Adapting to the Squeeze

Spending Trends, Slimming Pipelines, M&A and Partnerships in 2022

In light of changing macro and sector-specific contexts, most psychedelics companies have had to adapt their operations over the past year. The intensity of such adaptation differs from company to company, but at a minimum it has entailed reigning in non-critical spending, in some cases going so far as to shelve pipeline assets indefinitely. In the most dire cases, companies have resorted to increasingly unsavoury financings or have ceased operations due to lack of funds. On the flipside, a handful of well-capitalised organisations saw 2022 as an opportunity for a shopping spree.

Here, we review how psychedelics companies adapted their operations throughout 2022, including a look at M&A, licensing and partnerships.

Part of our Year in Review series

Spending Trends

Reducing non-critical cash burn is low hanging fruit for many psychedelics companies, particularly those in a precarious financial situation (see our earlier piece, Psychedelics in the Public Markets, for a view on this).

While almost all psychedelics companies have taken a close look at their balance sheet, cash burn hasn’t been reigned in across the board. We analysed a representative sample of five large and five small public psychedelics companies in order to demonstrate how quarterly burn changed over the most recent ten quarter period for which filings are available.

As this chart makes clear, larger public psychedelics companies (such as COMPASS Pathways and atai Life Sciences) saw their quarterly burn rate increase significantly and then plateau for the majority of 2022. This is likely due to the fact that these companies are part of a small subset of public psychedelics companies that are engaged in mid- or late-stage clinical programs, which are increasingly large and expensive.

Smaller public psychedelics companies1, meanwhile, appeared to reign in spending throughout 2022, with cash burn reducing dramatically in late 2022 (represented as Q10 on the above chart). As alluded to in our earlier piece, this is almost certainly out of necessity, given that the majority of public psychedelics companies are trading with less than one year of cash runway.

Further analysis of cash burn data reveals that the larger psychedelics companies are generally spending a slim majority of this cash on R&D related activities, while R&D spend is often a significant minority of spend at smaller publicly-traded psychedelics companies.

Mydecine Innovations Group2 provides one of the clearest examples of this reigning-in of spending over the past handful of quarters. But, it’s worth pointing out that the company’s cash burn wasn’t reduced uniformly: an inspection of related party transactions reveals that director and management compensation3 was shielded from significant cuts.

For some companies, identifying areas to reign in spending won’t be so tricky: a number of small psychedelics companies spent upwards of $1 or $2 million per year each on investor relations and marketing.

Slimming Pipelines

A number of psychedelic drug developers revisited their pipelines in 2022, with even the largest companies deciding to shelve assets. It’s natural for drug discovery and development companies to concentrate their bets and resources over time, but given financial pressures this only becomes a more immediate focus. As seen in the broader biotech sector4, in Q3 and Q4 we saw a number of psychedelics companies refocus their pipelines.

Major Pipeline Changes

Here, we briefly look at how three of the most prominent psychedelics companies trimmed their drug discovery and development pipelines in 2022.

MindMed Drops 18-MC

During its second quarter earnings, MindMed revealed that it would shelve its non-hallucinogenic ibogaine analog candidate, 18-MC (MM-110), with CEO Robert Barrow locating the move within the context of broader attempts to “sharpen” efforts on “key strategic priorities for the near-term”, notably the company’s LSD program (MM-120) and R(-)-MDMA program (MM-402). Barrow explained that his company might continue further development of the 18-MC program if it’s able to identify non-dilutive sources of capital or collaborators.

As MindMed execs explained during earnings, it became apparent during discussions with the FDA that additional nonclinical data would be required in order to progress to a Phase 2a study. In light of the time and costs associated with producing such data, MindMed halted this program.

This move came in the midst of an activist shareholder situation, led by the nephew of the company’s former Chief Medical Officer. Despite the fact that the activist group, “FCM MM HOLDINGS, LLC”, urged MindMed to cut costs and slim its pipeline, it did not advocate for the shelving of 18-MC (MM-110), given the intimate role that former CMO Scott Freeman played in 18-MC’s development for over a decade5.

atai Life Sciences Concentrates Pipeline

Less than a week after it became clear that MindMed was putting its 18-MC program on pause, atai Life Sciences’ second quarter earnings revealed that the company would “streamline” its own pipeline as part of a “company-wide cost optimization initiative”.

In real terms, this was achieved through a deceleration and discontinuation of funding for a number of programs, which included:

  • Revixia Life Sciences – developing Salvinorin A for substance use disorder, treatment-resistant depression and pain.
  • Neuronasal – developing intranasal N-acetylcysteine (NAC) for mild traumatic brain injury.
  • DemeRx NB – developing noribogaine for opioid use disorder and pain management6.
  • Some drug discovery work.

