Investors Can Aid in the Acceptance of Psychedelic Medicine
This article originally published on May 31, 2024, by Law360, and is reproduced here with permission.
Psychedelic medicine, long considered taboo, is ready to have its breakthrough moment. Research into psychedelic therapies is attracting bipartisan support, and integration into U.S. healthcare appears increasingly likely.
However, psychedelics still face political, legal and communications challenges. And while psychedelics may not follow the exact path as cannabis into the mainstream, investors — particularly private equity — focused on scientific innovation and mental health, can play a significant role in educating the public and policymakers about the benefits of increased usage and lay the foundation on changing public perception about psychedelics from taboo to acceptance.
Political Considerations
Investors should focus their attention and capital on companies developing a product for U.S. Food and Drug Administration approval and avoid focusing on state-level initiatives that may not be compatible with the future federal regulatory landscape.
Related Insight: Issues Ahead as Psychedelic Medicine Faces Pivotal Moment
Seen in the form of growing interest from Washington, momentum is building behind federal reform efforts acknowledging the robust clinical benefits offered by psychedelic medicine. Going all in on firms operating within the legal gray area created by state level decriminalization poses a significant political risk to investors, especially when contrasted with growing beltway support for psychedelics as medicine rather than recreation.
Bipartisan support for psychedelics continues to build at the state and federal level, primarily spurred by urgent efforts to mitigate the national mental health and addiction crisis.[1] These beginning stages of the policymaking process are an excellent opportunity for investors to prepare for when government becomes more open-minded toward next- generation therapies.
At the federal level, Democrats and Republicans show a keen interest in policy changes to aid the development of breakthrough therapies for mental health from a research and rescheduling perspective. Some policymakers support psychedelics over other drug reform efforts because of compelling clinical trial data, others due to the strong support among veterans for reform.
Federal policymakers have turned their support into action with recent National Defense Authorization Act and appropriations amendments,[2] bipartisan legislation like the Breakthrough Therapies Act,[3] and the U.S. Department of Veterans Affairs’ opening research grant applications[4] to psychedelic-assisted therapy.
Simply put, psychedelics will not become the next cannabis; The robust clinical efficacy, commercial development and regulatory support preclude any such development. State-level access pathways have already caught the ire of federal policymakers, who see recreational use as a step too far and view supervised adult use or the wellness model as a potentially dangerous situation where people who need mental health services go to a clinic without a medical professional.[5]
If states go too far, the federal government will not change its stance on prohibition and close the door on progress and reform. Instead of benefiting from research and rescheduling reform, psychedelics companies suffer as the burdens of Schedule I push balance sheets to the red.
Legal Considerations
Investors typically prioritize a company’s patent portfolio for intellectual property protection.[6] Evaluating drug scheduling, considering the schedule I standard for most psychedelics, is crucial.[7]
Understanding the unique regulatory pathway in the sector is vital, where FDA approval may prompt U.S. Drug Enforcement Administration rescheduling,[8] yet this may not uniformly apply at the state level due to varying drug scheduling laws.[9] The potential misalignment between state and federal regulations could lead to an uneven rollout of therapies across the U.S., requiring careful consideration throughout the investment life cycle.
Life sciences investors commonly scrutinize a company’s clinical trials for regulatory adherence, but for psychedelic firms, there are additional considerations. Respecting patient rights, particularly maintaining continuous informed consent, is central,[10] especially concerning therapeutic touch in psychedelic-mediated therapy.[11] This ongoing nature of the therapy necessitates informed consent at intake and throughout therapy sessions.
Given psychedelics’ potential to alter consciousness and heighten vulnerability,[12] assessing whether clinical trials were secured through informed consent is crucial. Investors should extend their scrutiny to encompass these unique ethical and patient-centric dimensions inherent in psychedelic life sciences biotech ventures before investment. Reviewing how the company communicates its clinical trial progress, results and any risks will also be necessary.[13]
Communications Considerations
Psychedelics present significant growth opportunities for investors but entail reputational challenges, particularly for institutional and private equity investment firms. These challenges require nuanced communications throughout the investment process.
A key component of ensuring reputational integrity, both for the acquiring firm and the target portfolio company, is a multistakeholder communications strategy that addresses public concerns surrounding private equity involvement in healthcare and the societal stigmas limiting the broad adoption of psychedelics. To mitigate potential concerns, interested firms stand to benefit from outreach to patients, providers, policymakers and the community across the entire deal life cycle.[14]
A proactive communications campaign can focus the narrative on the positive aspects of private equity involvement and support, mainly that the acquisition enhances community well-being and quality of life by improving treatment quality and the community’s access to cutting-edge mental health treatment. This communication style has proven effective for firms active in the psychedelic space, particularly when complemented with outreach to stakeholders outlining the deal’s value to patients and providers, strengthening the reputations of involved firms.[15]
The legacy stigma of psychedelic medicine requires special consideration to ensure that involvement does not compromise the reputation of investors and their stakeholders, given the significant sensitivities surrounding psychedelics. Psychedelics by nature are plagued with stigmas originating during the war on drugs, both against the medicines themselves and institutional involvement.[16]
By educating investors, policymakers and advocates about the potential clinical benefits presented by psychedelics and the role private equity can play in expanding their use, firms can position themselves as scientific innovators and mental health champions. In so doing, investors are placed at the forefront of the post-COVID-19 mental health crisis through their support of next-generation psychedelic-based neuropsychiatric treatments.
