Psychedelic Commercialization: A Wide-Spanning Overview of the Emerging Psychedelic Industry

Abstract

Background:

In the wake of positive clinical trial outcomes of psychedelic-assisted psychotherapy for the treatment of various psychiatric disorders, there has been an influx of financial investment into psychedelic drug development from the pharmaceutical and biotech sectors. Psychedelics are now a multibillion dollar industry, with hundreds of companies that are seeking to commercialize therapeutic applications of psychedelics formed over the course of just a few years.

Materials and Methods:

This paper aims to provide a broad overview of the psychedelic industry by detailing the history and current state of psychedelic drug commercialization, exploring challenges to commercial viability, highlighting ethical considerations, and incorporating lessons from the analogous ketamine and cannabis industries, which largely preceded the psychedelic industry.

Results:

We found that although the roots of the psychedelic industry go back decades, financial investment did not take off in earnest until the late 2010s and early 2020s. The main focus of companies in the psychedelic sector can be broadly grouped into: (1) drug discovery and development; (2) novel formulations and routes of administration; (3) manufacturing and synthesis; (4) treatment centers and wellness clinics; (5) consumer packaged goods and adult use; and (6) adjunct technologies. Challenges to commercial viability include regulatory barriers to drug development, treatment costs and logistics of administration, and intellectual property and patent issues. In terms of ethics, the industry must consider the potential adverse effects of psychedelics, cost-cutting inclinations, ensuring therapeutic benefits reach vulnerable and marginalized communities, and indigenous reciprocity. We also underscore the potential benefits commercialization may bring. Lastly, the ketamine and cannabis industries can provide blueprints for regulatory approval, clinical implementation, insurance reimbursement, and federal policy more broadly.

Conclusion:

Altogether, this article provides a wide-spanning overview of the emerging commercialization of psychedelics, acknowledging both the monumental progress and critical challenges that remain for the industry.

Introduction

In recent years, there has been increased interest in the potential therapeutic applications of psychedelics, including psilocybin, lysergic acid diethylamide (LSD), N,N-dimethyltryptamine (DMT; the primary psychoactive component of the Amazonian admixture ayahuasca), as well as the entactogen compound 3,4-methylenedioxymethamphetamine (MDMA).¹

In the wake of positive therapeutic and safety outcomes from clinical trials, considerable financial investment has been staked in the field, leading to the rapid genesis of the so-called “psychedelic industry.” Hundreds of psychedelic-focused pharmaceutical and biotech companies have formed in the past 5 years, and psychedelics are now considered a multibillion-dollar industry with exceptional growth projections over the next decade.²

Indeed, an analysis by InsightAce Analytic estimated that the global psychedelic therapeutics market was valued at US$ 3.61 billion in 2021, and it is expected to reach US$ 8.31 billion by 2028.³ Despite the evident enthusiasm, the psychedelic industry is still in its infancy and much remains uncertain regarding its trajectory as distinct challenges have emerged.

This paper aims at providing a broad overview of the psychedelic industry by summarizing its history, exploring challenges to commercial viability, highlighting ethical considerations, and incorporating lessons from the ketamine and cannabis industries that preceded the contemporary focus on psychedelics. Given that specific considerations for the psychedelic industry may vary to some degree by geographic location, we focus our discussion primarily on the United States (U.S.) market.

Overview of Psychedelic-Assisted Psychotherapy

Much of the financial interest in psychedelics stems from recent clinical trials of psychedelic-assisted psychotherapy for treating psychiatric disorders. In brief, psychedelic-assisted psychotherapy involves the administration of psychedelic substances in a medically supervised and an interpersonally supportive environment.⁴ Patients undergo extensive screening and preparation with psychotherapists before drug administration to optimize safety and therapeutic outcomes.

After drug administration, patients meet again with the same psychotherapists to integrate any insights that may have arisen during or after the dosing session into their everyday lives going forward. Empirically supported psychotherapeutic interventions are often interwoven into the preparation and integration process.^5,6 As such, psychedelic-assisted psychotherapy in its current form is best considered as a complex combination treatment that incorporates aspects of both psychopharmacology and psychotherapy.⁷

Importantly, the psychotherapeutic components of psychedelic-assisted psychotherapy have not been empirically interrogated, and the current preparation/integration model is best conceptualized as a product of trial-and-error originating from the first wave of psychedelic research taking place primarily in the 1960s.

The relative contributions of pharmacologic and non-pharmacological components are still unclear, and best practices for the psychotherapy delivered alongside psychedelic administration have not been firmly established. It remains to be seen whether the pharmacologic and psychotherapeutic elements of psychedelic-assisted psychotherapy can be neatly delineated,⁸ and therefore it is important to not conflate “psychedelics” and “psychedelic-assisted psychotherapy.”

Nonetheless, with this general model of therapeutic support surrounding the administration of psychedelic drugs, positive clinical and safety outcomes have been documented in patients with depression,⁹ anxiety,¹⁰ substance use disorders,¹¹ end-of-life distress,¹² obsessive-compulsive disorder,¹³ and posttraumatic-stress disorder (PTSD).¹⁴ Given the current mental health crisis and stagnation in developing effective treatments for psychiatric disorders, the apparent transdiagnostic potential of psychedelic-assisted psychotherapy has drawn considerable scientific, public, regulatory, and—most pertinently—commercial interest.

History of the Commercialization of Psychedelics and Related Hallucinogens

Early history

Despite the contemporary psychedelic industry only emerging in recent years, the roots of commercialization of psychedelics and related hallucinogens can be traced back more than a century. MDMA was first synthesized in 1912 by Anton Köllisch, a chemist who worked for the German pharmaceutical company Merck.^15,16 Köllisch produced MDMA as a by-product in the synthesis of hydrastinin. Merck filed a patent on his method of preparation in which MDMA is an unnamed chemical intermediate. Merck did not conduct non-human pharmacological tests with MDMA until 1927 and never marketed the drug. The first scientific article describing MDMA's psychotropic effect in humans, co-authored by chemist Alexander Shulgin, who had re-synthesized MDMA in 1965, would not be published until 1978.

