Wall Street is betting tens of millions of dollars on psychedelic drugs that backers say could treat mental illness for a fraction of what it costs to do therapy with better-known treatments.
Transcend Therapeutics Inc. raised $40 million from venture-capital investors in January to develop a post-traumatic stress disorder treatment that its 29-year-old CEO Blake Mandell says would require about half the amount of therapy as MDMA, or ecstasy, a popular hallucinogen. Gilgamesh Pharmaceuticals Inc. and Lusaris Therapeutics Inc....
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Wall Street is betting tens of millions of dollars on psychedelic drugs that backers say could treat mental illness for a fraction of what it costs to do therapy with better-known treatments.
Transcend Therapeutics Inc. raised $40 million from venture-capital investors in January to develop a post-traumatic stress disorder treatment that its 29-year-old CEO Blake Mandell says would require about half the amount of therapy as MDMA, or ecstasy, a popular hallucinogen. Gilgamesh Pharmaceuticals Inc. and Lusaris Therapeutics Inc. have announced capital raises of about $100 million since November for similar products addressing depression.
The companies’ fundraising—and their focus on more cost-effective psychedelic therapy—coincides with a sharp selloff in biotech stocks last year that blunted some of the enthusiasm surrounding the commercial potential of hallucinogens.
All three companies say their drugs will kick in faster and wear off faster than MDMA and psilocybin, the psychoactive component of magic mushrooms. That could lift one of the biggest roadblocks to delivering psychedelic treatment to a mass market.
The FDA is expected to approve treatments using MDMA and psilocybin in the next few years, but rolling them out could be expensive because they must be administered by trained therapists, pharmaceutical executives say. MDMA and psilocybin can induce psychedelic trips lasting six to eight hours, and treatments typically involve additional therapy before and after.
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“There’s a role for traditional medicine for people who want to do six- to eight-hour trips, but you have to face the reality of the medical system as it is today,” said Amy Kruse, a neuroscientist and partner at venture-capital investment firm Prime Movers Lab, which led a $39 million funding for Gilgamesh in December.
The U.S. is struggling with a scarcity of mental-health workers. About 158 million Americans live in areas affected by such shortages, up from 95 million a decade ago, according to data from the federal Health Resources and Services Administration.
Some pharmaceutical companies are pushing to develop psychedelic compounds that don’t cause hallucinations or euphoric experiences at all, allowing for shorter and cheaper treatments. Transcend says its drug induces euphoria but not hallucinations.
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Critics of the new ventures say they are trying to create patentable drugs that will be far more costly to purchase than traditional psychedelics without commensurate improvement in outcomes. Psilocybin isn’t patentable because it occurs naturally, while synthetic drugs LSD and MDMA are decades old. Global revenue from psychedelics could reach $8 billion by 2027, L.E.K. Consulting estimated.
Transcend is conducting clinical trials for Methylone, a drug that will appeal to many PTSD patients precisely because it is less intoxicating than MDMA, said Ben Kelmendi, the firm’s co-founder and chief scientific adviser. He became interested in the chemical at his other job, running psychedelic research at Yale University.
An ethnic Albanian from Kosovo, Mr. Kelmendi fled the war there as a high-school student in 1996 and eventually became a psychiatrist studying obsessive-compulsive disorder and PTSD. Psilocybin and MDMA did wonders for otherwise treatment-resistant patients, but “it became clear that even in a best-case scenario, the drugs would have limitations,” he said.
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Patients already using a popular class of antidepressants known as selective serotonin reuptake inhibitors, or SSRIs, can’t take MDMA. Other candidates backed out of psychedelic studies because they feared being retraumatized or having their personalities altered, Mr. Kelmendi said.
He was approached in 2019 by Kevin Ryan, a former Yale trustee who had founded online companies such as Gilt Groupe Inc. and who wanted advice about philanthropy for psychedelic mental health.
In 2020 Mr. Ryan tapped Mr. Mandell, then an associate at his investment firm, to look into launching a psychedelic-medicine startup. Mr. Mandell had studied mathematics and neuroscience at Brown University. He had also struggled with depression as a teenager and had lost several close friends to suicide by his early 20s.
Messrs. Kelmendi, Mandell and Ryan launched Transcend in 2021 to conduct clinical trials of an empathogen similar to MDMA called Methylone, which the U.S. outlawed in 2013. Results of tests conducted on rats were promising enough for Mr. Mandell to attract outside capital this year. Transcend will use the money to start tests on sick humans, an early step in the arduous Food and Drug Administration approval process.
“Methylone, which doesn’t have any hallucinogenic effects, is far milder than MDMA, and is a better fit for the existing medical infrastructure,” said Rick Gerson,
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chief investment officer of Alpha Wave Global, a venture-capital firm that participated in Transcend’s recent funding.
Others are also jostling to raise cash.
London-based Small Pharma announced in January a successful Phase 2a trial treating depression with Dimethyltryptamine, or DMT, a fast-acting drug related to the indigenous psychedelic ayahuasca. The company raised $52 million with a Canadian stock offering in 2021 but only has about $17 million left.
The biotech selloff has made fundraising more difficult, but Small Pharma is considering another share sale to fund a larger trial this year. “The U.S. capital markets are larger in order of magnitude compared to Canada and they have a depth of expertise,” said Chief Executive George Tziras.
Lower valuations have made investing more attractive, said Ms. Kruse. “Some air has come out of the balloon and…things have come down to reality.”
—Daniela Hernandez and Brianna Abbott contributed to this article.
Write to Matt Wirz at matthieu.wirz@wsj.com