A Different Kind of Trip
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Intro |
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Look – the pandemic did a lot more than keep families apart, create heavy social anxiety and cause all of us to gain about 25lbs. The amount of mental health problems that have arisen from 2 years of lockdown and avoiding people really did a serious number on all of us. |
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In fact, check out some of these stats: |
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These numbers are staggering – there are over 1 billion people who report struggling with mental health and that number continues to grow immensely. |
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The world spends nearly $2.2 trillion on treating mental illness and that number, according to Reuters, is expected to grow to $16 trillion by 2030. That’s a 6.4x increase in 10 years. |
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Now, why does it sound like I’m the talking head on a 2am infomercial. Am I trying to sell something here? |
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No. |
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We have a lot of topics we discuss related to investments (and this is one of them!) that can bring up some emotions – but not often do we have topics that really, genuinely need to be talked about and addressed. |
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Mental health is no joke. |
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But you might be thinking that the newest approach dealing with these symptoms is a joke – psychedelics. |
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Yes, we are talking about magic mushrooms! It’s no joke. They might be working. |
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Universe/Application |
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First off, I am not a doctor, and this is not medical advice. |
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Okay, now that that’s out of the way – let’s talk about what’s going on here. Apparently, doctors have been studying psychedelics as an alternative method of treating addictions and anxiety/depression for a long time. |
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Since the 1960s, when people went a little overboard on psychedelics, the FDA banned any official research into this field. The thought was that these drugs were too hardcore, and too addictive, for any sort of effective treatment that wouldn’t harm participants. |
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The Controlled Substances Act of 1970 classified psychedelics as Schedule 1 drugs without any currently accepted medical use. |
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It wasn’t until the late 1990s/early 2000s that research trials were allowed to take place. And even then, one of the first studies started pre-clinical studies in 1995 and just in 2018 started Phase III clinical trials with an FDA decision anticipated for 2023. |
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Why the change of heart? |
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Back to our initial problem: mental health issues are on the rise across the world. And traditional therapies and drug treatments are not doing the job. As more people flock to social media to speak out about the state of their mental health we are seeing just how widespread of an issue mental health is. |
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It’s not just that one friend from high school who listened to punk rock and maybe wore a little too much black. |
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Now, we know it was also the jock, the nerd, the class clown, and even the teachers. It was always so taboo to talk about it that we never really knew… |
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But all of that is changing. And with that, the FDA is changing its stance. |
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They have yet to approve psychedelics as a full-scale treatment solution, or a mainstream approved drug, but they are allowing them to be used in therapeutic research trials. |
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These research trials are a little more strict than standard drug R&D work, as researchers are required to secure drug storage and monitor patients overnight. Extra precautions around drugs that are normally used in recreational format is probably a good thing. |
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So far, this research has proven that psychedelics are actually very effective at treating a number of mental health issues: |
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Treatments and studies have become so mainstream that the Wall Street Journal just published an article on the positive effects of psilocybin (the active ingredient in magic mushrooms) combined with talk therapy to help patients curb their alcoholism: Psilocybin, Psychedelic Compound in Magic Mushrooms, Shown Effective for Alcohol Addiction |
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But this isn’t a medical journal – we want to know how to invest! |
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Investment Opportunities |
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Biotech and pharmaceutical investment opportunities can be tricky. Why? |
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Because you really are putting all your eggs in one basket. |
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In certain scenarios, companies are created purely for the sake of researching one drug from 0 - 100. The thought in the back of a doctor’s brain all the way to the shelf at CVS. But that process is long – sometimes decades long. And the revenue-generating part of that process only comes at the end. |
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Heck – the profit-making part isn’t until the very end! |
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The point is that these investments are generally considered riskier than your average public company that sells 1,000 widgets a year and is looking to expand into new products. |
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But the payoff for pharmaceutical development can be out of this world! |
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When it comes to drug development, usually larger pharmaceutical players have the manpower and cash to fund research and development for years until the drug gets approval. Because, until the drug receives approval it’s earning a sum total of $0 in revenue. |
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Look at Humira, currently the most sold drug in the world, which started its journey in 1991 and is intended for use to combat arthritis and plaque psoriasis. Humira didn’t receive FDA approval until 2002. |
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11 years of research and development. Humira was generating about $7.9bn in revenue in 2011 and last year it generated over $20 billion. |
