Analysis | Magic Mushrooms Are Giving Investors a Bad Trip

When not championing psychedelics’ therapeutic effects (occasionally with actress friend Uma Thurman), Angermayer tries to consume them himself once a year (only where they’re legal). He’s even convinced his parents to partake.

Such disarming openness has made the founder and chairman of Berlin-based drug development company Atai Life Sciences NV an effective advocate for the potential mental-health benefits of psychedelics such as psilocybin, the active ingredient of magic mushrooms. Although these compounds are still illegal in most places, they have enjoyed an extraordinary flourishing of medical research and financial investment in recent years.   

Angermayer has also put his money where his mouth is: After Atai raised $260 million last year in an IPO valuing it at $3 billion, his family office promised not to sell its anchor stake for at least another two years. Earlier this month, it doubled down by spending a modest amount on financial derivatives that pay off if Atai’s share price doubles in the next three years.

QuicktakeThe Psychedelics Boom 

Right now, though, the charm offensive isn’t working so well. An exchange-traded fund tracking psychedelic stocks has lost two-thirds of its value since peaking last year. While some of these companies haven’t suffered as much — GH Research Plc’s enterprise value is still almost $730 million, for example — retail investors who bought into the hype have often incurred big losses. The comedown has also put a dent in Angermayer’s wealth. Adjusting for its cash, investors now value Atai’s drug pipeline at $470 million.

Nearly $1.8 billion was raised by psychedelics startups from public and private investors in 2021, according to research firm Psilocybin Alpha. But while clinical trial results have been broadly encouraging, the dozens of companies that have popped up in this space are mostly still a long way from gaining regulatory approval and therefore having a marketable product.

Rising interest rates have also made capital providers less tolerant of firms that won’t produce profits for years, and psychedelics companies are no exception. Those that don’t already have a strong cash buffer face a tougher time securing funding.

Angermayer told me investors partly have themselves to blame for financing “nonsensical” companies that tout psychedelics but have “no clearly defined strategy or viable business model.” (He doesn’t include Atai or its psilocybin portfolio company Compass Pathways Plc in that bracket.) My view is that capital providers will need more assurances…