Is Thoughts Drugs a Purchase?
TThe psychedelic drug market could be valued at $ 10.8 billion by 2027, according to ResearchAndMarkets.com, and growing at an annual rate of 12.4% until then. It’s an exciting new sector to invest in, and many people compare it to the early days of the cannabis industry, and Mental medicine (NASDAQ: MNMD) is a front line investable company.
The biotech, also known as MindMed, is in the early stages of work on several drugs that could potentially hit the psychedelics market. But should investors with no income, rising losses, and a lot of risk take a risk in the stock?
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The possibilities are huge
MindMed is developing drugs that can treat many different areas, including depression, addiction, ADHD, and anxiety. And those are some big markets that need to be opened up. The depression drug industry alone is valued at an estimated $ 9.6 billion, closely followed by the ADHD market at $ 9.5 billion. Addiction drugs are worth $ 5.8 billion and the anti-anxiety drug market is worth $ 4.7 billion.
The company currently has several clinical trials underway, including its experimental LSD therapy, Project Lucy, which is entering Phase 2b trials. It is also in Phase 2 trials for LSD microdosing (Project Flow) and an opioid withdrawal drug (Project Layla). Last month, MindMed also announced the launch of the Angie project, which will look at how effective psychedelics, especially LSD, are in treating pain.
The company is also working on patent and intellectual property development. One such example is an LSD neutralizer that aims to stop the substance’s hallucinogenic effects in less than 30 minutes. This can help improve the patient experience while focusing on the medicinal benefits, much like the medical marijuana market where the focus is on wellness rather than getting a high.
Patience is a requirement for any serious investor
For a non-revenue company, investors must be willing to wait years for any hope of profitability to emerge. In 2020, Mind Medicine reported total expenses and losses of more than $ 35 million. As of March 31, the company reported that its cash on hand was up to $ 160 million and that it used only $ 10 million for the quarter to fund its day-to-day operations. It is a good sign that the company is not losing too much money and that its cash on hand is healthy enough to support its operation. But as the company grows and gets more involved in development, both administrative costs and research expenses are likely to increase. While it may look good to potentially fund a year (or more), investors shouldn’t assume it will.
Even if it can fund a year or two, it may still not be enough to generate revenue to curb the money bleeding. Many of the company’s Phase 2 studies won’t complete until 2022 or later.
And success in early studies is no guarantee that a drug will hit the market. The probability that a drug successfully passes through all clinical stages and ultimately receives approval is only 20.9% for non-oncological drugs. There is a 66.4% chance they can move from Phase 1 to Phase 2, but only 48.6% of these drugs will move to Phase 3. And even reaching this stage does not make admission certain. because more than 40% of these drugs still fail in the end.
Should you take a risk with MindMed?
Investing in a company that is not generating income is always a significant risk. And while it’s great that MindMed is working on drugs that can really help people with depression, anxiety, and other medical conditions, that alone doesn’t mean the company and its drugs will generate revenue. Without a product to sell today, the business will remain a risky buy and long shot. Unless you have a high level of risk tolerance and are willing to accept the loss of all of your investment, you should avoid MindMed. The potential returns could be significant for the stock, but so too could the risk.
If you want to wager in the psychedelics market, it is a safer option to go into that Defiance Next Gen Altered Experience ETF. The fund holds MindMed in its portfolio along with other companies in the cannabis and psychedelic industries so you can diversify your overall risk and make sure you don’t bet all on one very risky stock.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.