The Potential of Psychedelics
#96: On the evolving landscape of psychedelic drugs in medical applications.
One of the big new-era ideas that has gained popularity in science, popular culture, and the stock market in recent years, is the medical potential of psychedelics — using drugs like LSD, MDMA, or psilocybin in the treatment of a variety of medical conditions.
As the story goes, many of these compounds were originally synthesized for medical purposes, and naturally occurring psychedelics have been used in alternative medicine for centuries. Indeed there was fertile research into these drugs’ potential throughout the mid-20th century. But concerns of abuse, side effects, and social backlash ultimately resulted in the banning of these substances, halting medical research in the process.
But as attitudes towards these drugs have evolved, this dormant field of exploration has seen a modern revival with seemingly promising results. These ideas have been further popularized throughout the media — in headlines and on Netflix.
Enthusiasm for a new category of therapeutics has spawned a litter of biotechnology companies seeking to bring such drugs through clinical trials and ultimately to market. At peak enthusiasm, there were even two separate ETFs launched to track baskets of such companies — the Horizons Psychedelic Stock Index (PSYK) and the AdvisorShares Psychedelics ETF (PSIL).
But at least in the market’s eye, psychedelics’ spring revival peaked along with the meme stocks in early-2021 and has since given way to a winter of discontent, as lofty potential has succumbed to the here-and-now. Currently, no traditional psychedelic1 has been approved by the FDA for medical use in the United States. Investment performance in clinical stage psychedelic research has been… lackluster.
But even as stocks fall, the research continues.
In 2023, the FDA provided new guidelines for psychedelic drug trials, showing an increasingly supportive regulatory regime. This year, we may see the first FDA approval of a psychedelic — using MDMA with psychotherapy in the treatment of post-traumatic stress disorder (PTSD). And just in the past two weeks, two separate drugs were granted “breakthrough therapy designation” by the FDA following positive Phase II results, which would help to expedite the drugs approval process to the extent they continue to show safety and efficacy in Phase III trials.
In other words, we are closer today to seeing the fruit of this research, and yet most companies in the space are still discounted as the dregs of a bubble-past.
Important caveats. I’m not a doctor, nor do I have experience evaluating clinical drug development. This article doesn’t attempt to comprehensively address concerns of side effects or unravel the thorny history of prescribing drugs with potential for abuse. Nor is this article intended to be a stock pitch, even if some of the information may be relevant to investors.
But, as a general matter I do find this particular intersection of finance, health, and science quite fascinating, and I think you may as well. Let’s dig in.
The Landscape
Presently, there are numerous clinical trials underway, sponsored by an array of biotechnology companies, testing the safety and efficacy of psychedelic drugs.
These trials typically involve pairing a specific drug candidate (formulation, dose, delivery method) against a specific diagnosed condition. The primary area of focus has been on treating mental health disorders such as post-traumatic stress disorder (PSTD), major depressive disorder (MDD), treatment resistant depression (TRD), or general anxiety disorder (GAD), but earlier stage research expands the window of exploration to include substance abuse, obsessive compulsive disorder (OCD), anorexia, and more.
Below is a select list of psychedelic drugs in moderately advanced clinical trials.
Generally, treatment involves administering the drugs to patients in a controlled and accommodative environment under the supervision of a psychiatrist. There is also a range of other important variables. In some trials, the treatment sessions are accompanied by talk-therapy, while others are not. Some are being tested in combination with existing psychiatric medication, while others are tested in isolation. Dosages and repetition vary case by case.
As with all FDA approvals, these drug trials involve three phases. First, testing the safety and tolerability of the compound, second, measuring its effectiveness in treating a diagnosis, and third, replicating the results in larger studies while also evaluating negative outcomes.
The efficacy of the treatment is determined by changes in symptoms in follow-up visits, as measured by standardized rubrics such as the Montgomery–Åsberg Depression Rating Scale (MADRS), generally several weeks after treatment. Longer-term check-ins also test the durability of effect.
While researchers have a narrow understanding of the neural pathways in play — they understand the specific receptors the compounds interact with — it is less clear exactly how these drugs produce results. But the broad understanding is that these drugs can stimulate new ideas, widen perspectives, and change patterns of thinking. And while the acute effects of the drugs are limited to several hours, the impact to a patient’s thought process can be long lasting. In this sense, treatment can penetrate the rumination and rut of inescapable negative thoughts that often typify forms of depression, or other anti-social behavior.
Here is the truly interesting hope — that by allowing people to think in new ways, these drugs may actually get closer to addressing the cause of these mental diseases, rather than merely addressing symptoms. Further, there is the hope that even single treatment sessions can potentially provide long-lasting benefits. A growing body of clinical data supports these ideas. Here are some worth noting…