Psychedelics Industry Goal: Find Capital ASAP
Traditional tactics aren’t always the most effective ways to raise capital.
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This year is looking brighter for the psychedelics industry. Psychedelics companies are digging deeper and looking for new ways to finance their research and development efforts.
While most of the psychedelic companies listed on various stock exchanges in the U.S. and Canada show no revenue yet – in fact, many show big loses – investors still believe in the industry and are propping up development efforts for the expected big payoff that appears closer today than ever before.
The positive MDMA Phase 3 clinical trial results by Multidisciplinary Association for Psychedelic Studies (MAPS), and the potential for FDA approval of MDMA by the end of this year, is widely viewed as one of the most promising developments in the psychedelics industry. It shows how the psychedelics is advancing toward being a profitable enterprise.
In fact, on Jan. 16, Numinus Wellness Inc. (TSX: NUMI) (OTCQX: NUMIF), a mental health care company advancing innovative treatments, became one of the few in the industry reporting revenue growth, for the most part, because of its area of business concentration as a provider of therapy treatment services involving ketamine and Spravato.
Revenue grew 618% year-over-year at Numinus.
“We’re very pleased with the momentum that is building across all aspects of our business and the trajectory we’re on, making Numinus the first publicly traded psychedelic-focused company to achieve profitability, which we believe is likely to occur in the next 18-24 months,” Payton Nyquvest, founder and CEO of Numinus, said during a recent earnings call.
But there is still a sort of yin-yang balance, featuring reverse-momentum moments, as the industry works through the ups and downs of this hopeful year.
One example is the crashing of Atai Life Sciences (Nasdaq: ATAI) stock in January because of bad results from a Phase 2a proof-of-concept trial assessing the safety, tolerability, and efficacy of a single IV administration of ketamine. Shares of Atai’s stock crashed nearly 40% to an all-time low when the trial results were announced on Jan. 6.
Atai hinted at finding other strategic partners to work with going forward, perhaps with Otsuka Pharmaceutical Co. In March 2021, Perception Neuroscience, a subsidiary of Atai that led the failed clinical trial, announced a collaboration and licensing agreement with Otsuka.
There are reports that the general life sciences industry is in for some serious new strategizing this year – raising venture capital, launching an IPO, or selling additional stock to fund R&D and other operations. And pharma is getting more interested this year as bio-tech and psychedelic companies move into and through Phase 3 trials, according to a business leadership development organization, Spencer Stuart, in an article about biotech and biopharma in 2023.
“Rather than focusing on Phase I/II, Pharma’s priority is now Phase III-ready assets that can fill their pipeline and generate revenue, while also seeding optionality across the market with co-development deals,” Stuart wrote. “Although choppy waters are expected to extend into the first half of 2023, there is no shortage of cash awaiting deployment. Private equity (PE) firms, boosted by the acquisition of venture capital (VC) funds, are now taking development risk, and there is a real appetite to invest in the cutting-edge science that will evolve into approvable medicines for patients worldwide.”
Bottom line this year: Find capital, however you can.
“You got to find money,” Tim Schlidt, co-founder of a psychedelics investment fund company, Palo Santo, told Psychedealia. “If you’re looking for pennies under the couch, you got to do what you got to do. I think what is going to be tough is that the capital needs for drug development are so large, it’s probably going to be tough to find enough capital from more nontraditional sources.”
One company using a creative way to raise capital is Algernon Pharmaceuticals (CSE: AGN) (FRANKFURT: AGWO) (OTCQB: AGNPF), a Vancouver-based clinical stage drug development company that filed a Form 1-A offering statement with the U.S. Securities and Exchange Commission (SEC). Algernon hopes to be qualified to raise up to $10 million by offering up to 37.5% of its common shares while keeping majority ownership under a Tier II Regulation A+ offering (Reg A+).
The capital raised will be used for research, development, and program management costs related to the completion of the Phase 1 and Phase 2a DMT stroke study.
“You can go to the market and raise capital from time to time,” Chris Moreau, CEO of Algernon, told Psychedealia. “But the problem with thousands of companies like Algernon is that, due to COVID economic factors and global factors, global equities are down across the board. You’ve got even blue chip stocks down.”
When you’re an R&D company like Algernon, he said, it’s all about the potential of what you could have.
“We have a couple of other drugs (in addition to DMT for stroke) that we’re advancing, and all of them could be billion-dollar drugs,” Moreau said. “So intuitively, you would think that our value on the stock market would be in the $40, $50, $80, $100 million-dollar range under normal market conditions. But because the market is so out of whack and is really broken, our value is ridiculously low.”
Algernon created Algernon Neuroscience (AGN Neuro), a new wholly owned private subsidiary, to advance the DMT stroke program and transferred all DMT research program assets into AGN Neuro.
AGN Neuro will remain a private company until the completion of a Phase 2a stroke study planned for later this year. Then the company will review and consider a direct IPO listing onto the Nasdaq.
Algernon Pharmaceutical plans to raise capital in that private subsidiary company, Moreau explained, using Regulation A (or Reg A) financing, a financing option that arose from the crowdfunding financing phenomenon in the U.S. that was formalized by the Securities and Exchange Commission (SEC).
Reg A is an exemption from registration under the Securities Act that allows companies to raise money from the public in securities offerings of up to $75 million, according to the SEC. It allows companies to offer and sell securities to the public, but with more limited disclosure requirements than what is required for publicly reporting companies.
“It’s a method of raising capital where you have different capabilities,” Moreau said. “You can use online and digital marketing. You’re appealing to different type of investors, such as a millennials, who may not be the classic stock market investor, who may put in an investment in the $2,000-$4,000 range. It’s really easy to do. You can use Apple Pay, Visa, MasterCard. So it’s a different approach, and billions of dollars have been raised through Reg A financings. So I thought, you know, this is a program that I think can capture people’s imagination.”
Reg A financed companies that have done well include those in green tech, modular homes, electric cars – all of which have a certain amount of sex appeal to it, Moreau said.
“I think the psychedelic space has that interest from the market,” he said. “We felt that at Algernon Pharmaceuticals, we weren’t getting the love or attention that this asset, this drug program, needs. So by spinning it out into a private company, AGN Neuro, Algernon will still control it. It will own the majority shares. We can raise capital under this Reg A and allow us to move the program forward.”
There has been a lot of money raised and blown in the psychedelic space so far, Moreau said. “So maybe in the next round of investment, everybody’s going to tighten up a bit and start operating a little more cautiously and more capital efficiently. Like everything in life, it goes through cycles. Funds are less willing to be writing big checks. They want to really understand the intellectual property.”
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