The Mainstream Healthcare VCs Dipping Their Toes Into Psychedelics – Business Insider

In recent years, dozens of newcompanies have begun to undertake the long and expensive process of developing psychedelics-based drugs for regulatory approval.

In turn, a handful of VC firms focused specifically on funding psychedelics businesses have stepped up to the plate, helping to spur studies around compounds like MDMA, psilocybin, and LSD for a plethora of illnesses.

But as drugs inch closer to approval by regulatory bodies like the Food and Drug Administration, they also become much more expensive to develop, since later-stage clinical trials often require larger numbers of participants, more trial sites, and longer trial lengths.

Enter mainstream healthcare VCs, who are dipping their toes into the still-nascent industry and have the deep pockets to support expensive late-stage clinical trials, which are crucial in order to get any new drug to market.

While a handful of high-net-worth individuals and tech investors have made investments in studying the use of psychedelics as medicine, the entry and sustained presence of mainstream healthcare VCs marks a new level of acceptance for the space, one that brands psychedelics as promising treatment for mental-health disorders in established biotech circles.

Insider scoured press releases and talked with healthcare analysts and psychedelics VCs in order to understand which mainstream healthcare VCs are leading the charge on turning psychedelics into regulated treatments.

One of the most high-profile healthcare VCs that has invested in psychedelics companies is Boston-based RA Capital. The firm, which has previously invested in companies including Novavax and Moderna, has funded at least three psychedelics-focused companies since 2020: GH Research, Cybin, and Delix Therapeutics.

All three companies are working to develop psychedelics-based compounds to treat mood disorders such as depression and anxiety.

According to CB Insights, RA Capital was one of the most active healthcare VCs in the second quarter of 2021. RA Capital did not respond to Insider's request for comment.

Other mainstream firms, like Catalio Capital and OrbiMed have made at least two investments into the space.

Catalio Capital was founded in 2020, when it spun out from Camden Partners Holdings to focus on expanding its investments in the biotech space. It has invested in biotech companies including Thrive Earlier Detection, Recursion, and Freenome. The firm backed the psychedelics companies Atai and Compass Pathways when the companies were private, and since their respective IPOs, Catalio has continued to hold positions.

New York-based OrbiMed, which has invested in over 80 life-sciences startupsincluding diagnostics giants Invitae and Guardant Health. The firm has backedAwakn and Cybin in the psychedelics space. Awakn is developing ketamine and MDMA for alcohol-use disorder while Cybin is working to develop compounds like psilocybin and DMT to treat anxiety, neuroinflammation, and other illnesses in early-stage trials.

A smaller healthcare VC firm, Connecticut-based Soleus Capital, has made investments into two psychedelics companies: Compass Pathways and Field Trip.

The vast majority of mainstream healthcare VCs that have made an investment into the psychedelics space have gone in on one name:GH Research.

Almost a dozen mainstream biotech investors, including Deerfield Management Company and Venrock Healthcare Capital Partners, have backed the firm since it was founded in 2018.

Dublin-based GH Research is developing a medicine for treatment-resistant depression that's based on a psychoactive compound called 5-MeO-DMT, found in the Sonoran Desert toad. Its lead compound, GH001, was tested in a phase-one and partial phase-two trial, which wrapped up in November 2021.

The company said it expects to submit clinical trial applications for a phase-two-B trial in the third quarter of 2022.

Connor Williams, an analyst at RTW Investments who covers GH Research and neurological diseases, told Insider that he believes his and other VCs' interest in GH Research is based on the fact that the company's compound didn't have the same "onerous requirements for patients" as the other psychedelics in development. Cowen analyst Ritu Baral added that the pedigree of the company's founders who have substantial biotech experience likely also helped catapult awareness among specialist investors so quickly.

Though the vast majority of mainstream VCs interested in psychedelics have only hedged their bets on GH Research, George Petrocheilos, a managing partner at Catalio, told Insider that he believes more mainstream investors are becoming interested in the space.

"I think it's already happening," Petrocheilos said, adding that he's received a lot of diligence calls and interest calls from mainstream investors who want to better understand the industry.

"They understand that it's a great opportunity," he said.

RTW's Williams agreed that more healthcare VCs may become interested in the space, especially as the science develops.

"If you continue to see strong data with novel compounds that are differentiated, then it could grow," he said. "If you see data get worse, then maybe not. So it's really about following the science."

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The Mainstream Healthcare VCs Dipping Their Toes Into Psychedelics - Business Insider