- A year ago, nonprofits and scrappy startups made up the psychedelics space.
- Now, companies are raising millions from investors and going public on major exchanges.
- Here's what you need to know about the booming psychedelics industry.
- See more stories on Insider's business page.
Over the few years, startups focused on turning psychedelic compounds into approved medicines have raised hundreds of millions of dollars from private investors and dozens have gone public.
Research on compounds like psilocybin, the active compound found in magic mushrooms, and MDMA is resurfacing after years of neglect amid the war on drugs.
As companies get closer to receiving approval from the Food and Drug Administration to bring their psychedelic treatments to patients, they've also been planning out their patent strategies to carve out their share of the market.
Here's a look at the booming psychedelics industry:
VCs have deployed millions into psychedelics startups — here's what they say will happen next
Then, we saw a flurry of activity, which one industry exec called a "psychedelic renaissance."
Soon, VC firms focused on psychedelics companies specifically began to emerge. Insider's list of the top 11 venture-capital investors in the space collectively deployed $139.8 million into startups in just a few short years.
They also gave us their predictions for the coming months. Some told us that biotech giants were looking to get into the space, while others predicted a boom in tech companies and clinics that would lay the groundwork for when medications come to market. We can also expect to see new compounds and a slew of startup failures, they said.
The top 3 VC firms told Insider about the green and red flags they see among startups in the space.
Mainstream startup accelerators are also eyeing the space
In a signal that the psychedelics space is becoming increasingly mainstream, startup accelerators known for investing in tech, retail, and healthcare are jumping into funding companies in the industry.
Famed startups accelerator Y Combinator is dabbling in psychedelics: over the past few years, the organization has accepted at least four startups into its program. Insider spoke to three of the startups to ask them about their experiences and the advice they would give to other founders looking to be accepted.
Founders Factory, an accelerator that's worked with companies like L'Oréal, Johnson & Johnson, and Marks & Spencer, is an example of another mainstream player that's eyeing the $100 billion industry.
The organization is partnering with psychedelics company Woven Science to to support a handful of early-stage startups focused on psychedelics-based mental-health treatments.
CEOs set the tone for the burgeoning space
A slew of companies have entered the psychedelics industry, but a few stand out as frontrunners.
In February 2020, Atai CEO Florian Brand said that he was turning to pharma and biotech investors as the company looked to further grow. At the time, Atai was a private company that made headlines for winning over backers like Mike Novogratz and Peter Thiel.
In March of this year, the company raised a record $157 million, pushing psychedelics further into the mainstream.
Meanwhile, change has been bubbling on the state and local levels. In November, Oregon legalized psilocybin for therapeutic purposes — but that doesn't mean you'll see the giants rush in.
The biggest companies in the space told Insider they were focused on seeking approval for their experimental substances from the Food and Drug Administration. Atai founder Christian Angermayer said recently that while he personally supports decriminalization, he thinks legalizing psychedelics could create a backlash for the industry.
Compass Pathways CEO George Goldsmith told Insider soon after the company's IPO last fall that he expects treatments to come on the market by 2025. Atai's Brand said there are challenges to address between now and when treatments become widely available, such as scalability and reimbursement.
Startups are raising big sums for drug development and clinics
Drug development takes a lot of capital, and startups are focused on getting the funding they need.
Insider got ahold of three pitch decks that companies used to raise tens of millions of dollars. Beckley Psytech raised $18.6 million in December to develop a slew of new treatments focused on rare diseases and mental health.
Compass Pathways raised $80 million from investors like Founders Fund in 2019, fueling its rise to the top.
Meanwhile, startups focused on clinics, where psychedelic treatments are expected to be administered, are raising capital too. Novamind raised $7.8 million with this pitch deck.
Another way to get access to capital is to go public, and there are now dozens of psychedelics companies in the US and Canada.
We broke down the 7 companies with the biggest market caps and laid out their business models, drug pipelines, and timeline to get treatments to market.
The top startups are racing forward
Private startups are still a core part of the space.
Earlier this year, we published a list of the psychedelics startups that raised the most cash in 2020. The 14 names on that list raised over $222 million.
We recently asked the biggest investors in the space to name two top startups in the industry — one they had invested in and one in which they hadn't — and came back with 15 names.
As drug discovery and development heats up, companies are using patents to raise money and protect market share
Psychedelics treatments based on psilocybin and MDMA are inching closer to FDA approval.
In November, Compass Pathways, one of the few psychedelics companies in mid-stage trials of its psychedelic treatment, released data around its phase IIb trials for its a synthetic version psilocybin, the psychoactive component found in magic mushrooms, to treat treatment-resistant depression, or depression that doesn't get better with at least two other treatments.
Compass is also in the midst of a brewing debate over the role that patents should play in the world of psychedelics, which has traditionally been a field defined by open science and natural compounds. Critics say the psychedelics giant is attempting to dominate the industry with its overreaching patent strategy, while Compass says it is only using patents to protect new inventions.
But virtually every company developing psychedelics as FDA-approved treatments is employing a patent strategy to protect its market share and raise money from investors. Patent lawyers told Insider that a slew of patent disclosures could determine the winners and losers of the space.
Academics, lawyers, and analysts are wading into the burgeoning space
Meanwhile, it's not just investors and companies that are building out the foundation for what could become a $100 billion market.
Academics have continued to publish promising studies on the benefits of psychedelic compounds.
Wealthy philanthropists are responsible for the rush of funding entering academia as prestigious universities set up psychedelic research centers. One scientist told us that as psychedelic research has emerged from the fringes, donors have begun to catch the "psychedelic bug."
"What psychedelics seems to do is, when it grabs you, you really seem to get it," he said.
Lawyers and analysts are also wading into the space. As a slew of companies began to go public, analysts at investment banks began to cover the industry. Lawyers originally focused on cannabis clients also took the plunge.
This article was first published on Aug 3, 2021 and was updated on Jan 14, 2022.