The Decibel - The big business bet on psychedelic drugs

Episode Date: April 8, 2024

In the last few years, there has been an increase in research around using psychedelic drugs, like LSD and magic mushrooms, as treatments for mental health conditions. And recently, two Canadian companies working in the sphere have gotten a special designation from a big U.S. regulator that could fast-track the development and review of their drugs.Sean Silcoff is a journalist with The Globe’s Report on Business. He has been looking at recent developments in these companies and how that fits into the bigger picture of investor excitement around these drugs.Questions? Comments? Ideas? Email us at [e-mail]

This spring, two Canadian biotech startups got some really good news. The U.S. Food and Drug Administration gave them a special designation, boosting their research into psychedelic drugs as medicine. That's attracted a lot of attention as to whether drugs like LSD and magic mushrooms are about to become more legitimate in the medical mainstream. It's also attracted a lot of cash from investors looking to bet on what they hope will be the next big drug. Sean Silcoff is a journalist with the Globe's report on business. Today, he'll explain the growing business of hallucinogens.

I'm Mainika Raman-Wilms, and this is The Decibel from The Globe and Mail. Sean, thanks for being here. My pleasure. So the recent development in this sector is that two Canadian companies have gotten a special designation by the U.S. Food and Drug Administration, which regulates drugs in America, of course. So, Sean, let's talk about this. What exactly does this breakthrough designation mean? Well, it allows companies to expedite development and review of drugs for serious conditions. Review of Drugs for Serious Conditions. And the wording the FDA specifies is, where the preliminary clinical evidence indicates the drug may demonstrate substantial improvement

over available therapy on a clinically significant endpoint, which is basically FDA speak for, we think this drug improves on the drugs that are now used to treat things like depression and anxiety and PTSD. There's a real openness over the last few years to look at psychedelics as a serious potential pharmaceutical remedy and treating psychedelics like any other breakthrough class of drugs that could become things you buy in a pharmacy. Yeah. So this breakthrough designation essentially, so they might get priority review, accelerated approvals. There's this kind of energy around it.

That's right. And of course, for context, we should say these are not the only two psychedelics that are being looked at by the FDA. Others have gotten it over the years, but these are two Canadian companies that now have this designation. That's right. So let's talk about these two Canadian companies. So we've got Cybin and we've got MindMedicine. This is also known as MindMed. What does their work focus on? Well, let's start with MindMed. Now, MindMed is technically a Canadian company. It's actually registered and domiciled in British Columbia. It's effectively a New York-run company, but it does have that Canadian heritage. Cybin is a Toronto-based

company. Both of them went public on the NEO exchange in Canada. So MindMed's drug of choice is LSD, which of course was discovered by a scientist in Switzerland in 1938. Sibin is short for psilocybin, which is the active ingredient in what people refer to as magic mushrooms. They have a synthesized version. And actually what they do for theirs is they bring in a substance called deuterium or heavy hydrogen, which is actually found in meteorites. And both of these would be to treat depression, essentially, and other mental health issues then, correct? Yeah. So MindMed's LSD treatment is for generalized anxiety disorder. And for Cybin,

they're using it for depression. And we should just establish here, what is the current legal status of these two drugs in the US and also in Canada? Well, they are not legal. So in 1970, these drugs were labeled as restricted substances, Schedule I drugs, which meant that people couldn't do research on them and it wasn't legal to use them. And other nations very quickly followed at the behest of the United States. So what we're going to see then, if the FDA approves these drugs, is the Drug Enforcement Agency in the United States will be asked, can you remove these substances for this particular use that the FDA has approved of. So I wouldn't say that's a 100% slam dunk, but most people in the industry assume that's what will happen if the

FDA makes that recommendation after all these trials come in. And so just to be clear, the two companies that we're talking about, are they seeking regulatory approval in Canada as well? They've got this approval in the States. Are they looking for that in Canada too? Yeah. So you start with the United States market typically in Europe because the US is the big market. It's a massive market. It's an expensive drug market as well. So that's where a lot of drug companies make a lot of their money. So you start there and then Europe is your secondary market. You worry a little less about Canada because, you know, it's 2% of the world economy. And typically you would see Health Canada and other major health regulators fall in line. But any drug company that's aiming for a big market will typically start in the United States.

