NeonMind Changing People’s Lives with Pioneering Approach to Psychedelic and Functional Mushrooms
Every so often a new industry or market segment arises that sets Wall Street and Bay Street ablaze with prospects. Think about fintech, legal cannabis and cryptocurrency in recent times, for example. In that lane, every investor should be aware of the emerging field of psychedelics by now and exploring the space for a portfolio addition. 2020 was just the start of the excitement and the time to act is now as momentum is building.
$7 Billion Industry Benefits from Past
Mostly shelved for half a century amid the global “war on drugs,” the negative stigma towards psychedelics is gone, and investment dollars are pouring into research on compounds found in hallucinogenic mushrooms, LSD, peyote, ecstasy and other psychotropic drugs in an attempt to fill a huge void in healthcare where conventional drugs have largely failed. Immediate areas of focus include notorious difficult diseases such as depression, post-traumatic stress disorder, anxiety and addiction. Affecting hundreds of millions of people worldwide, these ailments represent billion-dollar market opportunities, which explains why companies are cropping up monthly with commitments to revive psychedelic research.
Putting a finer point on it, Data Bridge Market Research forecasts the psychedelic drugs market to grow at a CAGR of 16.3% to reach $6.85 billion by 2027.
And, yes, “revive” is the correct way of looking at this because many psychedelics have a long medicinal history, some going back thousands of years. Research was relatively active until 1970 (when the U.S. passed the Controlled Substance Act into law), providing plenty of pre-clinical and clinical evidence as to the effectiveness of psychedelics for hard-to-treat diseases.
Now, 4 U.S. cities (Denver, Ann Arbor, Oakland, Santa Cruz), Washington, D.C., and 1 state (Oregon) have legalized several psychedelics with dialogue percolating about more cities to follow. Governments on all levels across the U.S., Canada and many other countries are becoming supportive of research, even though outright legalization is still off in the distance.
The industry is already making big strides, including the U.S. Food and Drug Administration granting vaunted “Breakthrough Therapy” designation to the Usona Institute for psilocybin for major depressive disorder and MAPS (Multidisciplinary Association for Psychedelic Studies) for MDMA-assisted psychotherapy for PTSD.
What’s particularly appealing about the psychedelics markets is that the nascency of the resurgence means that there is room for many companies to get a seat at the table. It also provides for a relatively level playing field where big pharma will mostly steer clear and just wait for small companies to make breakthroughs. Then, they’ll swoop in with partnering and acquisition deals, effectively fulfilling the dreams of the devoted investors that were there from the beginning.
NEON Glows with Differentiation
Because of the previous research, many companies have pointed their sights on the same indications. For instance, it’s not uncommon to hear about an upstart focusing on depression, albeit using DMT (N-dimethyltryptamine, found in many plants), MDMA (3,4-Methylenedioxymethamphetaminem, another name for ecstasy/molly) or psilocybin (the active compound in “magic” mushrooms). As aforementioned, a little competition is fine because there is plenty of room for multiple players, but differentiation is a great thing in investment circles.
That is where NeonMind Biosciences Inc. (CSE: NEON) stands out in more than one way. The Vancouver-based company is employing a multi-prong approach that generates revenue now with functional mushrooms as it simultaneously maneuvers through the regulatory pathway to commercialize psilocybin as an approved drug.
Safe to say, the vast majority of companies in the psychedelics space are looking years down the road before possibly generating revenue, if they ever do at all. NeonMind, which was incorporated only about a year ago and just became a public entity two weeks ago, has moved with a purpose in executing on its strategy to generate working capital now with bigger plans for the future.
The company started trading on the CSE on January 4 following an oversubscribed IPO that raised gross proceeds of $4.6 million.
NEON’s Novel Psychedelics Approach
NeonMind is like some peers insomuch that it is evaluating psilocybin first. This is prescient selection because there is plenty of historic data to leverage and combine with modern technology to expedite the developmental pathway. Companies can’t file patents on natural compounds (no one can patent psilocybin itself), but they can patent and protect intellectual property related to the therapeutic use of the compounds and synthetic derivatives to carve out a particular niche and get a first mover advantage. That’s exactly what NeonMind has done in filing five U.S. provisional patent applications to protect its IP for novel uses for psilocybin, as well as other psychedelic substances, lysergic acid diethylamide (LSD), d-lysergic acid amide (LSA) and DMT, for therapeutic use.
The indication is where NeonMind can set the market on its side as a true disruptor in a market begging for innovation. The patent applications cover using psychedelics and analogs to promote and cause weight loss, reduce food cravings, treat compulsive eating disorder, improve quality of diet, treat or regulate obesity-associated diabetes, treat obesity-associated abnormal regulation of blood glucose and aid in the prevention of heart disease, high blood pressure and other obesity-associated illnesses.
A drug for obesity has long been an elusive Holy Grail in the healthcare space, as cases of obesity spiral out of control. According to the CDC, during the years 2017-2018, the percentage of adults aged 20+ that were overweight (BMI 25-29) or obese (BMI >30) was a whopping 73.6%, or about 184 million Americans.
Obesity and its comorbidities are the top causes of death worldwide. Obesity is closely tied to diabetes and cardiovascular disease (heart disease and stroke), which are also tightly linked, creating a miserable circle of poor quality of life, skyrocketing healthcare expenses and, ultimately, death. There is even mounting evidence that obesity contributes to cases of cancer and other data illuminating how it relates to chronic musculoskeletal conditions.
