? No. So, maybe some of them are almost competing with each other for resources in some way.
I really don’t know how that’s going to play out for them. Could be brilliant. It’s also a risk. It’s hard to kind of envision how that’s going to work out in the most likely way. I will say, as far as people power goes, Christian Angermayer at Atai, he’s Number 1. In in the industry, he’s the most connected and he’s very well sought after. And so, this I think is an advantage. I don’t necessarily understand how they are applying that strategically as of yet. However, I believe the opportunities to do so are probably all over the place.
RS: Do you think that’s inherent in how they’re built?
AC: Yes. It is. Yes. Certainly. That’s a good observation on your part. And once again, will that become a competitive advantage? Could be. It could be. I can’t really say with confidence that it is right now or that it will be. Certainly, the promise is there, and I think it ties for a promising company.
RS: Any other stocks you would throw in there?
AC: Yeah. I would say. So there’s what I would say are the kind of like the most kind of the trailblazers in psychedelics, which are those companies that we’ve just been discussing. We’re advancing kind of like the traditional psychedelic molecules and working on enabling technologies, whatever. There are also a few others that are, kind of approaching things a bit more. I don’t know whether to call it, it’s not more grounded. It’s more like it’s almost like more actionable or more practical.
I think that’s the word I would say. Most practical today in the sense of, in an informal context, people would consider a drug like Ketamine to be a psychedelic of some kind, even though technically it’s a dissociative. The technical difference doesn’t matter. People kind of lump it into, like, oh this is a substance that does stuff. And, of course, there are companies that are pursuing Ketamine as a therapeutic molecule for all sorts of purposes. And it’s already in use for many of these indications.
It’s often lumped in with the psychedelics industry. Whether that is true or not, who knows. It’s [lumped in and up] [ph]. So, on that point, Seelos Therapeutics (NASDAQ:SEEL), I find to be one of the more interesting practical psychedelics companies in the sense that their product is essentially nasal spray of Ketamine for acute suicidality. And yeah, it’s a very, you know, the path to commercialization, path to making money with doing that, very clear. Regulatory barriers in comparison to the rest of the psychedelic sector. Very minimal, perhaps even zero you might say, in the sense that it’s already, you know, people are already buying this.
It’s already in use of clinics. My friend who is a psychiatrist prescribes this. So, not their product, but similar products based on similar molecules. And of course, J&J (JNJ) has Spravato out. So, it’s, you know, it’s not a regulatory reach to commercialize a therapy doing this. So, that’s what I like about Seelos is that they have a goal that’s within reach. The molecule they’re using proven to work within that exact context. They have the technology of the nasal spray to tie it together. And they understand exactly what market they’re targeting?
How large that market is? Established competitors are already kind of in a slightly different niche of the market talking about Johnson & Johnson and Spravato. So, yeah, I think Seelos is kind of a – it’s compelling in that sense because they’re likely to succeed at commercializing their psychedelic therapy, and that’s kind of exciting. But once again, it’s not a moon shot, right? It’s an earth shot. So that’s kind of the opposite of what many of the other psychedelic companies that we’ve been talking about are going for. And that’s another reason why I kind of like it. So, I also have met with the CEO and he’s very well grounded in science and absolutely understands what he needs to do with this company to get it from point a to point b. So, that’s why….
RS: A psychedelic company with their feet on the ground.
AC: Exactly. Yeah. That’s what I would say about Seelos. So, that’s what I really like about them. There are – I would not say that there are an abundance of investable psychedelics companies other than the ones that we’ve kind of discussed. There are some that are out there. But it becomes kind of a question of, okay, how much cash do they have? How much cash are they burning?
And how much would they really need to do what they want? And if you’re talking about outside of those leading companies and perhaps more practical one like Seelos it starts looking hard to believe that these other companies will, you know, they – it’s hard to believe that they have the gas in the tank to commercialize their therapy, or some of them aren’t even working on commercializing their therapy. Some of them are doing things like selling “functional mushrooms.” It’s almost like a lifestyle product for “wellness.” They kind of lump themselves in the psychedelic so they would like to lump themselves in.
I don’t necessarily believe that there’s an opportunity there. So, if I were an investor, approaching psychedelic sector for the first time, I would really try to focus on companies that are doing biotech style, drug development, or companies that are reaching for something that’s within their grasp, basically.
