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The World Health Organization estimates that 264 million people worldwide are impacted by depression. In a July 2020 survey, “53% of adults in the United States reported that their mental health has been negatively impacted due to worry and stress over the coronavirus.” With mental health becoming a bigger challenge, psychedelic stocks have been in focus.
I am bullish on the long-term outlook for psychedelic stocks. However, it’s worth noting that most of the companies are still in the clinical stage of drug development. The current euphoria is likely to be followed by some correction.
So, I will discuss three psychedelic stocks that are worth keeping in the radar and accumulating on dips.
Let’s take a deeper look into what these companies are doing in the field of mental healthcare:
Psychedelic Stocks: Compass Pathways (CMPS)
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CMPS stock got listed in September 2020 and is among my top-pick in the psychedelic stocks space. The stock currently trades around $49 and almost doubled from the listing price. While I am optimistic on the company’s growth, it makes sense to wait for some correction before considering exposure to the stock.
As an overview, Compass is a mental healthcare company working toward evidence-based innovation in mental health.
Back in October 2018, the company received the U.S. Food and Drug Administration breakthrough therapy designation for its psilocybin therapy for treatment-resistant depression. In the last two years, the company made gradual progress and is in the Phase 2b clinical trial. Trials are underway at 21 sites in 10 countries.
The company expects Phase 2b trial data to be available late next year. Positive news can take CMPS stock higher. For now, the stock is likely to be in the trading range. The company believes that the annual cost of depression in the United States is $200 billion. Therefore, there is no doubt that the global opportunity is significant.
From a financial perspective, the company raised $146.6 million from the recent initial public offering. Compass has a balance sheet buffer for funding research and trials. On the flip-side, the company has a single drug pipeline. The company’s growth is entirely dependent on the success of COMP360. I would therefore advise some exposure on corrections.
Mind Medicine (MMEDF)
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MMEDF is another name among psychedelic stocks that’s worth keeping in the radar. With the current euphoria related to psychedelic stocks, MMEDF stock surged by 217% in the last month.
As an overview, Mind Medicine is involved in the development of psychedelic drugs that address addiction and mental illness. The company has a deeper pipeline of psychedelic drugs in clinical development than Compass.
Mind Medicine’s LSD assisted therapy is currently in Phase 2a of clinical development, which is likely to complete in the first quarter of 2021. The potential drug is for anxiety disorders. The company’s clinical trial for opioid withdrawal drug (18-MC) is also in Phase 2a. By the end of next year, Phase 3 is likely to commence for 18-MC. Another drug (LSD microdosing) for adult attention-deficit/hyperactivity disorder, is also in Phase 2a of clinical trial.
My point is that Mind Medicine has a pipeline of three drugs that are in an advanced stage of development. The stock therefore has significant upside potential in the next 12 to 24 months. Positive outcome in Phase 3 trials will translate into MMEDF stock going ballistic.
Champignon Brands (SHRMF)
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Among the companies with a smaller market capitalization, SHRMF stock deserves a mention. Currently, the stock trades at a market cap of $123 million. I will not be surprised if the stock delivers multi-fold returns in the coming years.
Champignon Brands is involved in the development and commercialization of treatments for conditions that include depression, post-traumatic stress disorder and alcohol use disorders.
In terms of growth potential, ketamine, psilocybin and MDMA have all been fast-tracked by the FDA and Health Canada. Pre-clinical trials imply that revenue or cash flow generation is not around the corner. However, there is potential for drug development given the approvals.
An important point to note in terms of market size is that studies linked Covid-19 to a number of mental health disorders. These include depression, anxiety and dementia. This creates a larger addressable market. The company believes that the current market for pharmacologic DPS treatments in North America is $10 billion.
Overall, SHRMF is a high-risk and high-return stock. Some position with an investment horizon of 24-36 months is worth considering.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
