The article Which Psychedelic Medicine Companies Have the Best Financials? was originally published on Microdose.
As I have written many times before, the success or failure of a psychedelic medicine company depends heavily on its financial position. This is true regardless of which psychedelic stock you are looking at, be it MindMed (Nasdaq: MNMD, NEO: MMED), Compass Pathways (Nasdaq: CMPS), atai Life Sciences (Nasdaq: ATAI), Cybin (NEO:CYBN, NYSE American:CYBN), or any other.
Yes, of course, it matters greatly who has the most effective medical psychedelic molecule in specific circumstances. However, a company may be in possession of the most healing psychedelic compound in the world, but unless they can prove it through the clinical trial process, their superior medicine will mean little.
And unfortunately, to take a medicine from pre-clinical studies through Phase 1, 2, and 3 trials costs money. A LOT of money. For example, the US Congressional Budget Office estimates that the total cost of successfully bringing a new medicine through Phase 1, 2 and 3 trials is about $375 million USD.
Again, this means one of the — if not THE — determining factors in which of the dozens of psychedelic companies will survive long enough to make an eventual profit off of their medicines (and more importantly heal millions of people) is how financially stable said company is.
So: Which Psychedelic Medicine Companies Have the Best Financials? In this article, I will run through the top publicly traded psychedelic medicine companies, and assess their basic financial positions.
It’s important to understand that a strong financial position now does not guarantee that a company will ultimately be successful. That company could still fail in a myriad of different ways — for example, if its medicine is less effective than another company’s. But, a company with disastrous financials will likely not even get the chance to be successful — even if its medicine is superior.
Best Shroom Stocks? A look at psychedelic financials
To start, let’s first understand the basic metrics we will be looking at. These are:
Cash on Hand: This tells us how much money a company has in the bank. It also includes cash equivalents.
Net Loss: This is how much the company is spending each quarter (minus any revenue the company may or may not have).
Runway: This tells us how long the company can continue to exist at the current spend rate, given how much money they have. This is the most important metric for our purposes.
Market Cap: This tells us how easily a company can raise money in the future. If a company has a low market cap, raising the needed tens (or hundreds) of millions of dollars will be impossible.
Revenue: This is how much money the company makes before expenses. As most companies we are looking at are pre-revenue (they are still in the R&D phase) this is not yet a super important factor in their financial health. This (along with ultimately profit) will become one of the most important metrics in the future, when psychedelic medicines are legalized, and companies begin selling them.
With that in mind, let’s chart the top 10 psychedelic companies, by market cap. Note: each company last reported its financials on a different date.
|Company||Market Cap||Cash on Hand||Net Loss for Quarter||Cash Runway||Revenue||Date of Financials|
|GH Research (Nasdaq: GHRS)||$470.79 Mil USD||$251.7 Mil USD||$16.59 Mil USD||15.17 Quarters||0||Dec 31st, 2022|
|Compass Pathways (Nasdaq: CMPS)||$364.56 Mil USD||$143.2 Mil USD||$30.93 Mil USD||4.63 Quarters||0||Dec 31st, 2022|
|atai Life Sciences (Nasdaq: ATAI)||$336.68 Mil USD||$273.1 Mil USD||$45.01 Mil USD||6.07 Quarters||$38k USD||Dec 31st, 2022|
|$176.57 Mil CAD||$129.4 Mil CAD||$24.8 Mil CAD||5.22 Quarters||0||Mar 31st, 2023|
|Seelos Therapeutics (Nasdaq: SEEL)||$102.32 Mil USD||$15.53 Mil USD||$18.66 Mil USD||Less than 1 Quarter||0||Dec 31st, 2022|
|$82.31 Mil CAD||$22.5 Mil CAD||$10.7 Mil CAD||2.10 Quarters||0||Dec 31st, 2022|
|$43.62 Mil CAD||$19.7 Mil CAD||$7.33 Mil CAD||2.69 Quarters||$5.35 Mil CAD||Feb 28th, 2023|
|Red Light Holland (CSE: TRIP)||$34.26 Mil CAD||$19.7 Mil CAD||$1.31 Mil CAD||15.04 Quarters||$1.2 Mil CAD||Dec 31st, 2022|
|Small Pharma (CVE: DMT)||$22.49 Mil CAD||$22.74 Mil CAD||$7.12 Mil CAD||3.19 Quarters||0||Nov 30th, 2022|
|MindSet Pharma (CNSX: MSET)||$23.49 Mil CAD||$9.28 Mil CAD||$2.09 Mil CAD||4.44 Quarters||$2.50 Mil CAD||Dec 31st, 2022|
The first is GH Research, the largest psychedelic company by market cap. GH Research — a company primarily working with 5-MeO-DMT to treat depression — does not do as much press as companies such as Compass or MindMed, and therefore is less discussed in the retail investor community.