RS: And when do you think the share price meets, kind of some kind of catalyst? And is that like results from trials? Is that data coming out? Is that what kind of pushes it forward?
AC: So, on the individual company level, yes. When a company can report an update of the clinical trial or better if they finish the trial and the report that it met its endpoints that’s the ultimate kind of catalyst, right? It’s true for all biotech companies. And sometimes there’s some spillover effect where if one company says, hey, so our molecule, which is basically MDMA or psilocybin, our data says that it’s successful or, you know, it’s helpful for patients to reduce their symptoms of depression. That can kind of make other companies that are doing drug development for, you know, with that molecule in that indication.
It can kind of give them a little bit of a boost sometimes, but when can we expect the whole industry to recover? This is kind of a – it’s not a happy answer. I would say, it’ll be at least a year, perhaps at least two years.
RS: Talking to cannabis investors, that might be like a happy comparison.
AC: Yeah. I know. Right. That’s another industry. It’s going to take some time to bounce back. Yeah. But, yeah, the fundraising environment is very poor in 2022. It’ll probably continue to be very poor. Clinical milestones, yeah, that can help individual companies probably not going to lift the sector as a whole. If there were some regulatory breakthrough, which there might be, that would provide a bit of a boost, I think, in the National Defense Authorization Act that was being debated for 2023 there was actually some bipartisan consensus on directing the Department of Defense to investigate or to spend research resources investigating, you know, the applicability of MDMA for post-traumatic stress, and other service related mental health injuries if we can call them that.
And so, I don’t actually know whether that ended up being included in the final version of the bill or not, but the point is a catalyst like that if there were a bill passed that said government, you must invest money in, you know, checking out these therapies. That would be big. And I believe there’s a possibility for that in the next year or so. And, yeah, beyond that, I think there’s probably going to be a shake out of the industry where the weaker competitors are, you know, foreshadowed business or purchased by someone else?
I think that’s over the next 2 years, basically. So, for a real big rebound, I would say, probably think about 2 or 3 years. Maybe 4.
RS: What’s that?
AC: Maybe 4, depending.
RS: Yeah. I was listening to some of my earlier episodes of the cannabis industry, and I was like, oh boy, Go, our timelines are so optimistic. It’s sad. What was I just going to ask you. The consolidation that you see coming, do you feel like those are coming from the psychedelic companies themselves, or do you feel like healthcare, biotech, fill in the blank is going to somewhere on that and that world is going to come in?
AC: That’s an open question. I don’t – I think probably there will be a good deal of consolidation from the leading four companies that we kind of talked about. Probably the – not with MindMed most likely, probably the three other leaders. Although, when you think about a Compass has not really seemed so inclined to be acquisitive, but for Atai and Cybin probably they will acquire some, I’m really not so sure if the bigger, kind of pharma companies are going to be interested in gobbling up the companies that are struggling.
So far, I’ve not really seen much indication that they are very interested in the space at all, which would, I mean, that could change. But at least we can believe that they will not be big participants in the consolidation.
RS: Do you have a theory of why they haven’t been more kind of interested?
AC: Yeah. Well, it’s a lot of risk. That’s why. Because if you think about it for any given psychedelic biotech company, where the barriers of them starting to make even a dollar of revenue on [has to be legal] [ph] enough for them to do so. Two, they have to prove to the FDA that their product actually works [in a safe] [ph]. Three, they have to have a business model that investors will think, will eventually yield earnings, right? And those are three big risks.
If you’re a big pharma company, you can buy up small biotechs that are doing, like, oncology development or just, you know, anything. If they were a promising molecule, you can just buy them, but there’s never a question of, you know, is the law able to prohibit us from doing anything with this at all? It’s a possibility. And there’s also rarely a question of, is the business model that it would take for us to make earnings from this something that they can do successfully because they do, you know, they commercialize molecules all the time and they get them manufactured and they sell them all the time. It’s not really a question if they can make money because they price it accordingly. And they know roughly how they need to do that. It’s familiar to them. And with psychedelics, it’s a lot less so, I think that’s a big a big barrier to them as well.
RS: So, do you feel like given how you see the industry growing and how you see it being integrated with, you know, kind of society/mainstream society? Do you feel like for at least the foreseeable future and maybe even a little bit beyond that the four top psychedelic companies are probably going to stay the top psychedelic companies?
