A panel of Food and Drug Administration (FDA) advisors is set to make a decision on whether to recommend MDMA therapy for Post Traumatic Stress Disorder (PTSD). As compelling as this is for investors, it’s smart to realize that FDA approval is often a strange trip, filled with uncertainty.
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MDMA is a psychoactive drug that is commonly known as “ecstasy” or “molly” when used recreationally. The therapy under review belongs to a private firm, Lykos Therapeutics. Yet, investors in publicly traded companies with psychedelic therapies stand to gain if the FDA approves Lykos’s therapy by late summer 2024.
It’s important to highlight that Lykos Therapeutics’ MDMA-assisted therapy is the most advanced MDMA-based drug in the FDA approval process to date.
The Psychedelic Sector Gains Traction
In recent years, the psychedelic drug sector has been gaining significant traction in the medical field. Companies like Compass Pathways (NASDAQ:CMPS) and Cybin (NASDAQ:CYBN) are conducting late-stage trials for psilocybin-based treatments for depression.
This growing interest is reflected in substantial investments, such as Lykos raising $100 million from investors, including the charitable foundation of hedge fund billionaire Steven Cohen.
FDA Reviews Lykos Therapeutics’ MDMA Therapy
The FDA is currently reviewing Lykos Therapeutics’ MDMA-assisted therapy for PTSD, with an advisory committee set to scrutinize the treatment. This review is significant as it represents a cautious but potentially groundbreaking step toward the approval of psychedelic-based treatments for mental health disorders.
The advisory panel’s decision, expected by August 11, 2024, could pave the way for the Drug Enforcement Administration to reclassify MDMA, allowing for its medical use.
Financial Viability Questions Remain
Despite the promising therapeutic potential, the financial viability of psychedelic treatments remains uncertain. Intellectual property concerns and the high costs associated with supervised therapy sessions pose significant challenges.
Unlike traditional pharmaceuticals, psychedelics require administration in specialized facilities under professional supervision. This makes them harder to scale and less attractive to big pharma. The result has been a cautious approach from major pharmaceutical companies. However, there have been other noteworthy investments, such as AbbVie’s (NASDAQ:ABBV) $65 million partnership with Gilgamesh Pharmaceuticals.
Market Performance and Investment Outlook
The market performance of psychedelic companies has been volatile, with many experiencing significant declines after initial surges. However, the sector continues to attract investment, driven by the potential for innovative treatments in the psychiatric realm.
The approval of MDMA therapy could serve as a catalyst for further investment and development in this newer sector, potentially leading to new business models and therapeutic options for mental health conditions.
Using the TipRanks Scanning Tool to unearth similar stocks in this category and then using the TipRanks Comparison Tool to determine Analyst Price Targets, reveals four companies with double-digit to nearly quadruple-digit upside based on analyst targets.
In addition to the companies mentioned earlier, the list includes Atai Life Sciences (NASDAQ:ATAI), which is developing a number of drugs based on psychedelic substances, and Axsome Therapeutics (NASDAQ:AXSM), which boasts five clinical-stage therapies. While Lykos is not publicly traded, all members of the group could benefit from good news, or face challenges from setbacks.
Key Takeaway
The FDA’s review of MDMA therapy represents a critical moment for the psychedelic drug sector, with the potential to unlock new investment opportunities and therapeutic advancements. However, the sector faces significant hurdles, including regulatory challenges, intellectual property issues, and the high costs of treatment administration.
While the future of psychedelic investments remains uncertain, the growing interest and investment in the sector suggest that it may be interesting for high-risk, high-potential investors.
