Mind Medicine: Much Needed Novelty With Inherent Risks And Bubbly Right Now
Summary
- MindMed is targeting intriguing psychiatric issues with lucrative markets such as opioid addiction, anxiety, ADHD and cluster headaches.
- Recent partnerships and acquisitions seem promising and bring credible people to support the company.
- Accomplishing announced goals and starting sales is protracted, as the earliest project may enter phase 3 as late as 2024.
- The stock price is bubbly after the recent surge; for that reason I expect falling prices as sentiments cool off and challenges trigger reality checks.
- Long story short, I have a positive outlook on MindMed but will wait for a better buying opportunity.
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(Source: mindmed.co)
Introduction
MindMed (OTCQB:OTCQB:MMEDF) IPO'd on the 3rd of March 2020 to become the world’s first public psychedelic biotech company.
- The principal mission is to discover, develop and deploy psychedelic inspired commercial drugs that ease suffering and improve mental health.
- It is working on new classes of medicines inspired by psychedelics without hallucinogenic effects.
- Another mission is to explore benefits and ways to optimize the clinical usage of already known psychedelic agents (i.e. LSD, MDMA) which produce a hallucinogenic or ''experiential'' effects, all legally under FDA supervision.
Two modalities:
(Source: Investors deck, Feb 2021)
MMED is making efforts to address the opioid crisis, anxiety disorders and ADHD. All those target areas are important health issue with negative implications on society and a lucrative drug-market spent on by the billions.
One of the company's more interesting trials is on 18-MC, a non-hallucinogenic derivative substance of the African psychedelic Ibogaine, which had previously shown potential to treat opioid addiction in prior studies.
The company is the most diverse within its sphere and seeks monetization through patented sales of drugs or dosage optimization methods for specific psychiatric/addiction indications.
Partnerships and Acquisitions
MMED announced promising partnerships and acquisitions during 2020.
One announced on April 2020 is a research partnership with Liechti Laboratories in Basel, Switzerland (Funny enough, the same place where LSD was first found). This specific lab and its manager Matthias Liechti (cited 9000+ times on Google Scholar) have been conducting psycho-pharmacological research on LSD and MDMA for years. This partnership makes Liechti's extensive database on pharmacological and human research subjects’ reactions fully accessible to MindMed.
I believe this partnership will prove valuable to MindMed, as having access to important data and experienced partners is essential to discovery and efficiency.
More recently, MMED closed its $32M USD acquisition of AI company HealthMode to increase speed and efficiency of collecting and analysing clinical date from patients in real-time.
HealthMode AI might increase a trail's success probability in the following way: Psychiatric diagnoses are very heterogeneous, meaning two patients with the same diagnosis can behave and react differently to the same treatment, AI can help to further stratify subgroups within a diagnosis and pin down differences in reaction within different subgroups. If AI measures adverse effects or low effectiveness in one subgroup but not in the other, the treatment can still be a success and sold to the smaller target group, which is better than a trail failing completely.
The co-founding duo of HealthMode, Daniel Karlin and Bradford Cross, both have glowing credentials. Karlin was Pfizer’s Head of Clinical, Informatics, and Regulatory Strategy for Digital Medicine. Cross was a partner at VC fund Data Collective. MMED plans both Karlin and Cross for direct involvement in its executive team as CMO and CTO, respectively.
Another ''honorary mention'' is Shark Tank’s Kevin O’Leary who’s a long-term investor and an explicit enthusiast. Having such a person behind a start-up can make wonders.
Projects
The company’s most ambitious projects are in or planned to start the phase 2 research in 2021. With projects in such a critical stage, there is substantial uncertainty and risk of failure for most of the pipeline's content. With that said, the prospects are very interesting so let's look at some of them.
(Source: Investors deck, Feb 2021)
Project Layla: A project planned for phase 2a, trying to crack the hard puzzle of opioid addiction with 18-MC and opting to make a paradigmatic shift away from our currently semi-effective addiction treatments.
MMED & Liechti are conducting human research on 18-MC, derived from the African psychedelic Ibogaine which has previously shown promising results of treating addiction in documented studies on rats. The original substance is hallucinogenic and has adverse cardiac-toxic effects. Research on 18-MC in rats has shown similar anti-addictive results without the negative properties present in Ibogaine.
Noteworthy is that 18-MC was discovered and researched on by someone else in 1996, years before MindMed's conception, meaning MMED has no wide patent on it but can acquire a patent specifically for use on substance use disorder, given that they succeed with trials on human subjects.
Project Lucy: A more advanced project soon in phase 2b, targeted towards treating anxiety disorder. Here, a therapist administers an experiential dose of LSD and conducts therapy under the effect.
