Over the last couple of decades, we've seen cannabis enter the mainstream, starting with medical applications and then seeing it becoming legalized and normalized for recreational use. It's quite possible that we are now going through the same process with psychedelic drugs such as LSD, psilocybin, and MDMA.
There has been promising research and evidence that these substances can help with mental illnesses and anxiety in a much more effective way than traditional treatments with fewer side effects. Further, psychedelics have the power to help at a much more root-cause level than merely treat symptoms.
ATAI IPO
Thus, we are seeing more investors pay attention to the space and a trickle of companies going public that are working on psychedelic-derived treatments. The latest IPO is ATAI Life Sciences (Nasdaq: ATAI) which is backed by Peter Thiel. The German biotech company had a strong debut as shares were up 40%. However, the stock sold-off, following this gain and is now 15% below its opening price.
Overall, ATAI was able to raise $225 million at a $2.3 billion valuation. ATAI becomes the 3rd psychedelic, biotech company to go public, following MindMed (Nasdaq: MNMD) and Compass Pathways (Nasdaq: CMPS). Both are up around 20% since their IPOs. More companies in the space are expected to IPO in the coming years.
Currently, ATAI has 10 potential treatments in its pipeline, each in various stages of development. It's not a coincidence that these types of companies are going public as new research has been promising, and the effectiveness of these substances which were once considered fringe are becoming accepted by the mainstream. Last year, Oregon became the first state to legalize psychedelics for therapeutic use.
Some of the early investors in ATAI Life Sciences include Peter Thiel, Mike Novogratz, and Apeiron Investment Group. So far this year, VCs have invested $329 million in psychedelic startups, which is close to the $345 million that was raised in 2020. In 2019 and 2020, less than $100 million was raised in each year.
This also explains why ATAI's IPO was oversubscribed by 12 times as there are limited investment options in the space. ATAI sees itself as a drug development platform to acquire, incubate and develop psychedelics and other drugs that can be used to treat depression, anxiety, addiction and other mental health conditions. Currently, it's partnered with 14 companies.
Outlook
The psychedelics space appears promising and holds considerable potential especially as it's clear that mental health is going to become even more important in coming years. For all its blessings, technology has led to more isolation and weakened relationships. Further, many of the institutions which served important roles no longer seem to be effective in today's world.
Many of the drugs used to treat modern illnesses create their own problems as well and don't fix the problem at a root scale. ATAI is certainly interesting as it's seeking to be a conglomerate in the psychedelics space that gives funding and resources to any promising treatment in exchange for a cut of revenues. Investors should certainly keep the stock and sector on their radar but maybe wait for a better entry point.