Mescaline was first synthesized in 1919 by the chemist Ernst Späth in the laboratories of Vienna University. The following year, Merck introduced injectable mescaline sulfate to the market, which saw some clinical use in psychiatry, though it was primarily used in psychiatric research.¹⁷ Ibogaine, which was initially extracted from Tabernanthe iboga in 1901 by French scientists Dybowsky and Landrin,¹⁸ was the next hallucinogen to be commercialized. It was marketed in France by the Laboratoires Houdé¹⁹ at low dosage as a stimulant and antidepressant under the trade name Lambaréné from 1939 until its removal from the market in 1970.²⁰

Perhaps the most well-known company in the history of the psychedelic industry is Sandoz, a Swiss pharmaceutical company that merged with Ciba-Geigy in 1996 to form Novartis. Albert Hoffmann, a Sandoz chemist, first synthesized LSD in 1938 in Basel, Switzerland. Following Hoffmann's accidental discovery of LSD's psychoactive properties in 1943, Sandoz marketed LSD as a psychiatric medication under the tradename Delysid starting in 1947.²¹

In 1963, the last Sandoz patent on LSD expired. The company discontinued production and distribution of LSD in 1965 partly in response to societal backlash against growing non-medical psychedelic use in the United States and elsewhere.²² Sandoz issued a statement at that time, noting “Despite the outstanding properties of [LSD], or rather because of the very nature of these qualities … the usual means of practical exploitation could not be envisaged. ln spite of all our precautions, cases of LSD abuse have occurred … completely beyond the control of Sandoz, [reaching] the scale of a serious threat to public health.”²²

LSD was not the only psychedelic marketed by Sandoz. In 1959, Hofman and Troxler, another Sandoz chemist, synthesized psilocybin after analyzing Psilocybe mushrooms collected from Mexico by Gordon Wasson.²³ Sandoz began marketing psilocybin for research purposes under the tradename Indocybin in 1960.²⁴ Sandoz discontinued manufacturing and marketing of Indocybin in 1966,²⁵ and the last Sandoz patent on psilocybin expired in 1982.²⁶

The contemporary psychedelic industry

The contemporary psychedelic industry arguably finds its roots in the 1986 creation of a non-profit called the Multidisciplinary Association for Psychedelic Studies (MAPS) by Rick Doblin in response to the 1985 scheduling of MDMA by the U.S. Drug Enforcement Agency (DEA).²⁷ A primary aim of the organization was to facilitate research into therapeutic applications of MDMA-assisted psychotherapy.

After overcoming years of hurdles, MAPS conducted the first U.S. Food and Drug Administration (FDA) approved phase 2, randomized, double-blind, placebo-controlled study of MDMA-assisted psychotherapy for PTSD.²⁸ The trial produced positive results, and in 2015, MAPS announced the creation of a new subsidiary called the MAPS Public Benefit Corporation (MAPS PBC). MAPS PBC would focus on future MDMA-assisted psychotherapy trials, while MAPS would continue conducting education and harm reduction projects.

MAPS would also raise funds for MAPS PBC as its sole funder.²⁹ If MDMA gains regulatory approval, MAPS PBC will also manage MDMA prescription sales, which is a taxable activity that cannot be carried out by MAPS due to its tax-exempt status. In 2017, the FDA granted breakthrough therapy designation to MDMA for PTSD.³⁰ MAPS went on to conduct a phase 3 trial with favorable efficacy and safety findings.¹⁴

In November 2022, MAPS PBC reported completion of its second phase 3 clinical trial of MDMA-assisted psychotherapy,³¹ and shortly thereafter announced confirmation of prior positive results.³² The FDA is expected to review MAPs' data on MDMA in 2023, and should efficacy and safety results prove favorable, MDMA could be approved for PTSD in 2024.

Despite promising findings from clinical trials of MDMA funded by MAPS and clinical trials of psilocybin funded by the Heffter Research Institute (founded in 1994) in the early 2000s, there were no contemporary clinical trials of psychedelic-assisted psychotherapy directly funded by the U.S. National Institutes of Health until 2021.^33,34 Financial support from governmental bodies in other countries has also been non-existent or extremely limited.

Given ongoing publication of positive results from clinical trials, a number of new, primarily for-profit psychedelic biotechnology companies focused on bringing psychedelic therapies to market began launching in the late 2010s. These companies have largely been supported via venture capital, with many eventually going on to become publicly traded companies. In 2021, venture capital investment in psychedelic startups reached $2 billion.³⁵ However, in 2022, amid a more challenging financial climate, this fell to $526 million.

Venture capital firms have primarily invested in early stage psychedelic biotechnology companies, with most funds being invested during Series A financing. According to Business Insider, as of March 2023, at least 14 venture capital firms had invested at least $5 million in psychedelic-related businesses and have portfolios composed of at least 30% psychedelic startup companies.³⁶

These 14 firms had invested ∼$347 million in psychedelic startups, and the largest investors were: Noetic Fund, Integrated, Palo Santo, Negev Capital, and Subversive Capital. “Big Pharma” has remained hesitant to partake in psychedelic drug development. However, this appears to be changing in recent years. In 2021, the results of a study analyzing the genetic effects of psilocybin that was supported by the Lundbeck Foundation, which owns a controlling interest in Danish pharmaceutical company H. Lundbeck A/S, was published.³⁷

In January 2022, the McQuade Center for Strategic Research and Development, a division of Otsuka Pharmaceutical focusing on early stage drug discovery for mental health, announced a partnership with Mindset Pharma.³⁸ Otsuka had previously announced a collaboration and licensing agreement with Perception Neuroscience, Inc. (a majority-owned subsidiary of Atai Life Sciences) for rights in Japan to its leading drug candidate PCN-101 (arketamine).³⁹

Finally, the Novo Nordisk Foundation, which is the majority shareholder of pharmaceutical company Novo Nordisk, funded research on psilocybin's effects on feeding behaviors in mice in collaboration with the University of Copenhagen and Copenhagen University Hospital that was published in 2022.⁴⁰ On May 8, 2023, the Novo Nordisk Foundation announced that it would support research into the neuroplastic effects of psychedelics in collaboration with Copenhagen University Hospital.⁴¹

As of May 4, 2023, there were 49 publicly traded psychedelic biotech companies and 44 private companies.⁴² In addition to MAPS, which was previously discussed, here we provide an overview of five additional leading organizations in the psychedelic sphere, which include the four largest publicly traded psychedelic biotechnology companies according to market capitalization (as reported by Yahoo Finance on May 4, 2023), as well as another prominent non-profit organization (summarized in Table 1).

