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Jason Najum has covered the psychedelic space for a long time and contextualizes recent news around the FDA, MDMA, PTSD and Lykos Therapeutics (1:35). Recent news a blessing in disguise for Cybin, COMPASS Pathways and MindMed (14:30)? Trial data and cash in the bank are top signifiers of success (22:35). How Atai fell behind and dropped out of the conversation (24:00). Upcoming catalysts - patience required (26:35). For psychedelic medicine, does it matter who's in the White House (29:30)?
Transcript
Rena Sherbill: Jason Najum, super excited to have you on Seeking Alpha. You just started writing for us. You've been in the psychedelic sector for a long, long time. Super happy to get your expertise on Seeking Alpha on this show. Welcome to the show. Welcome to the podcast. Thanks for making the time.
Jason Najum: Thank you, Rena. Good to be here.
RS: It's great to have you. So fill listeners in a bit for those who don't know you, who aren't observing or invested in the psychedelic sector. Talk to us a little bit about where you're coming from and what you're bringing to your psychedelic observations.
JN: All right, so the last 4 years, I've been a Journalist and Editor in the psychedelic medicine space, 3 years as managing editor at Microdose, and then a stint as a senior editor at Psychedelics.com. So in that time, I was covering everything from the research to -- Microdose was more business heavy. So we were covering all the companies in the space, the developing space, how companies were evolving, how the markets were reacting, along with regulatory advancements and legislation on the cultural side.
So basically the whole psychedelic medicine space, been deep in it for the last few years. And I'm happy to bring these perspectives to Seeking Alpha.
RS: Yeah, we're happy for you to be bringing them to us. So talk to us a little bit. We just had some news about Lykos and MDMA and there's been some news in the prior months. Maybe talk to us a little bit about broad picture psychedelics, how you've been thinking about it this year and maybe leading up to what just happened with Lykos, kind of take us to the present moment?
JN: Yeah, yeah. So this past week was a big moment in the psychedelic medicine space. This - Lykos and its former incarnation, MAPS, which is a nonprofit, have been working to bring MDMA, worked with the FDA since the 80s and their clinical trials for over a decade. So this was to be a culmination of decades of work for like a really dedicated group of psychedelic medicine advocates.
And MAPS has since been leading the way and working with the FDA, kind of blazing that trail. And then in the last 5 years, a group of psychedelic medicine drug developers have been following along and starting their own clinical trials. These are all publicly-traded, MAPS and Lykos, are private entity, and these publicly-traded companies like MindMed (NASDAQ:MNMD), COMPASS (NASDAQ:CMPS), Atai (ATAI) and Cybin (CYBN) have been following through with their own clinical trials and getting to the point of being quite advanced Phase 2, Phase 3, starting with the FDA.
So this was a big moment to see how - if the FDA would finally approve this controversial new treatment. So it was a big moment and there was a mild disappointment although the writing was on the wall of the FDA.
RS: And why was the writing on the wall?
JN: Yeah, so what happened was in June, there was an advisory panel and it was a committee of professionals, experts who were going to - this advisory panels give recommendations to the FDA on new drug applications. And they overwhelmingly voted against approving Lykos therapeutic's MDMA therapy new drug application.
It was a bit of a shock because this therapy had received breakthrough therapy designation from the FDA, had passed its Phase 2 and Phase 2B with great results. Its two-pronged Phase 3 trial, great results. The FDA kind of supporting it all the way through.
And then once it got down to the nitty gritty, this advisory panel really dug in and highlighted some things regarding blinding and the clinical trial regarding safety issues, although in Phase 3, there was no serious safety issues. And the FDA seemed to have been giving guidance, especially with breakthrough therapy designation, which gave them extra guidance.
So a lot of things came to light in the final moments. And in June, it was June 4th, with that negative recommendation, which was, I believe like, it was 10 to 1 votes, it was quite stark. And at that moment, people in the space saw like the odds are going to be quite low. So the final news on Friday wasn't as much of a surprise because June kind of painted things a little bit of a darker shade.
RS: People that we have had on have talked about how excited they were and what a game changer, if Lykos did approve it, what it would be for the industry. It didn't happen.
So is this a terrible thing for the industry? Should we all be kind of waiting another couple of years? What's on the horizon and how are you contextualizing this?