The company also announced a $175m loan facility with Hercules Capital, which provides approximately one more year of runway. Together with its cash on hand, atai could likely steward its slimmed down pipeline through 2025.

Beckley Psytech Shelves Rare Headache Disorder Candidate

In late October, Beckley Psytech announced that it would be discontinuing its oral psilocybin for the treatment of Short-lasting Unilateral Neuralgiform Headache Attacks (SUNHA) program. This wasn’t quite the same as others’ announcements re: slimming pipelines, though, as it was announced alongside the news that Beckley had acquired fellow psychedelic drug developer, Eleusis.

Through the acquisition Beckley scooped up Eleusis’ IV psilocin program, which is discussed in further detail below.

Less Favourable Financings and Reverse Stock Splits

Death Spiral Financings

While companies like atai can secure large loans7, many smaller psychedelics companies are facing the prospect of soliciting increasingly unfavourable financings to avoid insolvency. Some of these arrangements might even be described as “death spiral financings”.

Silo Wellness entered into a financing commitment with Alpha Blue Ocean (ABO) in April, with “alternative financing solutions” provider ABO offering around CAD $6m to keep the company afloat. As we wrote at the time, the terms of the financing commitment are not for the faint of heart, and resemble what are sometimes referred to as ‘death spiral’ financings where convertible debt is sold to large private investors, like ABO. These types of financing arrangements were common in the cannabis space as small market cap companies ran out of cash.

Silo wasn’t the only company to enter into such an arrangement with ABO. In July, Havn Life Sciences announced a financing commitment of CAD $9m, and in late August the company announced the closing of the first tranche for net proceeds of around $420,000. Just under one month later, the company’s CFO determined that Havn was “no longer a going concern as it is unable to meet its financial obligations”. The death spiral appeared to have reached its logical conclusion.

Other companies, such as Wesana Health, have turned to more conventional short-term loans.

Reverse Stock Splits

While a stock split doesn’t, in principle, change the valuation of a company, they’re often viewed as a bearish signal. A reverse stock split increases the price of a share in a company, which might be necessary in order to maintain compliance with exchange listing requirements or avoid the connotations of penny stock status.

Given the drastic devaluation of many psychedelic stocks, a number of companies carried out reverse stock splits in 2022.

On April 20th, 2022, Mydecine carried out a 1:50 reverse split of its stock, which was trading at around five cents prior to the split. CEO David Joshua Bartch told Psychedelic Alpha that there was good reason for the reverse split, with “several positive company updates” imminent. We never received follow-up from Bartch on this matter.

Later in the year, MindMed completed a 1:15 reverse stock split which ensured the company continued trading on the Nasdaq.

Other companies—such as Silo Pharma, Lobe Sciences and Clearmind Medicine—also conducted reverse stock splits (or, ‘share consolidations’) in 2022.

M&A, Licensing and Partnerships

In our 2021 Year in Review, we predicted greater levels of consolidation in 2022. We expected to see a reorganisation of the sector through a number of mergers and acquisitions (M&A), both within the industry and from companies outside of the space.

This rang true, to some degree, with a limited number of intra-industry M&A and at least one instance of an outside player partnering to co-develop a psychedelic company’s assets. 2022 also saw a number of partnerships and licensing agreements among psychedelics companies.

The above chart is indicative, not comprehensive. 

Below, we briefly discuss a handful of these deals…

Beckley Psytech Acquires Eleusis

Whole company acquisition

While many analysts were expecting the handful of relatively cash-rich public companies to be the ones shopping around for assets, the private biotech company Beckley Psytech completed the most significant deal of the year when it acquired another British company, Eleusis.

Both companies have lengthy histories of involvement in psychedelic research and business. Beckley Psytech comes from the Beckley lineage, a bevy of charitable and for-profit endeavours that orbit around Lady Amanda Feilding’s Beckley Foundation. Eleusis, meanwhile, claimed to be the “world’s first company dedicated to the transformation of psychedelics into medicines” when we spoke with CEO Shlomi Raz in 2020.

Eleusis–which began as a joint enterprise between the ex-Goldman Sachs managing director, Shlomi Raz, and renowned psychedelic researcher Charles (“Chuck”) Nichols–had quite a broad pipeline of drug candidates for a number of years, with around a half-dozen candidates targeting psychiatric indications and beyond. Eleusis also touted a “novel care delivery platform” and owned a therapy clinic subsidiary.

This pipeline had slimmed down dramatically by 2022, with the company refocusing its bets on ELE-Psilo, or ELE-101. This IV psilocin candidate became the primary focus of an ill-fated SPAC announced in January, which the company had hoped would raise $288m and list Eleusis on Nasdaq. As we noted at the time, the timing couldn’t have been worse: the biotech and psychedelics markets were bleeding heavily, while the SPAC craze had cooled off for a number of quarters. In June, just days after the company announced it had received the green light from UK regulators to commence a Phase 1 trial of ELE-Psilo, it abandoned the SPAC citing unfavourable market conditions. According to the CEO, Raz, the show would go on: “we’re gonna have more news soon”, he told Endpoints News.