And I know, Sean, that you asked the Canadian mental health and addictions minister, Yara Sachs, about psychedelic use in medicine here in Canada. What did her office say? Health Canada recognizes the growing interest in the use of psychedelic-assisted psychotherapy and ongoing research looking at its potential. But of course, they're going to wait until results have been submitted and they've had a full chance to look. I think it's fair to say that agencies like Health Canada and probably elsewhere are really following this with great interest, but they're probably not taking the lead. So let's talk about the research that is being allowed to happen now. What do we know about the effectiveness of these drugs by Cybin and MindMed? Cybin, in its recent human efficacy trial, found that 75% of patients in the trial who got two

doses of psilocybin achieved remission and showed no signs of their ailment after four and a half months. With MindMed, one dose of LSD, they say maintained a clinically and statistically significant reduction on a survey they use versus a placebo after 12 weeks. So basically after three months, 65% clinical response rate, 48% remission. So this works and it works to a measurable effect for

anxiety. I mean, there is, we should say there is some skepticism though about how effective these actually are, right? Like the companies, yes, are obviously behind this, but there's still a lot of research that needs to be done. Oh, absolutely. For sure. I mean, the investigate, one of the investigators on the study said, you know, I've been conducting research on psychiatry for over two decades. And this works rapidly, robustly, and sustainably. And it's remarkable. But again, this is one trial. Now, it's an efficacy trial.

And in this case, I think it was with over 100 people. But before the FDA is going to put its stamp of approval on this, they need to see that this works with hundreds of people over a sustainable period. That sustainable period would be probably four to six months. But you're right. I mean, when you stand back and take a look at this, so little research has really been done in some key areas. For example, comparing this to the standard of care, which is drugs like Zoloft or Prozac, which are standard therapies. One little study that was done by the New England Journal of Medicine found that there was no real difference between psychedelics and the standard drugs, these SSRIs, as they're called. So a lot more work needs to be done. But I think the FDA's

warming to this whole class of drugs means that we will start to see these studies. We'll get to understand their longer-term effects. We'll see much larger trials. And to be clear, this isn't like cannabis, because we're not talking about decriminalization and recreational use. How do these companies think their drugs might be used if they are approved? The decriminalization of cannabis after the liberals came to power here, and as we've seen elsewhere, is really about recreational use. You can now, if you're an adult, walk into a cannabis store and buy the stuff. This is very different. Psychedelics here are being developed really for use by psychiatrists and psychotherapists to treat a range of medical problems, anxiety, major depression disorder,

substance abuse disorders, et cetera. And they would be administered in a clinical setting. It would be a comfortable setting, lots of pillows around, lying down, nice music, typically with eye shades on, and supervised. These are not treatments that you would be taking at home alone. And I think that's part of the reason why the FDA has been warm to this. But it's also very unique because many drugs are not really delivered in this way, and they don't require that kind of six or eight or 12-hour supervision. And that costs money. I mean, the time of a psychiatrist or psychotherapist is not cheap. So this is a treatment that would cost thousands

of dollars a year and, again, be delivered in a very strictly prescribed medical setting. And of course, this is still at the early stages here, but how big of a market do people think these drugs could actually serve? It's sort of hard to say. I mean, we know that mental health issues are huge. I mean, there's over 300 million people globally alone with depression. So this is a big and a growing need. And we've had these SSRIs, these drugs like Zoloft and Prozac, and they were the last major new class of therapies. And that's going back now, I think, about 30 years. So there's definitely an interest in new treatments that would be effective, particularly for chronic sufferers.

So I think the size of the market is a very interesting question because I don't think this is going to be the first thing that psychiatrists or psychotherapists use. It will be like a tool in their toolkit for dealing with people with serious issues. So this is probably going to be a subset. And we also know that there's quite a bit of screening already that's gone on in trials, and this will no doubt be the case. I mean, it's recognized that these are not drugs for everyone. And I mean, there's other issues like just because FDA gives us the approval, it doesn't mean that individual states or provinces will also follow with a green light.

And then we have to see what the insurance companies say about this. So I think the size of the market is still something that we don't have 100% clarity on. We'll be back in a minute. So it sounds like there's still a bunch of hurdles, right? There's still the need for more studies and more trials. There's a lot that needs to be done here. But Sean, let's talk a little bit about the money. Where are these companies getting their money from? Well, what we've seen over the last few decades is the few studies that have been done and the work that has been done to advance psychedelics toward acceptance has largely been funded by

wealthy benefactors, philanthropists, people like Steve Cohen, for example, who's a hedge fund billionaire, owns the New York Mets. More recently, however, we have seen a growing willingness of traditional biotechnology investors that typically invest in new upcoming drugs, whether it's radiopharmaceuticals to treat cancer or drugs for all kinds of other elements. And in both the case of MindMed and Cybin, which raised in March, they raised $175 million U.S. and $150 million U. US, respectively. So over $325 million was raised by those two companies. Another company in this space raised $100 million earlier this year. Now we're seeing names like RA Capital, Octagon Capital, Deep Track Capital. These are all