JN: Yeah, that's an important question. So approval definitely would have been something very positive. Psychedelics despite clinical trials that are showing great results, despite -- I mean the FDA has just given two other companies, now there's four, total psychedelic medicines individual clinical trials with breakthrough therapy designation from the FDA.
So things are moving ahead really - in a really positive direction with great results, but there's still this stigma to get over. Wall Street's putting some money in, and institutional money is starting to come in, but there is this final hurdle to get over.
And approval from the FDA would have gone a long way, and just making those final steps a little bit easier, making it that much easier for people to get on board to shed those decades of stigma for, you know, bigger biotech companies, investors and institutional investors, to make that final step.
So FDA approval would have made things easier, but with the longer view moving from Lykos and their MDMA therapy, the future of that -- the individual company, publicly-traded companies that are behind them have their own trials that are doing really well and in the longer term, it won't affect this. I don't think.
It would have been a nice boost to make things a little bit easier. So now these companies are still kind of battling. They're sledging through the early battle. And this makes it a little bit tougher, but you know, on a 5 year time horizon, I don't think this is going to affect the outcome of an FDA approval for a publicly-traded company.
RS: What are your thoughts on how much it delays it? And also, what are your thoughts on how the FDA has played this?
JN: Yeah, how the FDA has played this, there's some question marks in regards to Lykos and its rejection. Like I mentioned before, the trial seemed to have FDA support all the way through, and now these questions, not only questions were raised in its response letter, which was a type of rejection, but the FDA is requesting a whole new Phase 3 trial.
It's not asking to touch up some data. It's not asking to like, you know, answer some questions here. It's asking for a whole new Phase 3 trial. So there are some questions as to how do we get to this point? Was the FDA really not communicating what was wrong? Was Lykos just not implementing what the FDA was asking? So there's a question mark there.
As to the future of the FDA with other companies, it seems to be solid. Just in the last few months, the FDA has given MindMed and its LSD program for anxiety breakthrough designation status, and it's given Cybin and its psilocybin program for major depression also breakthrough designation status.
So, I mean, these are strong public signals that the FDA is acknowledging the Phase 2 results and publicly putting its support and saying, we’re going to -- and breakthrough designation status gives them deeper access to the FDA, allows -- it speeds up the timeline, accelerates things mostly. So these are public signs that the FDA supports these therapies.
So from an individual basis, the FDA seems to be supporting these trials and there's no signs, I mean, other than this specific rejection of the MDMA therapy, and we can get into why there was some issues with it.
RS: Yeah, get into it, get into it.
JN: Yeah, yeah, so just closing that loop, we should maybe look at the individual trials from the other companies on their own or try to. So yeah, for the FDA and MDMA, there was a, one of the issues was what they call functional unblinding, which is an issue that comes up in psychedelics.
It's hard to have a placebo-controlled trial when someone's getting a huge dose of MDMA or psilocybin or LSD and someone's not getting it. So it kind of affects the blinding aspect with clinical trial. Right? So, but this has been known and the FDA has been aware of this since the trials began and still clearing the trials through Phase 2 and into Phase 3.
So again, these issues were known. But so what is interesting going forward is, it could be a learning opportunity for the other companies. So looking-forward, for example, I believe it was on Monday, Cybin put out a press release announcing the trial design for its upcoming Phase 3 trial.
And in the headline of its press release, it did mention that it's going to be addressing functional unblinding. So it seems that the companies are learning from what happened. And this could be a long-term benefit to these publicly-traded companies, because now they've seen what the FDA is looking for in those final difficult steps.
RS: To your point, and I do want to get into the individual trials and the individual companies, I think that's super important for us to know more about. But just staying with this, because I may be sensitive to it and it may be similar to cannabis, that there's some tough love from the regulators and there's some pandering from politicians.
Is it a tough love moment because to your point about the blinding, I mean, we've known about that on the podcast as kind of observers of the industry, sometime investors in the industry, but a lot of people know this. Why wasn't that more kind of figured out before the final verdict?
JN: Yeah, so that is a bit of a mystery. Hence other observers in the space are mentioning this, that there are avenues for Lykos to pursue. They could appeal the rejection letter. And once you appeal the rejection letter you are given more clarity into what was missing.