Table 1.

Overview of Leading Psychedelic Biotechnology Organizations

Company	Year founded	Market capitalization ($ Millions)	Lead drug candidate and indication
Atai Life Sciences NV	2018	321.2	PCN-101 (arketamine) for major depressive disorder
COMPASS Pathways PLC	2017	353.5	COMP360 (psilocybin) for treatment-resistant depression
GH Research PLC	2018	447.9	GH001 (5-MeO-DMT) for treatment-resistant depression
Mind Medicine (MindMed) Inc	2019	139.4	MM-120 (LSD) for generalized anxiety disorder
MAPS/MAPS PBC	1986/2015	Not publicly traded	MDMA for posttraumatic stress disorder
Usona Institute	2014	Not publicly traded	PSIL201 (psilocybin) for major depressive disorder

LSD, lysergic acid diethylamide; 5-MeO-DMT, 5-methoxy-N,N-dimethyltryptamine; MAPS PBC, Multidisciplinary Association for Psychedelic Studies Public Benefit Corporation; MDMA, 3,4-methylenedioxymethamphetamine.

ATAI Life Sciences was founded in 2018. Paypal co-founder Peter Thiel, also an early investor in Compass Pathways, is a significant investor in the company. ATAI was listed on the Nasdaq stock exchange in June 2021. The company raised $225 million during its initial public offering (IPO) and had a market capitalization of $3.2 billion at that time.⁴³

ATAI is a psychedelic biotechnology holding company and has built an investment portfolio of other psychedelic biotechnology companies. Along with a 22.4% stake in Compass Pathways,⁴⁴ the company has a majority stake in Perception Neuroscience (developing arketamine for treatment resistant depression [TRD]), and it is affiliated with DemeRx IB (developing ibogaine for opioid use disorder), Viridia Life Sciences (developing dimethyltryptamine for TRD), and EmpathBio (developing an MDMA derivative for PTSD), along with other companies.

In January 2023, ATAI's leading drug candidate, PCN-101 (arketamine) failed to meet its primary endpoint in a clinical trial for TRD using an intravenous formulation.⁴⁵ Since then, the company has laid off 30% of its staff. In April 2023, ATAI announced that the first subject was dosed in a phase 1 study comparing subcutaneous and intravenous formulations of arketamine.

Compass Pathways was founded in 2017 with a primary goal of obtaining regulatory approval for psilocybin as a treatment for TRD.⁴⁶ Before this, the company's founders had previously established a nonprofit called Compass in 2015 to support research into the use of psilocybin for existential distress in patients with cancer. A for-profit entity called Compass Pathways Technologies Ltd was then launched in 2016 to manufacture psilocybin for research studies and take advantage of tax breaks not available to non-profit organizations.

This company was renamed Compass Pathways in 2017, and the Compass nonprofit was dissolved that year. This transition from nonprofit to for-profit status drew significant criticism, particularly relating to allegations that intellectual property (IP) created for the charity was used to benefit Compass Pathways.⁴⁷ In 2018, Compass Pathways launched a clinical trial of its proprietary COMP360 psilocybin therapy for TRD, which was granted breakthrough therapy designation by the FDA.⁴⁶

In 2020, Compass Pathways became the first psychedelic biotechnology company to be listed on the Nasdaq stock exchange, reaching a peak market capitalization of ∼$21 billion.⁴⁸ The company is currently in the midst of two phase 3 trials assessing the efficacy and safety of psilocybin psychotherapy for TRD. In a surprise to many within the industry, a quarter filing from May 2023 revealed that Compass Pathways has enough capital to fund operating expenses “for at least the next twelve months” and “may need to seek additional funds sooner than planned.”⁴⁹

GH Research was founded in 2018. The company was listed on the Nasdaq stock exchange in June 2021, raising ∼$160 million.⁵⁰ GH Research has recently launched a phase 2b trial of inhalable 5-methoxy-DMT (5-MeO-DMT) for TRD. The company is also in the process of initiating two phase 2a trials of 5-MeO-DMT for patients with bipolar II depression and postpartum depression, respectively.

Mind Medicine Inc. (MindMed) was founded in 2019, and prominent Canadian investor Kevin O'Leary was an early investor.⁵¹ In March 2020, MindMed became the first publicly traded psychedelic biotechnology company, listing on the Canadian NEO exchange.⁵² In April 2021, the company debuted on Nasdaq though in contrast to the Compass Pathways debut, share prices dropped nearly 30% in the first day of trading.⁵³

Although initially focusing on the use of the ibogaine derivative 18-MC to treat opioid use disorder, following completion of a phase 1 trial reporting positive topline data in 2022, MindMed shelved 18-MC and shifted its focus to investigations of LSD and R(−)-MDMA.⁵⁴ In August 2022, the company announced that it had dosed its first participant in a phase 2b trial of LSD for generalized anxiety disorder.

On completion, the trial is expected to enroll 200 participants and to be the largest controlled clinical trial of LSD to date.^55,56 MindMed is also conducting a phase 1 trial of R-MDMA in the treatment of autism spectrum disorder.⁵⁷ Similar to Compass Pathways, the company has faced criticism for its psychedelic-related patents, including one for a combination of LSD and MDMA (commonly known as “candyflipping”).⁵⁸

Finally, Usona Institute is a non-profit organization founded in 2014. In 2019, the company launched a phase 2 trial of psilocybin-assisted psychotherapy for major depressive disorder. That same year, its psilocybin formulation was granted breakthrough therapy status for this indication by the FDA.⁵⁹ In 2022, enrollment for Usona's phase 2 trial was finalized, with results anticipated in 2023. The organization is a notable supplier of psilocybin for clinical trials across the world, offering it free of charge for research purposes.