Four months later, rumours were confirmed: Beckley Psytech would acquire Eleusis in an all equity acquisition. In doing so, Beckley added IV psilocin to its pipeline, effectively replacing its shelved oral psilocybin program. The company presumably hopes that by administering psilocin (thus cutting out the prodrug, psilocybin) intravenously, it can achieve a more consistent and predictable response in patients with a faster onset of effects and shorter treatment duration.

As mentioned elsewhere in this series, this fits in with a broader strategy of earlier-stage psychedelic drug developers that’s characterised by a focus on reducing the labour-intensity and logistical hurdles–and thus costs–associated with psychedelic therapies. It’s clear that Beckley is keen on this strategy, given its other lead candidate is the notoriously short-acting psychedelic, 5-MeO-DMT.

It’s clear, then, that Eleusis’ IV psilocin fits within Beckley’s pipeline theme of short(er)-acting psychedelics, with depression as the primary target. With this in mind, it’s logical for the company to drop its psilocybin for Short Lasting Unilateral Neuralgiform Headache Attacks (SUNHA) program.

Cybin acquires Entheon Biomedical’s Phase 1 DMT program

Program/trial acquisition

While some psychedelic drug developers looked to slim down their pipelines; others left the drug development game altogether8. A pertinent example is that of Entheon Biomedical, which had a one-molecule pipeline that revolved around its DMT candidate, EBRX-101. But, Entheon’s financial situation made the funding of this program to any meaningful milestone unlikely.

In June, Cybin announced that it would acquire Entheon’s Phase 1 DMT study in a transaction valued at up to CAD $1.5m. The program was renamed CYB004-E, and replaced Cybin’s own pilot study (dubbed CYB004) that was expected to begin in Q3 2022.

Cybin will hope that this acquisition will speed up its DMT drug development efforts, with CEO Doug Drysdale noting that it could shave 9 months off its previous Phase 1 study timeline.

PharmAla Biotech and Mindset Pharma enter into exclusive sales agreement for Mindset’s cGMP psilocybin

Reseller agreement

While the DEA has repeatedly increased aggregate production quotas (APQs) for psychedelics9, this loosening of a supply restriction has done little to drive down the costs of acquiring psychedelics for research and development.

In November, Mindset Pharma and PharmAla Biotech entered into an agreement that sees PharmAla be the exclusive global reseller of Mindset’s cGMP psilocybin to clinical researchers. Perhaps the advent of a modest number of suppliers might reduce the prices researchers must shell out for drugs like psilocybin.

Mindset Pharma’s Collaboration with Otsuka Pharmaceuticals’ McQuade Center for Strategic Research and Development (MSRD)

Collaboration agreement

In January, Mindset Pharma announced that it had entered into a collaboration with The McQuade Center for Strategic Research and Development (MSRD), part of the Otsuka family. Under the terms of the deal, Otsuka made a “strategic investment” to support the development of two families of Mindset’s candidates through Phase 1 trials. Otsuka also provided Mindset with a $5m upfront cash payment, and it’s likely that MSRD’s operational support10 will reduce in-house overheads for Mindset.

The families that MSRD will fund the Phase 1 development of both revolve around shorter-acting drugs. Mindset’s CEO, James Lanthier, told us that the collaboration on these two families was, “the result of extensive diligence on Mindset’s programs and intellectual property.”

In return for this funding, which was provided on a non-dilutive basis, MSRD received a right of first refusal regarding any asset sale, exclusive licensing or collaboration opportunities arising from the candidates.

Bloomberg’s Lisa Du described the deal as, “a rare endorsement by big pharma of the new and mostly illegal field of drugs.” Lanthier told us that his team, “couldn’t be happier with the collaboration or with its results to date.”

Besides this significant deal with Otsuka’s MSRD, Mindset has struck agreements with a number of other organisations, including CAMH, Clerkenwell Health, and Cybin. This was core to the company’s strategy from day one, Lanthier explained. The company believed its competitive advantage would be “drug discovery and preclinical development, rather than expanding the organization massively into clinical development.” Of course, partnering is central to this strategy.

Case Study: Otsuka’s Interest in Psychedelics

It’s no secret that ‘big pharma’ remains largely absent from the psychedelics space, with the notable exclusion of Janssen Pharmaceuticals’ SRAVATO esketamine product11. Japan’s Otsuka Pharmaceutical, however, has demonstrated interest in ketamine as well as ‘true’ psychedelics for some time via funding and the osmosis of human capital12.