So this sometimes helps. The appeal process can shed some light and then allow and offer avenues forward. But most likely whatever avenues forward are going be these topics that we know about already and were known already.
So is it a tough love situation? Are they making them earn this final step before they actually approve something? Is it stigma? Is it, you know, there's been some conspiratorial thoughts that Big Pharma isn't quite ready and putting some pressure from some other sides.
So yeah, there is a little bit of a mystery around that. And it could just be a little bit more time for us -- for these trials to finally get over that final leap. And it could be that also MDMA, despite MDMA had a lot of pros for it, and it seems now with some cons. The industry always thought that leading with MDMA for PTSD was the absolute best tip of the spear because it was treating veterans with severe PTSD.
So you had a lot of the politics around that was seen in a good light. And so those were the positives around leading with MDMA therapy for PTSD, but it did add some complications. So Lykos' new drug application was MDMA psychedelic assisted psychotherapy. So it was very much involved with assisted therapy, with therapy involved in the new drug application.
All the other companies are going to make their new drug application with only the drug. Therapy is not involved. So this could remove some other factors that need to be taken into consideration and just make it much more simple.
Because there was some, you know, say issues around MAPS' and Lykos' trial around those stories of therapist abuse, there was like just, it just adds some other complexities to the new drug application, whereas these other companies are going to be focused solely on the drug without therapy included, does the drug work or not? So that's how things are kind of unraveling and these companies are trying to distance themselves a little bit from the Lykos model.
RS: Learning and resiliency, much like life, we needed in investing and business too, it seems.
JN: Yes, yeah, yeah. Definitely.
RS: Okay, I'm happy for you to get into individual companies and what they have coming up and how you see it going for investors, for passive investors, for active investors. How are you looking at things? What are you seeing?
JN: Yeah. So for investors who are in this space or looking to get into this space, like I mentioned, this could be a little bit of a blessing in disguise. So MAPS was thought to be, sorry, MAPS Lykos was thought to be the first to market with this MDMA therapy. It was all but decided. Up to this, the bad news in June, it was basically a given that MDMA therapy was going to be the first to market with this private company.
Now things are changed and companies like COMPASS Pathways and MindMed and Cybin are now suddenly in competition for being the first psychedelic to market. So that could make things much more interesting. And individually, I mean, we can kind of go through the list.
I mentioned Cybin, they've already, I think announced 30 sites for dosing of their Phase 3 trial. They've really accelerated things really quickly. MindMed is about to start its Phase 3 trial. They just got end of Phase 2 approval. Phase 3 is going to be rolling out in the second half of 2024. And Compass Pathways, with its psilocybin for treatment resistant depression, has already started the early setup of its Phase 3.
So those three companies are in Phase 3. They're well-funded. They've all got over 200 million in the bank, which could get them deep, deep, deep into their Phase 3. So those 3 players are well-set to have us at least to get Phase 3 results in front of the FDA. I think the timeline was in under 2 years for the -- like MindMed expected its first results in, by early 2026.
RS: How do you measure the success likelihood of each company and also in context for what else they have going on? Who's your favorite? And who do you think has the most chance of success? And in terms of like your average retail investor, let's say they're not looking to get into four stocks.
Let's say they're looking to get into 1 or 2, or do you think it behooves them to get into kind of like a more diversified or as diversified approach as they possibly can? Kind of how do you tier up, or articulate how your thoughts are about each of those companies?
JN: Yeah, so there's been some market consolidation. You know, there was a time, a year and a half, 2 years ago where there was 6,7, 8 companies that you can mention, but for example, Cybin just acquired Small Pharma last year. So there's really 4 major players now. You have Mind Medicine with their LSD program for anxiety that had extremely good results.
So MindMed probably has some of the best name recognition because they've got a really strong retail following. They kind of started as the retail fan favorite. And now they've graduated from the world of Reddit and meme stocks and they've overhauled their leadership. They've got a strong CEO with a lot of FDA experience bringing drugs through the FDA.
Their Phase 2b results were quite spectacular. They had 50% of patients in remission at 12 weeks. So these are like really strong Phase 2b results. And if they can be duplicated in Phase 3, they're going to have a really strong new drug application for the FDA. And as I mentioned, they're well-funded. So they're going to get deep into their Phase 3. So MindMed is always at the top of my list.