As a newly launched industry, many psychedelic biotechnology companies transitioning to publicly traded companies gained considerable market capitalizations early on, despite criticisms that some were grossly overvalued given concerns about commercial viability of psychedelic-assisted psychotherapy.⁶⁰ The stocks of some psychedelic biotechnology companies have been labeled “meme stocks” by analysts, with the implication being that stock prices are being inflated by interest generated for these stocks by investors on social media forums such as Reddit⁶¹ rather than financial performance, as has been the case previously with companies such as Gamestop and Bed Bath and Beyond.

Following the release of topline data from Compass Pathways' phase 2 trial of COMP360 for TRD, the largest ever study of psilocybin-assisted psychotherapy, in November 2021, stock valuations across the psychedelic biotechnology sector plummeted. This occurred despite Compass reporting superiority of high-dose psilocybin compared with a low-dose control for the primary endpoint of 3 weeks post-treatment.⁶²

The drop in stock valuations may have been due to questions around the durability and robustness of psilocybin-related mood improvement in the trial (e.g., 29% remission rate at 3 weeks as opposed to 67% and 42% at 1 week and 3 months, respectively, seen in a previous smaller open-label trial of psilocybin-assisted psychotherapy for TRD.^63,64), as well as safety concerns prompted by a small number of participants reporting suicidal behavior post-treatment.

As of May 4, 2023, amid a stock market wide correction and increasing interest rates, the psychedelic stock downturn was ongoing, with some stock prices down as much as 90% year over year.⁶⁵ During this period, companies such as ATAI and MindMed reduced their psychedelic pipelines, while companies such as HAVN and MindCure Health collapsed entirely.

Consolidation may be coming to the industry as well, with Beckley Psytech recently purchasing Eleusis Benefit Corporation, which was one of the earliest companies in the space and founded in 2013.⁶⁶ Despite these setbacks, industry-funded research moves forward, with GH Research announcing positive results from a small phase 2 trial of its inhalable 5-MeO-DMT formulation in December 2021⁶⁷ and Compass Pathways launching its first phase 3 trial of psilocybin-assisted therapy for TRD in November 2022.⁶⁸

Most companies in the psychedelic industry have focused on drug development (Fig. 1), which is inclusive of the development of new formulations or targeting novel routes of administration. Less focus has been placed on the psychotherapies to be combined with psychedelic administration.⁶⁹ Many companies are minimizing the amount of psychotherapy offered to patients in trials, with the approach of psychedelic biotechnology companies increasingly appearing to consist of obtaining regulatory approval for their compounds and letting clinicians figure out the details of associated psychotherapy once the drugs reach the market.

Fig. 1.

Psychedelic Sector Overview. Sectors of the psychedelic industry are grouped by their primary company aims. This classification system is inspired by that of Psychedelic Alpha (https://psychedelicalpha.com/), an independent news outlet on psychedelics.

The fact that the FDA does not regulate psychotherapy programs seems to incentivize a lack of focus on this component of psychedelic-assisted psychotherapy. Some companies, such as Field Trip Health & Wellness and Awakn, are already offering ketamine-assisted psychotherapy and are positioned to offer locations for clinical administrations as other psychedelic-assisted therapies come to market.

However, this aspect of the psychedelic industry is also facing challenges, with Field Trip Health & Wellness now closing clinics and attempting a restructuring to remain financially solvent.⁷⁰ Earlier this year, the company also spun off its drug development program as Reunion Neuroscience.⁷¹

With continuing interest in psychedelics from the general public and investment communities, we anticipate that psychedelic commercialization efforts will grow in coming years, bringing innovation and new entities to the psychedelic industry in the quest to develop novel treatments for patients with a variety of conditions. In fact, significant changes within the psychedelic industry are already underway.

While early industry trials focused on oral administration of longer-acting psychedelics such as LSD, MDMA, and psilocybin, a growing number of trials are evaluating the therapeutic efficacy of short acting psychedelics, such as DMT and 5-MeO-DMT. Further, routes of administration are increasingly moving from delayed onset (oral) to rapid onset (intranasal, intravenous, and sublingual).

As the psychedelic industry morphs into its next configuration, researchers are also beginning to explore the potential for psychedelics to treat non-mental health conditions, such as inflammation, chronic pain, headache, dementia, stroke, and traumatic brain injury. Given the considerable prevalence and economic burden of these conditions, the economic and humanitarian value of the psychedelic industry could vastly increase if investigations in these areas prove fruitful.

Challenges to Commercial Viability

Regulatory barriers to drug development and clinical use

Psychedelic drug development is fraught with a number of regulatory and financial hurdles. Primary among these is the status of many psychedelics as Schedule I controlled substances in the United States, with similar regulatory classifications in other countries. In the United States, clinical researchers seeking to work with Schedule I drugs must, in addition to applying for an Investigational New Drug application with the FDA, apply for a special license to do so with the DEA following institutional review board approval of their study.

Preclinical researchers must also apply to DEA for approval to use Schedule I substances, and submit institutionally approved animal research protocols to both the DEA and FDA for license approval, with annual renewals. Obtaining a Schedule I license can be a months-long process, and most states require either their own controlled substance license for those working with Schedule I drugs or a Terminal Distributor of Dangerous Drugs license.

In addition, hospital pharmacies will often decline to store or manage Schedule I drugs, leaving both clinical and preclinical researchers responsible for finding and developing DEA-compliant storage and managing regular compliance reviews of drug storage conditions and inventory tracking. Depending on the inclination of a site's particular DEA diversion agent, access control requirements may include storing the drug in a heavy safe or a locked refrigerator or cabinet bolted to the floor, a security camera placed outside the storage room, and swipe card access to the room.

We are aware that some companies and investigators in the United States have also had challenges in importing psychedelics into the country due to couriers and customs brokers being unwilling to take possession of and transport these products. However, we also know of some companies who have not had these issues. For 2023, the DEA announced increases in permissible manufacturing quotas for various psychedelics, which should improve access to domestic sources for researchers.⁷²

In May 2021, approximately 7 months before stepping down as Director of the National Institutes of Health, Francis Collins testified during a Senate Appropriations subcommittee hearing that the federal government needed to “moderate the Schedule I limitation” for researchers.⁷³ Collins went on to elaborate that the government should create a modified Schedule I category called Schedule I-R that would be “a different pathway if you're going to use this material for research.” However, we are unaware of any progress in the development of this new DEA scheduling category.