AC: I would expect that. Yeah. That’s kind of what I am expecting. The wildcard is, if there is some big waste of cash, what [you waste] [ph] who knows, right, you could buy a company that maybe does not actually have anything that is going to be so good to have, you know, you can spend money on something that could be worthwhile, and then it doesn’t actually help that much, but, you know, in the clinical development process. That’s something that could disrupt the companies, I think, are leaders now.
I don’t really see the opportunity for, you know, a smaller company to, kind of become one of the leaders in the near term in the next few years. I don’t think that’s there because they would need to raise a lot of money to make that happen, and that’s almost certainly not going to happen for them.
RS: I wanted to kind of close with a more of an esoteric question, but would you – do have any other advice, like, investing wise for investors looking at the space? Anything that you feel like we missed? Or I would say maybe, like, any, like, risk that you see or I guess maybe that’s about the cash, how they spend their cash? Like, what risks are you worried about?
AC: Yeah. So, I would say, if I was the investor approaching the space, the thing to avoid the most would be, kind of investing based on a tip that you get from your friend about, oh this company got is going to publish some good clinical trial results, or this company is going to announce that they acquired this or that they got some deal to supply, you know, something to some government program that is investigating psychedelics or whatever. The state of information in psychedelics is, it’s the early days to put it quite simply.
So, every time there is some kind of new development, really the only investable opportunity occurs after you have gotten the full context of the new information, and you’ve been able to digest it and understand how it’ll contribute to that company’s competitive prospects. Many times, there have been tips that I have gotten that have said something like this company is going to publish great clinical trial results.
Upon publication, the reception is [lukewarm] [ph]. Because one person’s interpretation of great clinical trial results is not necessarily the same as the whole communities. And it’s, you know, there’s – sometimes there’s motivated reasoning going on. And this is not a field where you want to get detached from the scientific fundamentals if a product doesn’t, you know, if it’s not going to actually have a positive impact in a safe and controllable way.
On the basis of what the clinical trials say that it can do, you can’t, you know, you can’t be investing in that based on the idea that it’ll still work out somehow. Really to stay grounded is the most important thing that I could say to investors, and that’s a hard skill for psychedelics specifically because it’s a wild list right now. Things are, you know, there’s new research coming out all the time. It’s hard to keep up with. A lot of other research is really positive. And some of it’s less positive. So, you really just have to try to keep up with it and not jump the [gun] [ph], which is [different things] [ph].
RS: Yeah. Yeah. I think cannabis, psychedelic, investors in general these days, I think, would be wise to stay grounded. It’s – Yeah. It’s a wild times. Well, it seems to me that, like, covering, you know, your focus on cannabis and psychedelics that I would guess and also speaking to you now for this bit of time. It seems that you have some kind of, you know, personal, you know, stake in kind of dispelling myths around it.
I don’t want to speak for you, but I’m curious how you think about psychedelics and you could include cannabis in that too if you’d like. And then also specifically with I know it’s a big point in terms of the psychedelic space with the indigenous communities and their part in this, especially like when we’re talking about it from an investing perspective. You know, I don’t like that to be lost. I’m curious your thoughts on that.
AC: Well, so my perspective is the psychedelics, if they’re turned into control the medicines could really help a lot of people who really need the help, essentially. And I think that could be really wonderful if that was possible. One thing is, as you mentioned, the indigenous peoples have been using psychedelics, kind of in this therapeutic spiritual, psychological context for forever is to my knowledge. And the western kind of medical approach, western business approach, it’s almost the complete opposite. And I would hope that we could find a way to make this not be such a one-sided relationship, the – you know, we in the western finance community have with these indigenous communities who’s, you know, who’s cultural rituals?
We are basically westernizing in our own way to, kind of fit into our own models for own purposes. And I would prefer that they would not get left behind and ignored and forgotten that would, you know, unfortunately, I think that was probably the way that it will go, but that’s the way it goes. In this industry, I think that for us to make a therapy, we have to adapt the understandings that there are to our model. I would love to see more of a humanistic approach, obviously.
RS: Are you encouraged at all by, like, the legislation that they are trying to kind of, like, make some inroads there? Or do you feel like it’s even what they’re doing, it’s going to get washed out in reality?
