Psychedelic Psychiatry: A Revolution Set to Transform Our Mental Health?
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Recent successes in psychedelic clinical trials, along with other developments, have brought us to the dawn of a new era in treatment for mental illness.
The Psychedelic Revolution
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Watch, read and listen to L.E.K.’s Adrienne Rivlin’s latest thinking on psychedelics.
Volume XXIII, Issue 40 |

The increasing burden of mental illness has long been recognised as a serious and worsening world-wide problem, recently further exacerbated by the COVID-19 pandemic. Furthermore, current treatments are often unsatisfactory for many patients; they may work only partially or not at all, or have intolerable side-effect profiles. Against this backdrop, psychedelics have recently emerged as a potential solution to revolutionise mental healthcare and there continue to be significant and exciting developments in the sector.

The recognition of the huge commercial opportunities to use psychedelics for mental illness has driven substantial investment in the sector in the past four years. 2020 saw a ramp-up of investment, and this accelerated in 2021 as investors hoped to tap into a potential multibillion-dollar market. Investors have been attracted by increasingly impressive scientific results, larger and more robust clinical trials, advances in establishing the legal therapeutic framework for psychedelics, growing public support for a serious change in mental healthcare, and the establishment of the infrastructure to deliver psychedelic-assisted psychotherapies.

Despite the influx of funding, there has been little published analysis of investments entering the psychedelic space. We analysed over 110 financing events from more than 60 companies working primarily within the psychedelic sector between 2018 and 2021. These companies included pharmaceutical businesses focused on discovering, developing, and manufacturing psychedelic drugs; healthcare companies establishing clinic networks and retreats for psychedelic-assisted psychotherapy; and technology companies producing telehealth platforms and electronic health record software specifically for medical practices using psychedelics. To supplement this analysis, we conducted a range of interviews with leading investors and businesses in the space.

Psychedelic investments: a meteoric rise

In both 2018 and 2019, around $60 million was invested in psychedelic-focused companies. In 2020, the level of investment was almost 10ten times this figure as the number of psychedelic-focused businesses and new clinical trials rapidly increased. 2020’s figure was exceeded in the first three months of 2021, and predicted investment this year is set to exceed $2 billion globally (see Figure 1). 

While funding to biopharmaceutical companies comprises the majority of inward investment in psychedelics, there has been accompanying growth in the clinic and digital infrastructure that will help lay the foundations for future success of the sector (see Figure 2).

In particular, digital companies are experiencing rapid growth in investment, with many oversubscribed seed and series A rounds in 2020 and 2021. The increase in funding in these areas can also be viewed as a strategy by investors to address one of the remaining roadblocks in psychedelics’ success — their delivery: 


“The big hurdle to the success of psychedelics is now in their commercialisation and delivery. You need to have the physical spaces to deliver psychedelic therapy, and this poses a different challenge from country to country. Some companies are using digital platforms to explore how we can improve therapy and this is an interesting approach.”


Lars Wilde, President, Chief Business Officer and Co-founder of COMPASS Pathways

Europe continues to lead the way as a key hub in psychedelic research, accounting for over half of investment every year since 2018. This is largely driven by the success of larger European companies such as Atai Life Sciences and COMPASS Pathways. However, we observe that investments in psychedelics companies are increasing more rapidly in the US than in Europe and Canada, paving the way for a larger psychedelic sector in the US.

The psychedelic sector encompasses the full biopharmaceutical and healthcare value chain. Whilst investment has traditionally focused on biopharmaceutical research and development (R&D), there is now an increasing trend to distribute funding across the value chain more broadly. Some companies primarily focused on development are deploying this strategy by establishing clinic networks and digital platforms to establish infrastructure for clinical trials and the delivery of psychedelic-assisted psychotherapies. This approach has two immediate advantages. Firstly, it generates short-term revenue through other applications for these assets. Secondly, it allows companies and investors to reduce the level of risk inherent in developing new drug therapies. 

As an example, MINDCURE is focusing on research and technology. The company is committed to developing ibogaine for the treatment of traumatic brain injuries and manufacturing synthetic ibogaine, but is also working on shorter-term projects such as software-as-a-service digital therapeutics and psychotherapy clinics. The digital and healthcare elements of the company may one day provide the infrastructure for delivery of MINDCURE’s assets, whilst also providing short-term revenue streams. This model of establishing clinic networks and digital platforms alongside pharmaceutical R&D is a growing trend within the sector, through either organic growth or acquisition

From 2018 to 2021, around 80% of investment in the psychedelic sector has been in companies focused on R&D, either of existing psychedelics in new therapeutic forms or in the generation of new derivatives (see Figure 3). There is a range of compounds in the commercial spotlight, although psilocybin leads the way, driven by promising scientific results and the beginnings of a legal therapeutic framework.

Biopharmaceutical R&D continues to attract most investment

The largest proportion of funding is in developing drugs for the treatment of mental illness. Some companies focus on a range of mental illnesses, from depression and anxiety to PTSD and eating disorders, whilst others are working within specific areas such as alcohol use disorder or cancer-related anxiety and depression. For example, Entheon Biomedical is developing treatments for addiction through DMT-assisted psychotherapy and will begin clinical trials in nicotine addiction in late 2021. The company is also developing a predictive biomarker response platform to ensure the safest psychedelic treatment possible. COMPASS Pathways is focusing first on psilocybin therapy for treatment-resistant depression, but has plans to develop into other areas of unmet need in mental health.