In November 2022, Senators Rand Paul and Cory Booker introduced the Breakthrough Therapies Act to reduce bureaucratic hurdles to clinical research with Schedule I drugs. If passed, the bill would require the DEA to automatically reschedule any Schedule I drug receiving Breakthrough Therapy Designation from the FDA to a Schedule II drug.⁷⁴ Although this change would bring some regulatory relief to later stages of drug development, receiving Breakthrough Therapy Designation requires preliminary clinical evidence of substantial improvement over existing therapies for a particular condition.

Therefore, this proposed legislation would not reduce bureaucratic impediments in the early stages of drug development. As an alternative, critics have suggested that instead of having both the DEA and FDA regulate research into clinical applications of Schedule I compounds, new legislation should place that right solely with the FDA.

Should psychedelics gain regulatory approval as medicines, they are likely to face a regulatory barrier to clinical uptake related to the FDA's Risk Evaluation and Mitigation Strategies (REMS) requirements. The FDA will almost certainly require a REMS program for psychedelics to protect patient safety.⁷⁵ Depending on how stringent requirements are, both providers and pharmacies could be deterred from participating.

A strict REMS program has been cited as a primary reason for underutilization of the antipsychotic clozapine in the United States⁷⁶ For psychedelic-assisted psychotherapy, the FDA REMS program will likely require that providers treating patients with psychedelics be registered with the REMS program and have appropriate training, that the medication be shipped directly from a specialty pharmacy to the provider's office, that a prescriber be onsite at all times, and that information about vital signs and adverse effects collected during administration be systematically reported.

It is also possible, but less likely, that there could be dosage limitations and restrictions regarding the number of lifetime doses that can be administered to a patient. Key potential REMS features of importance will include the degree of patient monitoring required, whether there are requirements for patients to qualify for treatment, how many health care providers must be present during psychedelic administration, which types of health care providers will be allowed to participate in psychedelic-assisted psychotherapy, and what the training requirements for providers administering psychedelics will be. How long providers can keep psychedelics onsite (e.g., overnight if a patient needs to reschedule their dosing session) will be another important issue, which may also be dictated by state-level requirements.

For companies focused on drug discovery and development, the picture is somewhat different. Most new chemical entities (NCEs) in the United States are not considered Schedule I substances by the DEA when used for research purposes. If advanced for a New Drug Application by the FDA, however, the DEA will need to make a determination based on available data on whether or not to schedule a particular drug before sales and marketing.

In Europe, and the United Kingdom in particular, analog laws are much more stringent and NCEs that have similar structures to known scheduled drugs are automatically scheduled, regardless if only used for research or not. For clinical trials in these countries, appropriate licenses will have to be in place before the use of any NCE structurally related to a scheduled compound.

Although psychedelic commercialization thus far has focused on mental health conditions found in the Diagnostic and Statistical Manual of Mental Disorders, Fifth Edition (DSM-5), it is likely there would be considerable demand for legal access to psychedelics among people with mental health states not included in DSM-5, such as existential distress or demoralization.

Companies seeking these indications for psychedelics may face additional challenges related to study design of clinical trials, such as determination of inclusion criteria since the FDA relies heavily on DSM criteria in its drug approval process for psychiatric medications.⁷⁷ We are aware of only one company seeking such an indication—Reset Pharma's effort to commercialize psilocybin for treatment of severe demoralization in patients with life-threatening cancer.⁷⁸

Treatment costs and logistics of administration

Treatment costs could also be a significant barrier to commercial viability. In particular, because the current psychiatric treatment paradigm is accustomed to brief and relatively inexpensive interventions (e.g., 15–30 minute “medication check visits” approximately monthly or even less frequently), there may be resistance from payers to more resource-intensive psychedelic-assisted psychotherapy.

Psychotherapy sessions are generally 1 hour and ideally occur weekly, though in practice access to psychotherapy is extremely limited and patients may be seen much less frequently. With this in mind, having two advanced-degree therapists present for one or two psychedelic dosing sessions that can range from 6 to 12 hours depending on the particular substance, not to mention multiple preparation and integration sessions, can easily consume more provider time resources than most patients typically access in an entire year.

Therefore, it is possible that many payers will not cover psychedelic-assisted psychotherapy until favorable cost-effectiveness data are available.⁷⁹ This raises clear accessibility issues and steps will need to be taken to ensure equitable access to psychedelic-assisted psychotherapy if approved.

With these cost considerations in mind, there has been a shift in the psychedelic industry toward compounds and treatment paradigms that have less intensive time demands, particularly on dosing days. For example, GH Research and Small Pharma are investigating the short-acting psychedelics 5-MeO-DMT and DMT, respectively.^67,80

Neither of these compounds is orally active, so these companies are employing inhalation and intravenous routes of administration. Other companies are also testing faster routes of onset with shorter duration than oral administration, such as Beckley Psytech, which is investigating intravenous administration of a stable salt formulation of psilocin,⁸¹ and Filament Health, which is testing a sublingual route of administration for psilocin (NCT05317689).

Companies are also beginning to explore analogues of known psychedelics and developing novel agents, known as “second generation psychedelics,” that have shorter durations of action and potentially better side effect profiles. The majority of these, however, are simply prodrugs of known psychedelics that have a shorter duration than psilocybin. Many are slight modifications of known psychedelics to secure IP rights, and a few are deuterated versions of known psychedelics.

Given the large number of companies in the space, there are surprisingly few truly novel NCEs. Cybin is currently launching a pilot study of a psilocybin analogue that may produce psychoactive effects for only 4 hours. The primary molecular target of psychedelics is believed to be the serotonin 2A (5-HT_2A) receptor,⁸² although other serotonin receptors as well as receptors for other neurotransmitters may have critical roles in their effects.⁸³ There are a diversity of chemical scaffolds with compounds that stimulate this receptor that go beyond analogs of psychedelics such as psilocybin. Reunion Neuroscience is investigating a proprietary prodrug of a known psychedelic, 4-hydroxy-N,N-diisopropyltryptamine (4-OH-DIPT), a 5-HT_2A receptor agonist with properties similar to psilocybin, but a duration of only 4 hours.