AC: Yeah. I don’t really see in my experience with the industry. I don’t really see any of the power players of the leading companies having any idea of any of these issues at all really. Yeah. That’s…
RS: But, like, legalizing in Colorado and the fact that that was, like, part of the discussion and that they are trying to find, kind of, like, you know, I guess, ways to bring that community in and then also allow for the religious aspect, and, you know, how people are defining that? Are you – do you feel like there’s a place for the conscious part of capitalism or just capitalism is…?
AC: Oh, I think there has to be a place for the conscious part of capitalism. There has to be a place and it would be great if we could see a bit more messaging and a bit more acknowledgment and also a bit more of, you know, sharing of the benefits, so to speak. Of course, no one has actually made a profit yet.
So, you can’t really share a profit that isn’t there. I think it’s heretical to say that that profit sharing should be on the radar or at least on the table, but I think that would go a long way to reduce the inequalities that are kind of present here. I don’t, you know, I think it’s a little premature to have that that kind of discussion around – I hope that things will move in a way that is less exploitative for the indigenous people, but I’m a little bit pessimistic.
RS: Do you like it to, kind of the social equity side of cannabis? Like, what’s happening there?
AC: I think it’s the same kind of painted on, you know, for the sake of, yeah, for making people feel good about it. I don’t believe there’s any real commitment in cannabis or in psychedelics. I would like there to be, but, yeah, I think it’s mostly PR at the moment at least. That could change, but…
RS: What do you think about, kind of how, and I don’t want to make this to, like, you know, this style of conversation because I know a lot of it neither one of us has much bearing on how these laws get written or kind of things like that, but I do feel like it behooves us to at least kind of think about these things and ask these questions and something that I think about in terms of, like, big business and, you know, marrying with things that I really love outside of business or things that I’ve seen help people in a non-investible way. But that I also see big business helping to bring, I guess, normalization regulation, legalization to the discussion, and without it, I don’t think we would be having these conversations.
I certainly wouldn’t have this podcast. So, I guess that’s partly how I think about it. And while we’re doing those things, while we’re accomplishing those things, trying to champion the people that are doing the best they can to support, kind of the people that have been totally harmed along the way. Yeah. I don’t know if you have anything to add or say about that.
AC: Yeah. I mean at the core of it, I don’t believe that we would get to a point here, like in the U.S. where we could have psychedelic medicines be a tool that could help a lot of people, unless we had the rigor and the financial discipline of having business be core to the process. It doesn’t mean that that’s true everywhere. But in this country, we believe it to be true. And there’s positives and there’s negatives associated with that. One of the positives is, as I said, the rigor because, you know, you have to work with regulators.
You have to ensure that this is actually adding value to society. And it’s not just, you know, it’s not just a novelty, right. I think that if we didn’t have the business applying a force in this direction, it would kind of remain a novelty. You would have people that would still experiment with psychedelics and that might be popular in a lifestyle context, and it could help people in that context. And you could have some professional therapists who could work with it, and maybe there would be a cottage industry.
Of some kind to supply the psychedelics for these purposes. And hopefully, that’s how the most largest number of people will be helped. And for the individuals, I think probably the best way to get people better is if we have science that’s going on to say, people with these characteristics and these struggles tend to be benefited by the application of this molecule, these conditions with therapeutic help that has these qualities of a therapist who’s been trained in these kind of methods.
I think that is the way where you can scale it to be something from, you know, oh the random person once in a while gets a good benefit to, you can improve the mental health of your society at the margin people who are struggling the most by having the structured method of deploying these high powered therapies with good therapeutic practice. So, that’s my perspective on that.
RS: Well, Alex, it was great talking to you. I really enjoyed this conversation. Happy to have you on. So, people can find you on Seeking Alpha. Can they find you anywhere else and happy if you want to share any last thoughts?
AC: Yeah. So, I’m on Twitter. I don’t really post that much. You might have to edit this out if it’s not allowed, but I also write for Motley Fool about psychedelics a lot as well…
RS: Sorry. Light’s coming in, a red light is flashing everywhere. No, I’m just kidding. We’ll leave that in. That’s fine.
AC: Okay. So, you know, different platforms have kind of different ways of approaching investing issues, which is why I like to write for more than one. I may be starting a Substack at some point. So that’s where you can find me at Twitter and Seeking Alpha.
RS: Alright. Well, I hope this is the first of multiple conversations, Alex. I really enjoyed it. Thanks for doing it.
AC: Yeah. Definitely. Thank you for having me on.
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