experienced veteran biotechnology investors who typically invest because they see a therapy that they think is going to get FDA approval. They think that big pharma is going to come in and buy these companies. They see a chance to make a lot of money. And is that kind of new for these to see these big biotech investors come into this space? We saw some of this when the psychedelic boom happened. So a lot of these companies went public all of a sudden in 2020, 2021. Unfortunately, a lot of that, the timing wasn't great. And you had a lot of people that were in cannabis. They'd made some money in cannabis and they rushed in and said, okay,

this is the next gold rush. It's psychedelic. So I think there was a little bit of hot money that was going on. And also there was a huge run-up in biotech stocks, similarly to what we saw with tech stocks during the pandemic. And then interest rates started to go up, and all these stocks crashed. So the psychedelic stocks, a lot of them are down 60%, 70%, 80%. But what we have seen with these late- stage results now that are coming in after these companies are showing that the drug is working in their first big clinical studies with patients is they've been able to raise fresh capital from these big investors. We're also seeing hedge funds

as well. So that's just adding to the air of legitimacy of the path that these drugs are on. Yeah. And we've seen them be talked about, this class of drugs really be talked about from a wide array of people, right? So I'm thinking like tech leaders like Elon Musk have talked about them, Sam Altman, also professional athletes, former politicians. Kevin O'Leary has been talking about them. I guess what should we make of that, Sean? Well, there's widespread support from all kinds of areas. Another thing as well that's really put wind in the sails of this is ketamine, which is not technically a psychedelic substance, but it does have hallucinogenic properties. And Johnson & Johnson, the drug giant, got an approved ketamine therapy in 2019. It's delivered as a nasal spray. And it also helps with mental disorders, with chronic depression. It's Johnson & Johnson's

fastest growing drug. Sales went up 84% last year, $700 million US in sales. This is going to be a blockbuster drug for Johnson & Johnson with up to $5 billion in annual sales, J&J says. So I think the fact that you have a major drug company in a, call it adjacent space, that's absolutely cleaning up with this ketamine treatment is helping lift the tide for all of these psychedelic companies. Yeah, there seems to be definitely excitement in this sphere. I guess, yeah, is there something to be said about distrust in mainstream healthcare or something along those lines? There seems to be something here. I don't know. So I think there's still a little bit of that,

maybe a lot of that, that will kind of cloud this class of drugs, which I think is why it's smart to pursue this as a medically administered thing in specific conditions in clinics by psychotherapists and psychologists. But I'm not sure that this is going to necessarily lead to a renaissance recreationally. And again, this is not what this move by the FDA is about, unlike the whole relaxation of cannabis laws six, seven, eight years ago. And as you mentioned earlier, there's still lots of hurdles to get this actually to people, right? The patents is actually a huge part of this, the issue around patents. Well, that's another, that's a big question. Patents is a big issue because indeed, most drugs that come to market are patented medicines. There's patent

protection. Well, LSD was discovered in 1938. Psilocybin was identified decades ago as well. So there is some question around patent protection. Now, there's things you can patent around the way these drugs are made, around how they're delivered, what dosage you use. And of course, the FDA's approval for marketing it in a specific way does give them some market protection. In the case of Cybin, they've devised a new way of delivering and making psilocybin, which uses deuterium. So that gives them some patent protection as well. But that's certainly going to be a question that I think particularly big pharma is going

to be interested in. And they're going to want some comfort that if they buy into the space in a big way, that they have some market protection and that they're not just paying up for a commodity product. But so far, we haven't really seen big pharma really show much interest in the space. And there might be some stigma involved there. Probably nobody necessarily wants to be the first company to venture in. Just to end here, Sean, so we've got these big biotech investors placing bets on what they hope will be the next, you know, billion dollar drug.

So even if the trials do ultimately show that these drugs will really help people with depression and mental health issues, what kind of timeline are we actually talking about here? The big clinical trials that would lead to approval from Cybin and MideMed are starting this year. So we're probably talking about LSD and magic mushroom variants being available if things follow the path that they're on now within the next, I would say, two to four years. Now, I think longer term, definitely, as you said, there's going to be many more studies. These drugs are going to be how these things work over the long term. And humanity will have a clearer sense of whether this newly sanctioned form of treating a major set of ailments works, works effectively, and delivers on the promise that people have

been pursuing for decades. Sean, thank you so much for taking the time today. Thank you. It's a pretty wild time ahead, isn't it? That's it for today. I'm Maina Karaman-Wilms. Our producers are Madeline White, Cheryl Sutherland, and Rachel Levy-McLaughlin. David Crosby edits the show. Adrienne Chung is our senior producer, and I'll talk to you tomorrow.