To make this treatment form eligible, MMED has designed the LSD-neutralizer (patent applied) which can terminate ''the trip'' within 20 minutes and created computer algorithms to optimize therapeutic doses to individual patients.
The medical benefits of LSD-neutralizer are the shortening of LSD's long duration of action (up to 12 hours) that makes it unsuitable for brief sessions and increases the risk for adverse effects as more can go wrong under longer durations. Another major use is to end a ''bad trip'', a feared outcome associated with psychedelics.
Even if the neutralizer passes the rigorous scientific criteria and LSD therapy proves to be effective, there will still be challenges and a far road before monetization because:
- LSD is a Schedule 1 drug unsuitable for medical use by federal law, and that will take a long time to change.
- A novel approach: We train no psychiatrist today to conduct such therapy, training will resume slowly and carefully because of strong ethical codes within that community. If we rush the process, it's inevitable to commit mistakes and jeopardize reputation of the treatment.
- PTSD: A ''bad trip'' lasting 20 minutes before termination can still be a very negative experience and risks of PTSD are present. Will this solution be enough to pass the rigorous criteria of medical sciences?
Probability of success?
All the key projects Layla, Lucy and Flow are still in phase 2, meaning there are no guarantees for any of them to generate sales. Pharma trials give binary results of 1 or 0, success or failure, all or nothing.
The average probability of a phase 2 trial to succeed within psychiatry is 24%, which makes the probability of the company's all three phase 2 projects passing together into phase 3 extremely slim at 0.24^3 = 0,1% and two of them succeeding still slim at 0.24^2 = 6%.
Furthermore, success from phase 3 is at 56%.
Conclusion: A mathematically reasonable prediction is the passing of no projects or one project to phase 4, and even that is a bet against the odds within the field.
Now, let's not forget that HealthMode's AI might give better odds than traditional trials. How much better it will be is still unknown.
Timeline of projects
Time spans are lengthy before submission to the FDA and sales.
The tables and data below shows that no sales will be made until at least 2025-2026, and that there are several stages along the way where MMED will get all-or-nothing results, those results will for sure influence investors sentiment and change the company's market cap.
Probability favors the changes to be negative, as the rate of failure at each stage is higher than success.
| Project | Lucy (Anxiety disorder) |
| Current phase | 2a |
| Phase 2b start | Est Q3 2021 |
Phase 3 start | No official data Est average medical trials = Est Q2 2023 |
FDA submission | No official data Est average medical trials = Est Q4 2024 - Q2 2025 |
- | - |
Project | Layla (Opioid) |
Current phase | 1b |
Phase 2a start | Est Q1 2022 |
Phase 3 start | Est Q1-Q1 2024 |
FDA submission |
(Source: Author, Data from: MMED's investors deck, Feb 2021)
Market size
It's hard to estimate the exact size of the market they can tap into as medical indications of each treatment can vary from being narrow (i.e. Quetiapine) to very broad (i.e. Prozac).
Global annual drug sales annum 2020 per class:
| Anxiety | $4.7B USD |
| Addiction | $5.8B USD |
| Depression | $9.6B USD |
| ADHD | $9.5B USD |
(Source: Author, Data from: IQVIA Global Annual Sales Report, Feb 2021)
Tapping into any of these big markets will change a small-cap like MindMed radically.
Globaldata projects the global market to grow even further by 50% from $27.4B in 2020 to $40.9B in 2025, the year when MindMed might start sell if trials succeed.
Financials & valuation
MMED is currently not generating any revenue and monetization is much further down the road, still the company will need more to finance R&D, S&A, legal fees and to secure new acquisitions.
The last acquisition of HealthMode was closed with $32.2M from share dilutions. The need for new cash will continue and MMED will alternate between borrowing or diluting, which is the normal modus operandi for a startup at this stage but for sure damages the share price.
As there are no sales and no earnings, we can't make anything of a P/E or P/S value but what we know is that MMED has $23M in cash, $4M in total liabilities, and a market cap of $1.10B which gives a price to book ratio of 34, compared to the sector's 4.47.
The current price is too high and I expect a sharp selloff, further discussed below.
Buyer's misconceptions
MMED's stock had been laying dormant until it surged by no less than a 1000% a in Nov-Dec surge partly catalyzed by the bull market and by Oregon's November Ballot Measure 109 legalizing Psilocybin for medical purposes and Ballot Measure 110 decriminalizing small amounts of LSD for recreational use.
I call it a misconception because MMED is neither recreationally oriented nor a Psilocybin company. Some research on Psilocybin within MMED will start, but most of their focus and all of their announced projects are on LSD and MC-18.