Recent work supported by MindMed demonstrated that ketanserin is able to shorten the duration of LSD's mind-altering effects while preserving LSD-induced elevations of brain-derived neurotrophic factor, a marker of neuroplasticity, suggesting the possibility that LSD-induced therapeutic effects might be retained despite the psychedelic experience being prematurely aborted.⁸⁴ Finally, there is growing interest in developing 5-HT_2A agonists that produce enduring mental health benefits but lack subjective psychedelic effects.⁸⁵

To further reduce treatment costs and logistical difficulties, companies are also exploring psychological support without psychotherapy, which could theoretically allow for dosing sessions to primarily be managed by nurses with prescriber oversight, as is currently the case with intravenous ketamine clinics.⁸⁶

Topline results from a placebo-controlled trial of LSD for generalized anxiety disorder supported by MindMed reported positive efficacy data at 16 weeks posttreatment, with no psychotherapy delivered during dosing sessions and no post-session integration therapy offered.⁸⁷ Of note, 1 of the 20 participants who received LSD required lorazepam and olanzapine for transient anxiety and delusions.

There is also increasing interest in clinical trials of psychedelic microdosing given its avoidance of substantial alterations in consciousness that limit functionality and the clinical monitoring that this requires. MindMed is currently enrolling patients for a phase 2 trial of LSD microdosing for attention deficit/hyperactivity disorder (NCT05200936). However, growing evidence continues to indicate that the purported mental health benefits from microdosing may simply be due to placebo effect or expectancy bias.^88–91

Post-regulatory approval, psychedelics face numerous barriers to commercial viability related to costs of administration and clinician reimbursement. Should the process of incorporating psychedelics into the U.S. health care sector's complex billing and coding system turn out unfavorably, this could result in a lack of financial incentive for providers—causing few to accept payer coverage for psychedelic-assisted psychotherapy, drastically limiting access and clinical dissemination.

A recent important development in this area has been the creation of a Current Procedural Terminology (CPT^®) category III billing code for psychedelic drug monitoring services by the American Medical Association's CPT Editorial Panel.⁹² Previously, billing codes related to administration of psychedelic therapy did not exist. Full details of the new code are expected in July 2023 and it will go into effect on January 1, 2024, so that researchers conducting clinical trials with psychedelics can employ it for data collection purposes.

The eventual hope for psychedelic biotechnology companies is that this category III CPT code, which is reserved for investigational products, will be converted to a category I CPT code upon the first FDA approval of a psychedelic.⁹³ Once converted into a category I CPT code, the code would then be assigned relative value units reflecting health care provider effort, practice expense, and professional liability expenses related to treatment administration by the AMA's RVS Update Committee, which will be a significant determinant of reimbursement by payers.

Though the development of this billing code appears to be a step forward for the psychedelic industry, many important questions remain unanswered, such as which types of providers will be able to bill using the code and how psychedelics with varying durations of effect will be handled.

IP and patents

Many, if not all, of the companies discussed in this article have applied for or have been issued patent protection on purportedly novel ideas, molecules, or processes. Paralleling the rise of numerous companies formed over the course of just a few years, there has been an enormous increase in the breadth and depth of the patenting landscape.

These patents have targeted new molecules, new formulations of existing molecules, new processes for extracting or synthetically producing psychedelics, ways to remove the subjective experience, combinations of psychedelics with adjunct digital therapy, the development of prodrugs, modification of the atomic structure of existing molecules to change their pharmacokinetics, and even aesthetics of the dosing room, among other strategies.

This explosion in the number and type of patents in a short period of time has begun to provoke intense competition and litigation to fully secure the freedom to operate—some have described it as a battle to hold and secure the psychedelic space. Moreover, similar to the likelihood of a contraction in the number of companies pursuing the clinical development of psychedelics as the industry begins to consolidate, there is a strong possibility that the number of patents that are issued and defensible will be far lower than the number of applications.

Indeed, there are significant challenges to securing IP with psychedelics. Many chemical structures and synthetic schemes have been published previously, including by giants in the field such as David Nichols and Alexander Shulgin, negating the capacity to hold proprietary rights. Many of the formulation and chemical strategies target shortening the duration of action of psychedelics to promote patient compliance, reduce clinical utilization costs, and enhance their fit to the payment system of our current model of care.

These strategies typically involve conventional approaches such as deuteration or formulation for intranasal delivery,⁹⁴ which will necessitate an intense review of non-obviousness by the U.S. Patent and Trademark Office. Further, it is not currently established that a shorter duration psychedelic therapy will be sufficient to provide a clinical response.

Molecules have been developed that purportedly stimulate 5-HT_2A receptors without a psychedelic response, yet they share the capacity to produce neuroplastic changes like true psychedelics. It is currently unknown whether such agents will show similar clinical effects, especially considering the lack of consensus that the subjective experience is required or ancillary to the therapeutic response.⁹⁵

Much of these issues have not yet been resolved, in part because there can be up to a multiyear differential between a patent application and a final notice of issuance or rejection. The next few years will be an exciting time as the patent landscape is winnowed and the wheat is separated from the chaff.

Ethical Issues for the Psychedelic Industry

In addition to the challenges of commercial viability with psychedelics, there are myriad ethical issues for the industry that remain hotly debated. Concerns about the psychedelic industry range from broad (e.g., framing psychedelic capitalism itself as fundamentally problematic⁹⁶), to more specific (e.g., potential for adverse effects from the therapy⁹⁷), and a body of literature is beginning to emerge exploring these many complexities.

Though it is certainly beyond the scope of this paper to provide a comprehensive review of ethical challenges for the field, next we highlight a few salient issues.

Adverse effects

One of the most salient ethical issues regards the potential adverse effects of psychedelics and the general psychedelic-assisted psychotherapy model.⁹⁸ Some risks of psychedelic use are well established (e.g., acute effects on peripheral physiology⁹⁹), whereas others are just beginning to receive wider recognition in the wake of the field's rise and proliferation (e.g., potential for sexual abuse in the context of psychedelic-assisted psychotherapy⁹⁷).