Implicated in tens of millions of deaths each year and accounting for stunning 37% of the global burden of disease, it is with good cause that the World Health Organization has recognized obesity as a global epidemic. Driven by sedentary lifestyles, rising income in emerging markets and other factors, analysts expect the obesity problem to only get worse in the future.
NeonMind is positioned at the forefront of using psychedelics for treating obesity and related illnesses. Its first drug candidate involves the administration of psilocybin for obesity, with pre-clinical work being conducted currently at the University of British Columbia.
Again, this isn’t blindly throwing darts. Psilocybin is known to activate serotonin receptors. Produced within the central nervous system, serotonin has many roles, including suppressing appetite and promoting energy expenditures. Activating receptors can curb cravings, shut off appetite, reduce eating and cause weight loss.
Given the importance of serotonin on homeostatic health, this is a gateway opportunity for NeonMind. Peripheral serotonin is also implicated in NAFLD (non-alcoholic fatty liver disease) by promoting insulin secretions, amongst other things. Indeed, a successful obesity therapeutic would be a blockbuster, but opportunistic pipeline expansion builds future value and NAFLD is another serious problem today. First things first though.
On October 7, 2020 Health Canada granted approval for NeonMind’s preclinical trial to test psilocybin as a treatment for weight loss and food addiction. That testing began in November. The company is already developing protocols for a Phase 2 human trial for which it plans to submit an application in the first half of this year.
In preparation for the Phase 2 clinical study, NeonMind has a drug supply agreement in place with Psygen Labs and this month engaged Dr. C. Laird Birmingham for consultation in developing protocols for administering psilocybin to treat obese patients.
Commencing a clinical trial is a milestone moment for any biotech/pharma and is often accompanied by an appreciation of share value ahead of the event (and then again ahead of anticipated top-line data results). With the massive market opportunity, the trial should certainly capture the attention of the investment community.
Legal Mushrooms: A Giant Market Opportunity on its Own
Fact is, NeonMind could build a company solely on its psychedelic assets, but it has bigger plans. Owning a large portfolio estate of proprietary medicinal mushroom product formulas, it is looking to generate near-term and long-term revenue in a global market for functional mushrooms forecast by Mordor Intelligence to reach $34.3 billion by 2024.
In aggregate, NeonMind holds the global rights to a robust catalogue of more than 145 product formulations for infusion with functional mushrooms to promote health and wellness in beverages, soups, desserts and confections, mixes and elixirs and skin care and other wellness products.
Functional mushrooms are a consumer trend that has been steadily gaining traction. To be clear, these aren’t “white button” mushrooms your local restaurant chops up for salads. Functional mushrooms are rarer (e.g., Cordyceps sinensis can grow on the head of a caterpillar in the Tibetan high plateau) and well documented to be chock-full of antioxidants and nutritional value, along with a bevy of claims about their health benefits supported by thousands of years of use landing them in the category of “superfood” for their medicinal properties.
In its first commercialization move, NeonMind in November launched a collection of four mushroom-infused coffees containing medicinal mushrooms Lion's Mane, Turkey Tail, Reishi and Cordyceps via its new ecommerce site. A marriage of ancient Ayurvedic wisdom and modern science, each coffee blend – comprised of Rest, Energize, Protect and Focus – contains 100 percent natural mushroom and botanical extracts.
The blends sell for $24.99-$26.99 for 100 grams of fresh grounds, as well as combination packs for $46.99 or $93.99. It’s early in the game, but all reviews so far are “5 Stars.”
More Hidden Value
NEON is quickly making a name for itself in the psychedelic space, and rightly so. However, there is considerable near-term value tucked into the functional mushroom market and even a third value add that mostly goes unmentioned. The company holds an 18% stake in Translational Life Sciences (TLS), a startup biotech with a highly experienced leadership team focused on developing proprietary formulations containing restricted substances, such as psilocybin and cannabis.
TLS is actually involved in the design of the pre-clinical research being conducted at the University of BC. Every time TLS grows (maybe they even come public one day?), NeonMind becomes more valuable.
If the market does what it normally does and balances new companies with incumbents, NEON should be one to see what happens. Compass Pathways (NASDAQ: CMPS), with its high-flying NASDAQ IPO and incredible industry attention as one of the first to Phase 2 trials, is the benchmark with its $1.6 billion valuation. MindMed (NEO: MMED)(OTCQB: MMEDF) is a popular stock on it’s heels that illustrates what some developments and awareness can do with its $1.25 billion valuation.
There are many smaller peers that are more reflective of true comparables, particularly as NeonMind starts bringing in revenue from its functional mushroom business and starts its own Phase 2 trial. These include the likes of Numiness Wellness (TSX-V: NUMI) at $204 million; Cybin Inc. (NEO: CYBN)(OTCQB: CLXPF) at $306 million; Field Trip Health (CSE: FTRP)(OTCQB: FTRRF) at $185 million and even little Mind Cure Health (CSE: MCUR) at $36 million.
It’s arguable that NEON could be valued similarly to some of these companies, which speaks volumes to the idea that with its current market cap of only $31 million (as of Jan 20th 2021), there is a 50% upside just to reach Mind Cure.
Speaking of appetite; that’s something for investors to seriously chew on.