But with a cash runway of 15 quarters, or more than three years, the company is far and away the most financially stable of the large psychedelic research companies. You will not see GH Research need to dilute its stock or take on massive debts any time in the near future. This will allow them to focus on the science of psychedelics, and hopefully bring — pending future positive clinical trial results — 5-MeO-DMT into health care.
Red Light Holland
Red Light Holland — a company focussed on retail sales of magic mushrooms/ truffles in jurisdictions where it is legal — also has a runway of 15 quarters or more than three years. Plus, they already have solid revenue from selling their product. Being public consumption focussed, Red Light has a very different business model than the medical research companies, but as can be seen here, that does not mean that it is not financially viable as a company.
In fact, Red Light is likely to be the first psychedelic company to reach and sustain profitability. However, while Red Light — in my opinion at least — seems likely to reach profitability and prove its business model, the potential financial pool of playing in several small markets such as the Netherlands, where recreational psilocybin is either legal or semi-legal, is smaller than the global pool of mental health patients who can be helped with psychedelic medicines. In other words, barring widespread recreational legalization of psilocybin, in my opinion, Red Light’s ceiling is lower than it will be for successful medical psychedelic companies. But again, that is just my personal, very fallible, opinion.
Compass Pathways, atai Life Sciences, MindMed
Looking at the second to fourth largest companies by market cap, Compass Pathways, atai Life Sciences and MindMed, we see that each has a runway of between four to six quarters. While respectable, each will likely have to raise capital again within a year. Luckily, their market caps remain between $130 – $360 million USD, meaning that when the time comes, they will be able to raise capital through dilution. Yes, this is never fun for investors, but the show must go on, and the science must be funded if you want to see a return on investment (and again, more importantly, heal people).
Next up is Seelos, which needs to raise capital immediately, as they spent more in Q4 2022 than they were left with in the bank. It is with this in mind that in March they announced they were raising $11.24 million USD through dilution. While a start, as they have had a net loss greater than that for the last several quarters, this is only a band-aid solution. Luckily, they have a market cap north of $100 million USD, so they can raise more, but the company is definitely in a difficult position.
Moving on to Cybin, a company primarily working on next-generation psilocybin and DMT, with only two quarters of runway, it is clear that sooner or later the company will have to raise capital. Unfortunately, with a market cap of around $80 million CAD, raising enough money for a year would cost around half of its market cap in dilution. However, given their progress on next-gen psychedelics, I hope the company will be able to partner with a large pharmaceutical company to fund its research. I am a fan of the work Cybin is completing, and I believe it is promising enough to see it funded through partnerships rather than never-ending dilution. But only time will tell.
Numinus, Small Pharma, MindSet Pharma
Finally, Numinus, Small Pharma and MindSet Pharma all have runways of between half a year to a year. This means all three will have to raise capital in the coming year. With market caps of between $20-$45 million CAD, this will mean heavy dilution — if they can not find a large company to partner with. MindSet is already partnering with The McQuade Center for Strategic Research and Development, a member of the global Otsuka pharma company. Perhaps we will see further integration here.
In sum, GH Research and Red Light Holland have by far the most sustainable financial positions. This will allow the two companies space to achieve their visions. Compass, atai, and MindMed will all have to dilute within a year and a half (unless they find other ways to raise capital), but with large market caps, this is tolerable.
The rest of the companies — including ones doing amazing science I am super excited for — will all need to raise massive amounts of money relative to their market caps within a year. Barring a near-term huge increase in their market caps, this will require these companies to dilute at an unsustainable rate, unless they can find other sources of financing, such as partnering with larger companies to jointly finance their clinical trials and R&D.
This is not necessarily a death knell. Companies such as Cybin and Small Pharma are doing amazing science that shows lots of potential medical benefits. If they — and others — can not sustainably raise enough cash through dilution, they will likely find a larger company to partner with. Though, of course, this is its own kind of dilution. Worst case, companies doing genuinely good science will likely be bought up by larger companies either within or from outside the psychedelic space. Only time will tell.