Psychedelic companies are, of course, incentivized to measure and report on the benefits of psychedelic-assisted psychotherapy, but maintain liability to delineate the potential adverse effects and risks specific to the treatments they are disseminating as well. As mentioned previously, the serious adverse events reported in Compass Pathways phase II trial of psilocybin therapy for TRD are widely credited for playing a role in the recent downturn in psychedelic stock prices.

It remains uncertain how the industry and the general public will respond to even more highly publicized adverse reactions to psychedelics, which may come from not only inside but also outside the confines of clinical settings, as observed in the first era of psychedelic research. Nonetheless, it is an ethical necessity for psychedelic companies to vigilantly monitor and report on adverse effects.

Cost-cutting and therapeutic support

Further, at present, very little is known about best practices for psychedelic-assisted psychotherapy, including the quantity and types of therapeutic support needed to maximize safety and efficacy, and companies are forced to navigate the tension between providing adequate support to participants while minimizing costs. One of the greatest costs will undoubtedly be therapist/monitor time, leading some companies to invest in researching and/or developing short-acting psychedelic compounds that theoretically reduce the amount of therapist time needed, or leading them to minimize the support offered in their trials (e.g., MindMed's LSD for generalized anxiety disorder study⁸⁷).

However, there is limited evidence that this can be done safely, especially at scale. Although reducing therapist time might increase the scalability of psychedelic treatments, it is yet unknown how this may affect outcomes. It is also unknown whether shorter-acting psychedelics, such as 5-MeO-DMT, naturally entail less need for therapist support, or whether they may provide similar therapeutic outcomes as compared with the longer-acting compounds.

Of note, despite its short duration, 5-MeO-DMT is an extremely potent compound that led the majority of participants (N = 15; 75%) in one observational study to experience “a complete mystical experience,” comparable to clinical data on high-dose psilocybin.¹⁰⁰ “Reactivations” of the 5-MeO-DMT experience, which are not typically seen with other psychedelics, have also been noted.¹⁰¹ Given the powerful and potentially destabilizing nature of these experiences,¹⁰² reducing support could be a slippery slope, with the cost potentially manifesting as increases in adverse outcomes among patients and legal liability for clinicians.

Appropriation and indigenous reciprocity

Some of the most foundational critiques of the psychedelic industry are rooted in narratives of the history of colonization and the ethics of indigenous reciprocity. In this context, “indigenous” refers to individuals living in the Western hemisphere pre-conquest. In our understanding, this general perspective holds that the unfolding “psychedelic renaissance” and emergence of a global psychedelic marketplace is consistent with the legacy of colonialism that pursues material gain while neglecting or oppressing indigenous communities, with little reverence for their perspectives and ontologies despite their longer history of engagement with psychedelic plants and fungi.¹⁰³

Although not monolithic, these ontologies are often based on a very different understanding of the world, which can include deeply embedded concepts of relationality and interdependence, collectivism, the power of land and territory, animism, panpsychism, and sacredness, including the sacredness of psychedelic plants and fungi.¹⁰⁴

Further, these critiques hold that the psychedelic field has appropriated from indigenous communities in varying ways and potentially in violation of IP rights, with scant evidence of any input from or benefit returned to them.¹⁰⁵ Often cited as emblematic of these themes is the exchange between Maria Sabina, a Mazatec traditional healer, and Gordon Wasson, a Wall Street banker for whom Maria administered a ritual psilocybin ceremony.

Gordon Wasson subsequently published the story of his experience in Life magazine in 1957, revealing Maria Sabina's name and location despite her explicit request to remain anonymous—a decision that led to a surge of mushroom tourism in her community, her harassment and imprisonment by police, and her eventual death in destitution.¹⁰⁴

Recently, there have been calls for institutions involved in psychedelics to facilitate processes of indigenous reciprocity, a term with varying definitions that can extend to making reparations, supporting “Land Back” efforts, and including indigenous leadership in psychedelic research and policy, among other efforts.^104,105 Although it is unclear how or whether these actions will be pursued institutionally, we believe these arguments are worthy of honest consideration if the psychedelic industry is to proceed ethically.

Potential areas of challenge include that there exist many semi-synthetic substances with no direct history of indigenous use (e.g., LSD and MDMA), psychedelic compounds with a long history of use by non-indigenous populations,^106,107 indigenous cultures with no history of psychedelic use, and use of psychedelics by some indigenous peoples to facilitate non-medicinal activities such as warfare and human sacrifice.¹⁰⁸

It is unclear to us how arguments for indigenous reciprocity would handle these challenges. Nonetheless, it is clear that psychedelic therapy generally has indigenous ties and a number of stewards such as Maria Sabina kept psychedelic therapy afloat through periods of intense prohibition—often at great personal risk. Therefore, as various entities now enjoy considerable financial gains from these risks, it is natural to debate how these benefits should be reciprocated and to whom.

Potential Benefits of Commercialization

If psychedelic-assisted psychotherapy is resource intensive, the drug development process is even more so. Indeed, the FDA approval process can take more than a decade to see through to completion, with investments of capital that can approach $1 billion. And yet, most new drugs do not achieve FDA approval.^109–111 This means that any entity seeking to bring psychedelics to market, available not only through unregulated and/or illicit markets but also in formal health care settings as standardized and certified pure drugs and therefore accessible to the wider range of people, does so at substantial risk.

A benefit of commercializing psychedelics is that it provides an incentive for the otherwise precarious drug development venture. In addition, a well-regulated psychedelic industry can ensure that patients are receiving drug products that are manufactured according to Good Manufacturing Practices and of a known purity. Commercialization can also stimulate innovation and improved treatments to deliver to patients.

Already, myriad companies are exploring ways of altering psychedelic molecules or their route of administration to optimize treatment. However, given the crucial role of potential non-pharmacological factors in psychedelic-assisted psychotherapy,^108,112,113 the industry should also place high value on exploring these other variables in treatment outcomes—even if less patentable and profitable.