Compass Pathways was the first company to get breakthrough therapy designation from the FDA. They are going after a tougher condition. They're going after treatment resistant depression. So their results are a little bit less spectacular. They were solid. Their Phase 2B had 30% of patients in remission, but they're going after a really tough patient group. So their Phase 3 results are going to be -- they're expected to be the company that could perhaps be first to market. So they're always one to keep in mind. So Compass Pathways is a strong company.
And Cybin has really impressed in the last two years. They have a really strong leadership team. Doug Drysdale is a really experienced pharma CEO. He knows what he's doing. They acquired Small Pharma. From an investing perspective it could be interesting because they seem to have the strongest IP protection.
Cybin has a novel form of psilocybin. So they've adjusted psilocybin, which is the active ingredient in magic mushrooms. They've adjusted in the lab and they have a deuterated form of psilocybin, which - it's the time of onset. So it starts quicker and it only lasts half the time as a normal psychedelic trip.
So for example, Cybin's psilocybin, sorry, Compass' psilocybin will be a long trip requiring 6 to 8 hours, whereas Cybin's novel psilocybin will only last 3 to 4 hours, which makes it perhaps easier to scale, at lower costs with all those issues. So, Cybin, and they have a lot of IP secured around their psilocybin, which is CYB003, and their Phase 2B results were great.
So Cybin is an interesting - I'm not going to call them a dark horse anymore, but they've really quickly boosted themselves up into the top-tier with the big boys.
RS: We had Alex Carchidi on talking about how he changed his opinion about MindMed with the management change. Was that something that really excited you as well in terms of looking at MindMed and also how they were able to steer things around there?
JN: Yeah, yeah that was an important transition point for MindMed. They started off with a CEO who was really good at the marketing aspects of things. He was passionate. I believe he had some family members who were helped with psychedelics. So that kind of boosted them up into the public sphere in a really good way.
But there was some drama. There was some lawsuits floating around. There was some messy ownership structures. In the last few years, they've kind of cleaned house. They brought in, like I mentioned, a CEO with really deep experience in dealing with the FDA. And it seems like the ship has been really like straightened out and they've been focused, laser focused.
I mean, for example, when I was at Microdose and speaking with them, they had completely shifted from almost too much from speaking to their retail audience. And they were really laser focused on taking that next step up and proving themselves to biotech and institutional investors. And that's where they've been for the last 2 years.
Really patiently going through those internal dramas and leadership changes and just waiting for the data to come out and its Phase 2b results that came out a few months ago, quieted any questions. And I think show that they did -- they indeed like set their ship straight and seem to be a serious company now, not just like a retail fan favorite.
RS: In terms of looking at the companies and seeing who has the best chance of success, you've spoken about trials coming up and management and how much money they may have.
Are those the main three things or the top three things that you're looking at in terms of metrics for success? Would you add anything else in there?
JN: Yeah, that's a good question. And as I've spent more time looking at how the FDA operates and the clinical trial process, a legitimate Phase 3 trial and cash in the bank seems to be the biggest - the signals of future success. The reason that there's only 3 or 4 players left is that cash ran out and their trials and other companies trials didn't seem to be as legitimate as they, you know, proclaimed.
So this is what I'm focused on is because Phase 2B moving on to 3, like that's when like the rubber hits the road because Phase 1 trials are smaller numbers. Phase 2B is when your trial sample size is much bigger. And if you come out with a strong Phase 2B, you get FDA support and you got cash in the bank, you've got a really legitimate chance at FDA approval. And these companies seem to have that.
So personally, I feel quite confident recommending these companies. They've all got strong leadership. They've all got cash in the bank. They all have breakthrough therapy designation status from the FDA, which is a strong support signal. I personally feel quite confident in the chances for these big players.
RS: What are your thoughts about Atai (ATAI)? That's always the kind of fourth one mentioned when we're talking about the big players.
JN: Yeah, yeah, exactly. And it's funny how Atai used to be kind of the top of the list, always mentioned as the biggest, most impressive player. But they have a sort of a different setup. They're more of an umbrella company, investing in many.
So they have many, they've got more clinical trials under their umbrella than the other players do. But it's often minority holdings in each of them. And their clinical trials are slightly less advanced. They don't - they actually didn't have any Phase 3 trials right now. They have a minority ownership in Compass (CMPS), so they have about 27% ownership in Compass Pathways.