In addition, the emergence of specialized facilities to administer psychedelic therapies marks a significant investment opportunity for many firms as the industry grows and evolves beyond traditional pharmaceuticals.
Conclusion
Maximizing long-term return on investment in the psychedelics industry means attention to political considerations at the federal level, attending to the legal issues around trials and patent protection, and managing and owning a narrative round support for scientific innovation in general and on innovation in mental health in particular.
This means aligning with bipartisan support for FDA-approved psychedelic therapies that help address the nation’s mental health crisis across key stakeholder groups. Consulting with legal experts in pharmaceuticals, biotechnology and life sciences is crucial for gaining a comprehensive understanding of the evolving legal landscape and potential risks in this industry, especially considering significant variations in regulations across jurisdictions.
Finally, a component of ensuring reputational integrity for investors is a multistakeholder strategy that addresses public concerns surrounding private equity involvement in healthcare and the societal stigmas limiting the broad use of psychedelics in clinical practice.
By aligning investment strategies with stakeholder concerns, investors reduce the risk that their investments will be harmed by changing regulations and gain the opportunity to help shape the future regulatory landscape into one that supports shareholder priorities.
Related Expertise
[1] “Reps. Correa, Bergman Re-Launch Bipartisan Caucus to Explore Psychedelic Research for Mental Health,” Representative Lou Correa For California’s 46th District (March 2, 2023), https://correa.house.gov/news/press-releases/reps-correa-bergman-re-launch- bipartisan-caucus-to-explore-psychedelic-research-for-mental-health.
[2] Moira Warburton, “US lawmakers make bipartisan push for psychedelics research in defense bill,” Reuters (July 13, 2023), https://reuters.com/world/us/us-lawmakers-make-bipartisan-push-psychedelics-research-defense-bill-2023-07-13/
[3] “Booker, Paul, Mace, Dean Introduce Bipartisan Legislation to Promote Research and Access to Potential Life Saving Drugs,” Cory Booker (March 8, 2023), https://www.booker.senate.gov/news/press/booker-paul-mace-dean-introduce-bipartisan-legislation-to-promote-research-and-access-to-potential-life-saving- drugs#:~:text=and%20U.S.%20Senator%20Rand%20Paul,of%20the%20Controlled%20Su bstances%20Act
[4] “To improve care for Veterans, VA to fund studies on new therapies for treating mental health conditions,” VA News (January 5, 2024), https://news.va.gov/press-room/to-improve-care-for-veterans-va-to-fund-studies-on-new-therapies-for-treating-mental-health- conditions/
[5] Grace Browne, “Psychedelic Therapy Is Just Don’t Call It Therapy,” Wired (June 15, 2023), https://www.wired.com/story/oregon-psychedelics-psilocybin-rollout/
[6] Luke MacDonald and Daniel Tucker, “Startups and IP protections: Fuel growth and protect your future,” Reuters (March 20, 2023), https://www.reuters.com/legal/legalindustry/startups-ip-protections-fuel-growth- protect-your-future-2023-03-20/
[7] “Drug Fact Sheet,” Department of Justice/Drug Enforcement Administration (April 2020), https://dea.gov/sites/default/files/2020-06/Hallucinogens-2020.pdf
[8] See 21 S.C. § 811(j).
[9] Institute of Medicine (US) Committee to Study Medication Development and Research at the National Institute on Drug Abuse; Fulco CE, Liverman CT, Earley LE, editors, “Development of Medications for the Treatment of Opiate and Cocaine Addictions: Issues for the Government and Private Sector,” national Library of Medicine (copyright 1995, last accessed May 21, 2024), https://ncbi.nlm.nih.gov/books/NBK232175/
[10] See 21 F.R. § 50.20 (2024).
[11] Bethany Lindsay, “Footage of therapists spooning and pinning down patient in C. trial for MDMA therapy prompts review,” CBC News (March 29, 2022; last updated April 9, 2022), https://www.cbc.ca/news/canada/british-columbia/bc-mdma-therapy-videos-1.6400256
[12] Olivia Goldhill, “A psychedelic therapist allegedly took millions from a Holocaust survivor, highlighting worries about elders taking hallucinogens,” STAT (April 21, 2022), https://www.statnews.com/2022/04/21/psychedelic-therapist-allegedly-took-millions-from-holocaust-survivor-highlighting-worries-about-elders-taking-hallucinogens/
[13] Maeve Coyle, Katie Gillies and Dermot Cox (Editor), “A systematic review of risk communication in clinical trials: How does it influence decisions to participate and what are the best methods to improve understanding in a trial context?”, National Library of Medicine (November 16, 2020), https://ncbi.nlm.nih.gov/pmc/articles/PMC7668608/
[14] Eric Reese, “Healthcare M&A: Are you prepared for the pitfalls?”, hfma (December 2, 2022), https://www.hfma.org/finance-and-business-strategy/strategic-partnerships-mergers-and-acquisitions/healthcare-ma-are-you-prepared-for-the-pitfalls/
[15] Mahnoor Khan, “Psychedelic drug startups want to help solve the mental health The stories of patrients are compelling,” Fortune (May 11, 2022), https://fortune.com/2022/05/11/psychedelics-mental-health-benefits-research-startups/
[16] Zak Mehan, Katie Harris and Ethan Lutz, “Issues Ahead As Psychedelic Medicine Faces Pivotal Moment,” Law360 (September 28, 2023), https://www.law360.com/articles/1725382/issues-ahead-as-psychedelic-medicine-faces-pivotal-moment (Subscription required).
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