Lessons from Ketamine and Cannabis

The psychedelic industry is uniquely positioned to benefit from the arguably analogous industries of ketamine and cannabis. These substances have similarly been rebranded from “drugs of abuse” to being widely acknowledged to hold medical benefits over the past two decades.

Ketamine

Ketamine is a dissociative anesthetic with a wide range of effects and medical applications that vary by dose.¹¹⁴ In the early 2000s, ketamine began being explored for its rapid and robust, but transient, antidepressant effects.¹¹⁵ In 2019, Spravato^®, a patented ketamine isomer, was approved for use by the U.S. FDA.¹¹⁶ It is now available by prescription for individuals who have failed to benefit from two or more antidepressant medications as well as, more controversially, depressive patients with acute suicidal ideation or behavior.

There are a number of important lessons that the psychedelic industry can glean from ketamine. First, ketamine drug-seeking behavior following treatment has appeared as a clinical issue, with some patients shopping infusion clinics to obtain repeated injections.¹¹⁷ Although psychedelics have low potential for abuse, a form of centralized national registry may buffer against drug-seeking behavior or individuals “shopping” between psychedelic clinics.

The commercialization of ketamine can also inform questions regarding insurance reimbursement for treatment. The Centers for Medicare and Medicaid Services have established coding and payment rules for the evaluation and management, observation, and provision of Spravato, and many commercial insurers provide reimbursement for treatment.¹¹⁸

However, benefits may vary as a function of the specific plan in which a patient is enrolled. If, for example, MDMA-assisted psychotherapy for PTSD is approved by the FDA in 2024 as anticipated, one would expect third-party payers to similarly provide coverage. An open question that has emerged with Spravato™, however, is how to bundle and charge for the various aspects of treatment (e.g., the drug product, safety monitoring immediately following administration, etc.).

The American Psychiatric Association has argued cogently for the unbundling of services with Spravato,¹¹⁹ and analogous considerations will be important for psychedelic-assisted psychotherapy, which similarly involves a number of non-pharmacological components in treatment.

Cannabis

In the case of cannabis, it is important to first acknowledge salient differences with the psychedelic industry before discussing what can be learned. Namely, cannabis is a self-administered herbal medicine taken regularly ad libitum for recreational purposes and not used in a psychotherapy setting, whereas contemporary studies with psychedelic substances usually include supervised administration of pharmaceutical-grade compounds a limited number of times in highly structured clinical settings with integrated psychotherapeutic support.¹²⁰

In addition, cannabis has been legalized through voter-led ballot initiatives rather than through the FDA approval process; although, in some jurisdictions, voters and regulatory bodies have circumvented the FDA approval process for psychedelics by decriminalizing or legalizing the substances akin to cannabis.¹¹⁶ Given cannabis's patchwork legalization process, regulatory and industrial considerations vary state-by-state.

Nonetheless, some overarching themes and lessons can undoubtedly inform the psychedelic frontier ahead. First, the decentralized approach to cannabis legalization has led to a lack of accountability, making it so there is no way to ensure the industry grows to be accessible or equitable.¹²¹ A decentralized approach to psychedelic legalization and commercialization may similarly lead to marginalization and variable regulations by jurisdiction that lead to confusion among patients.

In addition, inconsistencies between state and federal law have left many physicians unprepared to offer guidance regarding medicinal use of cannabis, and many avoid discussing the treatment for fear of legal consequences. This disconnect has largely ceded medicinal oversight of cannabis to non-medically trained dispensary employees and the underground, enhancing the risk of adverse events. Again, coherent and centralized federal policy surrounding psychedelic medicine may mitigate this risk for the psychedelic industry.¹²²

Conclusion

In less than a decade, the psychedelic industry has gone through a meteoric rise in monetary value, with a multitude of companies formed and billions of dollars invested. Given the monumental interest before these companies bringing psychedelic-assisted psychotherapy to even a single customer, many foresee even greater financial opportunity in the coming years, as legalization and subsequent commercialization become more widespread.

Nonetheless, there are a number of challenges to commercial viability, such as regulatory barriers, treatment costs, and IP issues, that remain as of yet unresolved. In addition, ethical challenges related to psychedelics will need to be carefully navigated by the general public, scientists, therapists, regulators, and industry leaders. Lastly, the current psychedelic renaissance was closely preceded by the rise of ketamine and cannabis, meaning the field is uniquely positioned to draw lessons from these analogous industries in bringing psychoactive drugs into mainstream medical treatment.

Given the overwhelming interest, hope, and monetary resources being staked in the psychedelic industry, professionals would be wise to closely study what made these movements successful as well as their pitfalls. To conclude, this article brings together authors from across the psychedelic space to provide an up-to-date overview of the high-profile and rapidly changing psychedelic industry. It is our hope this can serve as a useful resource for those wanting to learn about the commercialization of psychedelics as well as stimulate thoughtful and ethical considerations for the industry going forward.

Authors' Contributions

J.S.A.: project administration, supervision, visualization, writing—original draft, and writing—review and editing; B.S.B.: writing—original draft, writing—review and editing; D.G.: writing—original draft, writing—review and editing; K.S.M.: writing—original draft, writing—review and editing; C.D.N.: writing—original draft, writing—review and editing; P.S.H.: writing—original draft, writing—review and editing.

Author Disclosure Statement

J.S.A. has no COIs to disclose. B.S.B. holds stock options in CB Therapeutics. He serves on advisory boards for CB Therapeutics and Compass Pathways. He receives monetary compensation for editorial work for DynaMed Plus (EBSCO Industries, Inc.) and from Cerebral for consulting services. B.S.B. is also the primary investigator on a clinical trial sponsored by MindMed. D.G. has no COIs to disclose. C.D.N. is a venture partner with Palo Santo, founder of 2A Biosciences, and a board member of the Heffter Research Institute. K.S.M. has no COIs to disclose. P.S.H. has been in paid advisory relationships with the following organizations regarding the development of psychedelics and related compounds: Bright Minds Biosciences Ltd., Eleusis Benefit Corporation, Journey Colab Corporation, Reset Pharmaceuticals Inc., and Silo Pharma. P.S.H. has received research funding from the NIH and Heffter Research Institute.

Funding Information

No funding was received for this article.