They're just slightly dropping in the conversation, I think, because these other companies have really moved forward and are starting Phase 3. Whereas Atai, although they have several trials are in Phase 2 and they've only got one company in Phase 2B, they just acquired Beckley and their Phase 2B trial. So they're just a little bit further behind in the pipeline, which is I think why they're a little bit dropped in conversation. They're just a little bit behind in the timeline which is why they've kind of dropped the conversation a little bit.
RS: Is there any part of you that thinks that that might be intentional that they're waiting for the first mover to get to market and then piggyback off that? Or do you feel like it's just a matter of being left behind?
JN: Yeah, I mean, there is probably an aspect of learning. Let's wait and see, which is kind of what's happening now. Let's wait and see what happens with the FDA and learn from it. But really, I think that's like, for example, they had a Phase 2 trial for ketamine and it just wasn't successful. They had to drop it.
So I think it's just a matter of their trials are just not as advanced as the others at the moment. And that's why it was so much so that they went out and acquired Beckley about a year ago now because their pipeline was lagging behind that they went and acquired a Phase 2B trial to kind of beef things back up because they were dropping behind.
With their Beckley acquisition, which is I believe, could it be all the way up to a 50% stake? I think they realized that they had to get back into the game. That brought them good. Beckley has an interesting Phase 2B trial that's underway.
RS: What's the next data point that you're most excited about or that investors should be paying attention to?
JN: At this point, it's going to be whoever comes out with the first top line data from their Phase 3. That's going to be a little while because all of them are just starting their Phase 3 trials, all the big players that I mentioned. So we're going to have to wait a little bit for the first Phase 3 top line data, but that's going to be the biggest milestone coming up. Another possible one could be Beckley, that Atai owns and their Phase 2B trial results, which I believe are due sooner than the upcoming Phase 3s.
Another interesting aspects could be secondary trials from these major players. So for example, Cybin, whose Phase 3 trial is with their novel psilocybin for depression, they also had a clinical trial using DMT for depression, which is a different drug, different delivery method. And they had their own DMT trial in early stages.
And last year they acquired Small Pharma that had a really impressive, really impressive Phase 2 trial using DMT for depression, great results. And they acquired that trial, which, Cybin for example, has another drug candidate in addition to their psilocybin 1. And we're going to be getting, I believe, Phase 2 results from them.
So if Cybin can come up and jump in with a Phase 2, I believe they're doing Phase 2B for their DMT trial, if they could come up and show that they have a second advanced clinical trial, well, that change, that shakes things up and could even put them to the top of the pack. So those are the major milestones to be looking at.
It's going to be a little bit of a dry period, which is why I'm focusing on the cash. We're going to have to wait for the major news for a little bit. News-wise, it's going to be a little bit slow, unless we get surprised with something.
RS: Like timeline-wise, like a year? More than that?
JN: It's going to be at least a year for any Phase 3 results. We’ll probably get something from Cybin before that. We'll probably get something from Cybin before that. And so let's summarize, there'll be over a year for any Phase 3 top line data from the big players.
Cybin will likely release some Phase 2 DMT of their secondary trial in less than a year. And Beckley, which is owned by Atai, we could get some news in their Phase 2b trial before that. But yeah, it's going to be a little bit of a dry run in terms of major news in the space.
But the companies have the cash to like withstand it. So it's just about investors realizing that this is the fast money boom of 2021 of psychedelics has gone. We're in the long stretch now. And this is like, this is a longer play.
RS: Yeah, yeah, yeah. What would you kind of clicking out a couple of levels and speaking to that broader picture and how much capital is in the space and how much capital is interested in getting into the space, and many people might not know this, but we're in an election season. Just kidding, I bet everybody knows. Do you find that that may impinge or encourage growth?
Are you focused at all from a psychedelic medicine perspective on who's in the White House? Does that matter a lot? And also speaking to the point about pharma and biotech and healthcare and how they are or are not participating in the psychedelic space. What are your thoughts maybe broadly speaking about how that's going and how you see it continuing to be fleshed out?
