In the past few years, investment in psychedelic startups has mostly focused on drug development in anticipation of Food and Drug Administration approval to use such substances to treat depression and anxiety.
But things haven’t exactly turned out that way.
Instead, Oregon has beaten the FDA to the punch, approving the legal use of psilocybin or “magic mushrooms” in a therapeutic setting. California and Colorado are expected to pass similar laws soon. Under the guidance of a therapist, adults can consume hallucinogenic mushrooms as a tool to reach their mental health goals.
This new opportunity hasn’t translated into startup funding yet. Pharmaceuticals ended 2022 with $143 million in funding globally, while ancillary services such as telehealth and administrative services received about $29 million.
According to Marik Hazan, founder of psychedelics investment firm Tabula Rasa, the industry in 2021 was heavily built around the expected (and repeatedly postponed) drug approval from the FDA.
“This would be a completely drug development-focused center,” Hazan said. “Then, people started talking much more about the fact that state-by-state [law] is actually going to matter a lot and it’s worth paying attention to.”
Hyping up pharmaceuticals
For a long time, the psychedelics industry was squarely focused on pharmaceutical companies.
At its peak in 2021, funding in the space reached more than $368 million, according to Crunchbase data. The majority of that funding went to biotech startups. Companies like COMPASS Pathways and MindMed received millions of dollars to create new drugs based on psychedelic compounds. Several drug-making startups launched into the public markets.
While funding has lagged behind on everything else — teletherapy services, guided meditation apps and wellness trackers — venture funding quickly course-corrected in 2021. The number of funding rounds dedicated to pharmaceutical companies and ancillary services began to see more parity in 2021.
That change was partially due to the space becoming overcrowded with redundant companies that promised the same thing.
But, even more importantly, the industry realized that psychedelics, when legalized, would require infrastructure services to work properly.
New therapy infrastructure
“There aren’t enough therapists in general. There are certainly not enough psychedelic therapists,” said Brom Rector, founder of psychedelic venture company Empath Ventures. “Somebody is going to make a lot of money by being the default training program for something like that.”
Companies such as Lumen and Fluence have popped up to train therapists. New York-based Fluence provides training and certification for therapists who want to use psychedelics in their practice. The company received its license to train therapists in Oregon back in October, ahead of the rollout.
Fluence was founded by psychologists Elizabeth Nielson, Ph.D, and Ingmar Gorman, Ph.D., both of whom are working on psychedelics clinical trials with the FDA. The platform’s certification program is led by psilocybin researchers and psychedelics-trained therapists.
“Fluence brings a history of experience training mental health professionals in research and community-based practice settings, and we look forward to supporting the growing field of psilocybin services in Oregon through this program,” Nielson said in a statement.
Paying for it
Despite Oregon legalizing psilocybin-assisted therapy, insurance will not cover it since magic mushrooms are still federally classified as a Schedule I drug.
So companies like Enthea have entered the space with a workaround. The Massachusetts-based startup raised $2 million in December for its platform, which helps people access psychedelic-assisted therapy as a workplace benefit. Dr. Bronner’s, a soap company and Enthea partner, is one of the first companies to offer ketamine-assisted therapy to its employees.
“These medicines, when they do become approved, are going to be expensive and most Americans won’t be able to pay out of pocket,” said Enthea’s CEO Sherry Rais. “If most Americans can’t even afford a $500 unexpected expense, how are they going to be able to pay for these medicines?”
Illustration: Dom Guzman
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