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You don’t always have winners like Humira, but one winner in a basket of losers can change the course of a company. |
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This is a different story with psychedelics – most mainstream, large public pharmaceutical companies will not touch it. And that means the majority of the studies and drug discovery practices are being done by start-ups and fledgling companies. |
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These are players that are raising venture and private funding for a pure psychedelic play. It may be a house built on the sand at this point though – because we have yet to see any official FDA approval. |
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In 2021 alone, psychedelic related companies raised a total of $718M, which is a 718x increase over the $1M raised in 2018 for psychedelic research. The tides are definitely turning here. |
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There are a few companies that were able to go public last year that may present some opportunities for us though – let’s dive in! |
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Public Players |
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There are a few public players we will highlight, each one doing drug discovery research. |
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Mind Medicine ($MNMD) is a neuro-pharmaceutical company that discovers, develops and deploys psychedelic medicines. |
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MNMD currently has 5 different drugs under development and in different stages of the research process. Their drugs are currently focused on combating anxiety, attention deficit disorder, autism spectrum disorders, cocaine addictions, and opioid dependence. |
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All of those sound like extremely worthwhile areas of focus. |
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Right now, only one of their drugs is in Phase 2 clinical trials – MM-120 is focused on attention deficit/hyperactivity disorder, generalized anxiety and sleep disorders. Phase 2 trials for MM-120 are expected to produce results in the 2nd half of 2023. |
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Right now, MNMD has no revenue. And is currently spending about $9.3M per quarter in research and development and $8M in general admin expenses. |
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Even though they have no revenue to speak of, they are still receiving grants from different research organizations to facilitate their research. Along with these grants, they receive funding from capital raises or an IPO. |
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With a current cash stockpile of just over $100M, MNMD should be able to survive at this rate for the next 6.5 quarters without any additional funding. |
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They key will be hitting some of their milestones for clinical trials of their drugs in order to gain some publicity and ideally some more funding. |
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MNMD completed a 1 for 15 reverse stock split on August 26th. Why? The generic response of "it allows the company to pursue growth opportunities" is flying around a lot. |
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But the real reason? NASDAQ has a minimum price for all listed securities... and MNMD has been under it for a while now. |
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NASDAQ requires that all listed companies have an initial bid price of $5.00 and stay above $1.00 per share. |
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MNMD has been hovering below $1.00 per share since April, breaking that barrier only once. |
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Awakn Life Sciences ($AWKN) is a biotechnology firm engaging in clinical operations, research and development of psychedelic medicine. |
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Right now, AWKN only has one drug in trials – a treatment using ketamine to reduce alcohol dependency. |
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It appears like Ketamine is a helpful treatment in helping those suffering from Alcohol Use Disorder to stay sober for longer: |
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Phase II trials were just completed in January of this year, so we will have to wait and see as the results are reviewed and questioned to see if they proceed with more studies, or are able to move into Phase III trials. |
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Similar to MNMD, AWKN is losing money each quarter – approximately $2.2M. |
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The problem with AWKN is that they only have $2.2M of cash on hand. And they have accumulated over $19M in losses since their founding in 2020. |
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There is material uncertainty around whether or not this company will survive. It will need to generate some sort of financing in the near future (after just going public in 2021) in order to be considered a “going concern” – that is, able to continue operations. |
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Conclusion/Recommendation |
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We have talked about the fact that Wall Street is often extremely positive on the outlook for public companies, so we have to take their research with a grain of salt. |
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We have decided to compare Wall Street View to Short Squeez Research and see how these companies stack up. Maybe we agree with the optimism and see that golden nugget. But, maybe we need to take a step back and evaluate if every company really is a “winner.” |
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Mind Medicine ($MNMD) |
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Wall Street: All 7 analysts covering MNMD rank it as a BUY with a $60.44 average price target over the next 12 months. The current price is $11.86/share (as of 8/29/22). |
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Short Squeez: We think this is a little bit too optimistic. MNMD has nothing major to really show until later in 2023. Sure, they have other drugs in earlier stages of development – but nothing pays for itself until the FDA approves its use and people start buying it. |
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We don’t think this will happen before 2025, at the earliest. A ~5x increase in 12 months just does not seem likely here. But at least MNMD is better positioned to survive until gaining approval. |
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Awakn Life Sciences ($AWKN) |
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Wall Street: 2 Analysts cover AWKN and both are on the BUY train. Their average price target over the next 12 months is $5.65/share. The current price is $0.43/share (as of 8/29/22). |
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