JN: Yeah, yeah, important questions. It seems as if who's in the White House hasn't been affecting things. The psychedelic renaissance has already had two election cycles. We've had Dems and Republicans both in the White House during this time. And the FDA, it didn't seem to affect the FDA. If anything, It's been steady progress on both the FDA fronts and on the legislative fronts.
I mean, you've got bipartisan support from like conservative Republicans and liberal Democrats, you know, advocating for veterans to have access to psychedelic therapies like ketamine and for MDMA therapy.
So there's been a steady advance and kind of breaking through stigma and chipping away at things. There've been lots of bills introduced in Congress with bipartisan support. So I don't see politics getting into it because there's been no, I mean, anything could happen but it doesn't seem as if that's going to pop in. You never know, but I don't think so.
In terms of capital, I mean, just each one of these major players just didn't - got some major funding from venture capitalists, but also from some healthcare investors. I mean, Cybin just got $175 million in funding in March And they were the smallest, bit of a dark horse, a smaller company, and they raised $175 million in March.
MindMed just got another $70 million on Thursday. So capital seems to be there. At least for the short and medium term, they're well-funded. It won't be an issue for another few years for these players.
RS: From the pharma and biotech side, do you think that there's continued interest and acceptance in the psychedelic arena, or do you feel like that there's for the most part, because obviously there's obvious places to point to where there is acceptance and capital being spent on it. But do you think for the most part it's opening up or still resistant?
JN: It seems to be slowly opening. I've seen a steady path forward on all fronts, slow and steady, culturally. Culturally I mean, if you really step back and take a wide view on mainstream culture, psychedelics are more and more accepted. The story around psychedelics is changing from a dangerous hippie drug to a more call it, I mean, microdosing, you say the word microdosing and 9 out of 10 people know what you're talking about now. You know, the silly jokes about working in psychedelics now are diminishing. Celebrities are coming out about positive experiences about psychedelic medicine. So on the cultural front, there's just a slow and steady advance.
On the regulatory front, slow and steady advance. Legislative wise, slow and steady, you have members in Congress standing up and talking about it. And in the investment front as well, every time there's a capital raise, it's not just VCs.
You have more and more institutional players. On the ownership list of MindMed, we have some big players. You've got BlackRock and Goldman Sachs and Vanguard increasing slowly, very, very slowly increasing their ownership shares of companies like MindMed.
So it's a slow and steady advance and I think that that's just going to continue and the closer you get to an approval or when that first approval comes or that positive, the next positive Phase 3 results come, the money is going to increase and I think the snowball is going to continue and eventually it's going to accelerate unless something drastic happens.
All the factors are pointing towards continued acceptance and that's probably what's going to happen over the next 2 to 3 years.
RS: Amen to that. I know it's not your focus, but I'm just curious if you have any thoughts on getting into the ETF space in psychedelics. Any thoughts on the ETFs (PSIL)?
JN: Yeah, ETFs are an interesting entry point for a lot of players. And a lot of investors were going that front because there was a time like, there was a Horizons Psychedelic Stock ETF, which I believe was PSYK. I recommended ETFs to friends in the early days because at one point there was over two dozen publicly-traded psychedelic companies.
In 2021, there was a lot of players out there and the big players hadn't really demarcated themselves from everybody else. They were kind of a little bit more grouped together. So ETFs were interesting back then, whereas now, 2 or 3 companies, you're covering the space for individual stocks, you're basically covered on the whole space. So I've been talking a lot less about ETFs just because of market consolidation.
RS: Makes sense. Jason, first of all, I really appreciate this first conversation. I'm super-psyched to set the tone and to have more. Anything that we left out of this conversation or that investors should know or be paying attention to or not be paying attention to?
JN: Yeah, I mean, personally I think -- so we've given a good broad overview of the space. And I think that’s perhaps a deeper dive into these individual companies could be something interesting, having a look at how their Phase 2b trials results compare to other competitors in biotech who are going after similar conditions, comparing it to FDA drugs that have been approved. Like maybe a deeper analysis in these individual companies to get a little bit into the meat and potatoes of the actual odds of FDA approval. So some deeper analysis could be, yeah, that's what I'm going to be focused on.
RS: I like that, I like that. Next time you're on, we go deeper.
JN: Let's do it.
RS: Let's do it, let's do it. Jason, appreciate you, psyched about this and look forward to the next time.