Many companies also have neurology streams, alongside mental health, focusing mostly on neurodegenerative conditions such as traumatic brain injury or Alzheimer’s disease. Others are realising the anti-inflammatory potential of psychedelics, as well as the connection between physical and mental health, through work in further innovative areas, such as MYND Sciences’ application of psilocybin to autoimmune diseases, NeoMind Bioscience’s obesity treatment and Psyence’s palliative care therapy.

The wide variety of proposed use cases for psychedelics is supported by an increase in basic research:


“It is great to see that a lot of basic research is happening in universities now and the funding is there to take these findings further. We are seeing companies exploring the role of psychedelics as strong anti-inflammatory agents, as well as a furthering of our understanding of the connection between mind and body in many conditions and the role psychedelic therapy can play.”


Lars Wilde, COMPASS Pathways

Investor dynamics

There are those who see psychedelics as the newest frontier in investing, and other investors are drawn to the therapeutic potential of psychedelics, often due to a personal experience with mental health issues. Both groups are unlikely to have had prior experience investing in the pharmaceutical space but are the key players in Seed and Series A rounds. The third group is the more traditional biopharma investors, which typically invest in later-stage companies.

Robert Velarde from Iter Investments comments: “We see a wide variety of investors in the psychedelic market and I think it is a really unique opportunity. It doesn’t require you to be a biopharma investor, and a lot of investors are drawn in by personal experience of mental health issues or an interest in frontier investments.”

A major driver of the huge increase in investment growth in 2021 has been the growth of public offerings by psychedelics companies. At the top end of the funding scale, COMPASS Pathways led the way in September 2020 with a $147 million initial public offering, followed by Atai Life Sciences’ $225 million flotation in June 2021 and GH Research’s $160 million IPO. Currently, there are 60 publicly traded companies focused on psychedelics: “The big impact in the last year has been the number of companies going public and receiving high valuations. This has really added to the psychedelic interest,” says Galyna Pidpruzhnykova, Director, Innovation Strategy, Atai Life Sciences.

Despite the rise in public offerings, there remains limited access for larger institutional investors, and as a result, most institutional investment originates in the private market. A notable trend in the past 12 months has been the increased range of investor types entering the private market, although there is likely more heterogeneity to come as the sector matures: “While previously we saw most of the investments coming from niche psychedelic funds and high net worth individuals, traditional healthcare funds are starting to move into the space at a rapid pace. However, it is still early for Big Pharma and many large institutional investors, who seem to be watching and waiting until they see results from Phase 2 or 3 trials,” say Clara Burtenshaw and Sean McLintock, Founders, Neo Kuma Ventures.

Outside investment funds, direct investors in psychedelics can be grouped into three main archetypes, each with different motivations and investing behaviours (see Figure 4).

Predictions for the future of psychedelic investing

1. Continued high levels of investment overall

Oversubscribed’ has become the usual descriptor for psychedelic funding rounds, and this level of demand shows no sign of decreasing. We expect investment in the psychedelic sector to top $2 billion in 2021, with the potential for even higher levels of investment dependent on the number of companies planning to go public. We also expect to see new Seed rounds for recently launched companies across pharma, healthcare and digital as interest in the sector grows.

2. Growth in healthcare and digital

We expect to see the continued growth of healthcare and digital platforms to fill gaps in the psychedelic value chain, which so far has been skewed towards early-stage pharmaceutical development. These areas will provide short-term revenue for pharmaceutical companies engaged in the development of next-generation psychedelics. They will also help establish the foundation for the anticipated approval of psychedelic-assisted psychotherapies, beyond ketamine and its derived compounds, expected from 2023. We anticipate investors will continue to distribute their investments across the full value chain of the industry.


“One of the key challenges for the psychedelics industry to really grow is that the whole value chain needs to be established. Our strategy is to invest across the value chain from discovery and development to digital therapeutics and clinical infrastructure.”


Robert Velarde, Iter Investments

3. Greater scrutiny of clinical results as funding increases

With funding due to top $2 billion in 2021, we expect investors to place increasing emphasis on the ability of companies to deliver on their clinical programmes. Pivotal clinical trial results are set to be reported throughout the remainder of 2021 and into 2022, but investors are already scrutinising psychedelic programmes to understand their scientific promise. As Robert Velarde from Iter Investments comments, “Some companies may have focussed on style over substance till now. Going forward, investors are focusing more on the science — at the end of the day, it’s all about the execution.”

4. Continued growth in Europe

Europe’s leading role in the psychedelic industry is expected to continue, with high levels of investment for the remainder of 2021 and 2022 anticipated due to the strong performance of both public and private companies. Investment from the US will no doubt continue apace as well.

5. Increasing traditional biopharmaceutical investors and established pharmaceutical companies moving in

As companies work on developing next-generation psychedelics with improved properties and increased patentability, we expect more traditional biopharma investors to enter the space. There have been some notable recent examples of this trend. For example, in April 2020, Otsuka invested in COMPASS Pathway’s Series B round funding via the McQuade Center for Strategic Research and Development. We expect to see this trend continue.


We see no evidence that the surge in investment in psychedelics witnessed this year will slow down. If anything, the rate is likely to continue to increase especially as lead candidates across several larger companies edge their way towards launch. This will further propel an industry that will likely offer hope to many patients in desperate need of alternative, effective therapies. 

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