In the chart below you can see how Psilocybin Google-search surged, followed by increased interest in Mind Medicine. The stock became known and picked up speed.
(Source: Google Trends, data from Mar. 3,2021)
Data by YCharts(Source: Seeking Alpha YCharts, date Mar. 5,2021)
Is this verdict too harsh? Maybe Oregon is just a taste of what is coming? I'd think that federal medical-LSD regulation is much further down the road and 18-MC phase 2 trials are just starting off. Many challenges from the clinical reality will hit MMED during that time, I believe many traders and redditors will close their positions on this stock and so the pricing will suffer.
NASDAQ up-listing
MindMed is following the example of its peer Compass Pathways plc (NASDAQGS:CMPS) and has requested listing on NASDAQ. MMED currently fulfills all requirements, but up-listing is nonetheless not guaranteed, especially because of recent dilutions and the risk of falling below the closing bid $2 minimum.
NASDAQ up-listing might send the stock higher because of larger trading volume, but if it fails, I predict many speculators to close their positions and cause downward pressure.
Risk summary
- The surge in December has brought the price to new highs, and that will cause volatility based on the complete lack of sales and any certainty of future monetization.
- Many are betting on up-listing in NASDAQ, if that fails the price might plummet.
- The company has no source of income but will continuously need cash to develop its product, cash that they will attain through further borrowings and share dilutions. The price of this stock will experience tougher days.
- Success rates of phase 2 trials in psychopharmacology are 24%. There is a statistical likelihood that none of the current 3 big projects in Phase 2 passes.
- No trials ending before 2025, the company will face many challenges until then.
- There are inherent risks to psychedelics which concerns the authorities and a stigma towards hallucinations, the FDA process can be tedious even if trails succeed.
- Sensitivity in the medical community to psychedelics might act as a slowing force on the research, making meticulousness more important than ever.
Conclusion
MMED brings with something bold and unique to the table. Society direly needs novel solutions regarding mental health as of the last decade's steep increment of such ailments.
One attracting factor is the team's innovative capacity. Mitigating and controlling the adverse effects of psychedelics, rather than proving benefits, is the real challenge, and for that creativity and innovation are necessary.
To counter the low success rates of medical/psychiatric research, the company has the most diverse portfolio within the psychedelic sphere and intends to diversify further. That makes me think that some of their current or future projects will eventually succeed.
However, buying at this moment of hype comes with risks and I believe worse times are coming for the stock's price, as summarized in the section above.
To balance all this input: I'm willing to open a position at a fair price (Market cap $0.5-0.6B), hold for years and have icy nerves as I expect a long and volatile holding.
This article was written by
Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
I intend to buy and hold this stock at a lower price.
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Comments (27)
www.investopedia.com/...
cannot find anything on this. if you have a source please link it.
thanks, definitely a positive step... but which index exactly? this only really matters if it is a widely benchmarked index....
in the US, inclusion into the Wilshire 5000 would not matter much, because 1) no one uses it as a benchmark and 2) those that do will not necessarily buy all the stocks - they will likely use proxy basket
There has been a mistake in this article regarding cash, assets and P/B-ratio, I have now edited the article and awaiting publication by the editor.The following sections are edited:
Financials & Valuation
Risk summary, 3.Explanation:
The latest financial statement in mindmed.co and also financials on SA state 19M in cash. There had been financing operations through stock sales closed in July 2020 (92.3M CAD).I prioritized the September 2020 balance sheet information over the July 2020 press release. But I realize now that was wrong, comments from a reader and newer press-release state $162M USD of cash in MMED.mindmed.co/...
Financial statement in mindmed.co and also on SA state 19M in cash. There had been financing operations through stock sales (92.3M CAD) closed in July 2020.
I prioritized the September 2020 balance sheet information over the July press release. But I realize that was wrong. A newer press-release from Mar 9th announced $162M USD.This will be edited and I apologize for this mistake.
I expect that this enthusiasm will be challenged for the reasons mentioned above.MMED's diverse portfolio is nonetheless a big factor in valuation of the company as ''whole'' like you suggested. It is promising but nothing is guaranteed right now.
MMED publicly announced submission to NASDAQ in september last year so some questions are raised as to why it has taken so long.
They would get advice and assessment from Canaccord Genuity Group to make the uplisting.I don't have more specific information on the timeline but the prolonged process doesn't bode well.In addition in SA news, today: An announcement from Canaccord Genuity Group regarding a purchase of 6 000 000 MMED voting shares to be resold in Canada. Logically speaking, selling share in Canada now points to some sort of failure or anticipation of failure, as they trying other ways than NASDAQ.seekingalpha.com/... (Sep, NASDAQ)seekingalpha.com/... (Mar, Sales in Canada)
