Shark Tank’s Kevin O’Leary, better known as Mr. Wonderful, is investing in LSD.
Well, not quite.
To be precise, he is investing in an obscure neuro-pharmaceutical firm testing psychedelic-inspired medicines. Canadian company Mind Medicine (MindMed), currently trading for $0.55 on Toronto’s NEO Exchange, just got some some serious exposure.
What does Mind Medicine do?
MindMed focuses on developing psychedelic-inspired medicines that combat depression, alcoholism, and opioid addiction. O’Leary believes the company is disrupting an industry that has not seen medical innovations for over 30 years.
Indeed, he’s convinced by anecdotal evidence that ‘microdosing’, the act of taking very small amounts of psychedelic drugs such as LSD and Magic Mushrooms, can improve focus and productivity. Microdosing is a very popular trend in the Silicon Valley, where techies and engineers use it to boost their performances.
If MindMed succeeds in developing a focus-aid derived from psychedelic drugs, the pay off could be massive.
Either it’s going to be an extraordinary outcome or it’s a zeroKevin O’Leary on his MindMed investment
The potential market for these products is huge. MindMed’s Investor Presentation claims that in the USA alone, 40 million adults are affected by anxiety, 20 million have substance abuse disorders, 17 million are dealing with major depression and 10 million use stimulant prescription medicine to combat ADHD. MindMed estimates that by 2024, the psychedelic medicine market will generate close to $1.3 billion in revenue.
MindMed’s main product, the non-hallucinogenic drug 18-MC, is based on ibogane, a psychedelic substance which preclinical research has shown may help curb addiction. Granted, this has yet to be conclusively proven, the tests are apparently encouraging.
For O’Leary, the most important aspect of MindMed’s strategy is the fact that it’s subjecting all its products to FDA testing. If they are approved, they will be sold as pharmaceuticals – not recreational drugs like cannabis – which will facilitate mass adoption. An FDA approved medicine can easily win the consumer’s trust, compared to a recreational drug that appeals to a niche market.
How difficult will it be for MindMed’s products to gain FDA approval?
It won’t be easy, but there is a precedent: In March 2019, the FDA approved Spravato, a psychedelic medicine used to treat depression. This leads Minded to believe that the FDA is willing to approve unconventional medicines if they prove their worth in the testing labs.
Obviously, the first companies to offer FDA approved medicines will dominate the market. The pharmaceutical sector has important barriers to entry and owning the intellectual property rights of an effective and popular product can keep competitors at bay for a long time. Time will tell if MindMed succeeds in becoming that leader.
Is this a pump and dump?
I don’t think so. The company looks legit and, if approved, the psychedelic-based medicines could revolutionize addiction treatment.
In terms of financial performance, MindMed appears to be doing fine. They have $19.7 million of cash on hand and less than $2.5 million of liabilities. Pharmaceutical research is expensive so being cash rich gives the company plenty of financial flexibility to either invest with its own assets of borrow if they need to scale operations.
But investors should remain prudent. Investing in up and coming pharmaceutical companies is extremely risky and not for the faint of heart.
The inevitable volatility that comes with FDA approvals and refusals can cause huge swings in your short term profitability. The only way to survive the turbulence is to strap on your seatbelt and focus on the destination – FDA approval and access to the mass market. If you really believe in the product, buy the stock and forget about it for a couple of years.
To his credit, O’Leary warns investors that MindMed is a long term play. He says you should pay special attention to FDA trials and milestones but, if 18-MC proves effective, the windfall will be huge. But, “If none of these compounds prove out, the company has no value“, he says.
It’s a high risk, high reward play.
For those willing to follow Mr. Wonderful’s flair, heed his words of caution: “It’s a speculative investment and a long-term one. You should never have more than five per cent of your portfolio in a position like this ever. Because it’s binary. It’s like biotech stocks, but not one of them is more than five per cent of my portfolio, and it’s a sector I’ve been involved in for 25 years“.
You have been warned.
So, are willing to throw your hat in the ring? Let me know in the comments.
If you want to see Kevin O’Leary’s full video of his reasons for investing, click here.
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DISCLAIMER: This is not financial advice. Always do your own research before investing.