When Iter Investments formed in 2020, drug startups in the psychedelics space were seeing huge valuations, and the market was reaching the point of oversaturation. So the firm turned to ancillary services for its portfolio—tech companies on the periphery of psychedelic drug development that will be necessary to administer psychedelic-based therapeutics.
And it’s not the only firm to do so—19% of funded psychedelics startups in 2020 went to companies that weren’t drug-related. A year later, that number jumped to 38% per Crunchbase data.
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“We also think about the whole value chain that’s required to develop in the psychedelic industry,” said Roberto Velarde, co-founder and managing partner at Iter Investments. “We are investing in companies that need to be built in order to ultimately deliver the care and therapeutics to patients and customers. So we also think about the tech industry.”
It’s the perfect confluence of a tight market and public policy.
For decades, scientific researchers have been toiling away in research facilities, building a library of knowledge around psychedelics even while the U.S. shuttered publicly funded research projects and instigated the War on Drugs. Early studies showed that psychedelics were a prime candidate to address treatment-resistant depression, anxiety and PTSD for people who didn’t benefit from current antidepressants or SSRIs.
In its wake were a slew of drug companies that saw the largest share of funding in private markets. But due to a flood of new companies coupled with an economic downturn, biotech startups are struggling to get funding.
Ancillary tech companies require much less funding than biotech, and will become more important as drugs start to actually enter the market.
The Food and Drug Administration is likely to approve the first psychedelic-based therapeutic in 2023. This, along with new legislation in Oregon that will allow for the legal usage of psychedelics, is opening a whole new—legal—market for psychedelics.
After decades, those that touted the benefits of psychedelics are going to see that theory become a reality. That’s going to require more than drugs—it will require a massive technology-backed push to make taking these drugs possible.
The infrastructure supporting psychedelics
“For the first time in history, they’re actually going to have legal clients,” said Brom Rector, founder of psychedelic venture company Empath Ventures. “… even as of today, all the ancillary uses are mostly still kind of underground. Now there’s going to be a legitimate market to sell those products.”
One startup in the space is Fluence, which was founded in 2019 to provide psychedelic therapy training and certification for therapists. It has raised $3 million according to Crunchbase. In order to use these FDA-approved drugs, the market will need hundreds of thousands of therapists trained in administering therapy with psychedelics.
Many of the drugs that will come to market are being approved under an REM, or risk evaluation mitigation, strategy. This will require them to be administered in a clinic of some sort, as opposed to picking up oral drugs at a pharmacy and taking them at home. This will require trained therapists who can work through sessions using psychedelics as a tool. Recent legislation in Oregon will approve psilocybin for use exclusively in a therapy setting as well.
Companies like Fluence will also be valuable for drugs that are entering clinical trials—the patients that use these drugs will have to undergo therapy as part of the process for the FDA to fully understand its risks and benefits.
Another industry niche is creating infrastructure to support safe usage of psychedelics. Reunion Neuroscience is perhaps the most famous for this: The company that largely worked in early-stage drug development and developed a psychedelic-based drug for treatment-resistant depression was perhaps better known for its slew of ketamine clinics that combined psychotherapy with ketamine infusions in spa-like settings.
“Because of how important set and setting is to this, you’re not just pushing drugs, you’re pushing forward a therapy as well,” said Marik Hazan, founder of psychedelics investment firm Tabula Rasa. “And so you’re going to have a lot of tech companies, a lot of the infrastructure companies as well.”
There’s also Wavepaths, which uses artificial intelligence to play music that aims to foster a good experience with psychedelics and encourages a patient to open up more during their experience. Another, Enthea, allows companies to offer reimbursement for psychedelic-based therapies as a health benefit. Currently, legal psychedelic therapies like ketamine infusions are not accepted by health insurance companies because they are off-label.
“You’re getting these really interesting innovations that are coming out of traditional science, out of health care, that are being applied to the psychedelic space,” said Hazan.
Illustration: Dom Guzman
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Author: Keerthi Vedantam