In our 2021 Year in Review, we predicted that Otsuka might delve deeper into the psychedelics space:

“Though perhaps more of a stretch, we might even see companies in the broader biotech and pharmaceutical industry acquiring psychedelics companies and programs. After all, Otsuka Pharmaceutical has already invested in and partnered with a handful of companies and drug candidates in the space.”

That certainly rang true, but even a cursory look at Otsuka’s recent history shows some clear pre-2022 signals that the company and its subsidiaries were keeping tabs on the field.

Below are selected examples of Otsuka (including current and former staff) being involved in psychedelic research and business in recent years.

Early 2010s

Otsuka provides financial support to Prof. Kenji Hashimoto

Hashimoto, the world’s most productive author on R-ketamine and its antidepressant effects, received financial support from Otsuka starting around 201413.

Early 2010s

Q2 2020

Otsuka’s MSRD participates in COMPASS Pathways’ $80m Series B

Robert McQuade, President of MSRD and EVP and Chief Strategic Officer at Otsuka, is an Independent Director at COMPASS.

Q2 2020

Q1 2021

Otsuka and atai announce collaboration on development of PCN-101 (R-ketamine)

Otsuka entered into a collaboration and licensing agreement for the development and commercialisation of Perception Neuroscience’s (part of the atai platform) PCN-101 candidate in Japan14.

Q1 2021

Q1 2022

Otsuka’s MSRD enters collaboration with Mindset Pharma

Otsuka made a “strategic investment” to support the development of two families of Mindset’s candidates through Phase 1 trials, and provided Mindset with a $5m upfront cash payment.

Q1 2022

Q2 2022

Otsuka Senior Managing Director Comments on psychedelics research

In an interview, Kabir Nath says that early research on psychedelics “behoves us to follow the science”. He goes on to say that Otsuka expects to see compelling clinical evidence that would help move the field forward significantly within 3 years, though delivery “in a commercially viable paradigm” will be challenging.

Q2 2022

Q3 2022

Otsuka’s Kabir Nath appointed CEO of COMPASS Pathways

Shortly after Nath made the above comments, it was announced that he was joining COMPASS Pathways as CEO.

Q3 2022

Q4 2022

Otsuka’s Head of Business Development appointed as Chief Business Officer at atai

Dr. Sahil V. Kirpekar became the latest Otsuka exec to join a psychedelics company, becoming CBO at atai in November.

Q4 2022

Q4 2022

Otsuka researchers present on 5-HT2A agonist at American College of Neuropsychopharmacology conference

Researchers affiliated with Otsuka presented a poster titled, A Potent 5-HT2A Receptor Agonist TCB-2 Exerts Rapid Antidepressant-Like and Anxiolytic-Like Effects in Mice at ACNP 2022.

Q4 2022

Part of our Year in Review series

This content is part of our 2022 Year in Review, which looks back at the past year through commentary and analysis, interviews and guest contributions.

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  1. Which represent the vast majority of the fifty-or-so publicly-traded psychedelics companies.
  2. In August, we recapped our coverage of Denver-based Mydecine Innovations Group, which has been on the ropes for the majority of 2022.
  3. As we also reported in August, via Twitter, the company changed the manner in which it recorded such compensation, “converting key management employees and recording their compensation as payroll.”
  4. As Fierce Biotech reported in August, “a raft of biotechs have decided candidates that looked good a few months ago are now an extravagance, leading them to pull back from the programs.” In November, Endpoints noted that–with regards to cutting costs by reducing headcount or slimming the development pipeline–that “trend is only accelerating”.
  5. We covered the activist shareholder situation in an August Bulletin.
  6. Note that the ibogaine program, DemeRx IB, will remain in atai’s pipeline.
  7. atai also benefits from the conviction of deep-pocketed founders and investors like Christian Angermayer, who further shored up his investment in the company in late 2021.
  8. Others yet spun out their drug development efforts into new companies, as was the case with Reunion Neuroscience which was formed following the division of Field Trip’s clinics and drug development businesses.
  9. This is discussed in further detail later in our Year in Review.
  10. MSRD focuses on identifying and supporting early-stage drugs, so Phase 1 trials are its bread-and-butter.
  11. Janssen is a wholly-owned subsidiary of Johnson & Johnson. While ketamine and its enantiomers and derivatives are not ‘true’ psychedelics, many include them under the banner of psychedelic drug development.
  12. Five days after the 2022 period came to a close, Reset Pharmaceuticals announced the appointment of Innes Meldrum as CEO. Meldrum was formerly Senior VP and Chief Commercial Officer for Otsuka Pharmaceuticals North America.
  13. While we cannot be sure where, exactly, Otsuka’s financial support was being used in practice, it’s clear that a relationship existed.
  14. We explore this in further detail in our Racing Beyond Racemic deep dive.