Summary
- MindMed is burning through its cash pile without generating any IP.
- The MEME stock rally is a confusing but illuminating story into some key players in this stock.
- MindMed may never generate any revenue without a new drug discovery or change in strategic direction.
Mind Medicine (MindMed) Inc. (MNMD) is a biotech company developing drugs to treat brain disorders focused on using Psychedelic compounds. Recently, it has seen a surge in stock price powered by a MEME stock rally and a reverse stock split. I believe that these events are hiding a company with very little value and a poor business model. I think the only thing it will do in the coming years is spend its cash pile before asking shareholders for more money.
A MEME Stock
I will begin with the MEME stock status; it is an excellent insight into the people and products behind MindMed It took some digging out, but here is the story of the first psychedelic meme stock rally.
A Drug Discovery
It all begins with a compound called 18-Methoxycoronaridine or 18-MC for short it is an Ibogaine derivative invented by Dr. Stanley Glick at Albany Medical College around 1995. Ibogaine is a naturally occurring psychedelic drug believed to have anti-addiction properties.
Enter the key players
Obiter research, a specialty chemical company, based in Illinois, licensed 18-MC from Albany Medical College and began the search for the money to get the drug through FDA trials and authorized for use. Obiter, run by Chad Boulanger and his brother Bill linked up with Savant HWP( where Chad was also a director), a health and wellness pharmaceutical company founded in 2000. Savant received a grant for $6.8 million in 2013 from NIDA to develop 18-MC, that money paid for three years of research looking at 18-MC and Cocaine addiction. Scott Freeman, the chief medical officer, was the lead investigator on this research. After three years, NIDA refused an application for further funding, and the project stopped.
Scott Freeman became Chief Medical Officer at MindMed, he was in post for one year, and during his tenure, MindMed acquired 18-MC from Savant. It became their flagship drug, given priority status, and advanced to phase 1 trial.
Earlier this year, MindMed announced that it was shelving MC-18 . Discussions with the FDA led MindMed to believe that it would be too expensive to gather the evidence the FDA needed to approve a full trial. MindMed will have weighed the fact that 18-MC is now off patent, so the possibility of making any money from it is pretty limited, and the fact that 18-MC has been pushed back by NIDA and the FDA.
Shareholder Activists arrive
An activist group called FCM, claiming to represent +5% of shareholders in MindMed, wrote to the directors of MindMed an open letter . They have several requests, but I will list two for the story's sake.
- Focus research on 18-MC and LSD
- Re-appoint Scott Freeman as Chief Medical officer.
A visit to the FCM website, MINDMED Zone, reveals that FCM is led by two names we have heard quite a bit of in this story. Scott Freeman and Chad Boulanger. The website is a psychedelic experience in itself.
Landing Page FCM website (MindMed Zone)
The landing page has a psychedelic background, which keeps changing, and a strange statement about the founders returning. Jamon Rahn and Stephen Hurst founded MindMed, and their names do not appear anywhere in the MindMed Zone. Stephen Hurst did resign from MindMed earlier this year, but as he owns 9% of MindMed, he probably is not involved. Jamon Rahn left in 2021 and has since started Love.com and is Head Honcho at Rahn Capital Advisors LLC ( LinkedIn profile ). Jamon owns less than 2% of MindMed, so he could be the returning founder that FCM refers to, but there is no corroborating evidence that this is the case.
The MEME rally
So how did this become a MEME stock? The third founder of FCM is Scott Freeman's nephew Jake Freeman, an active REDDIT contributor who ran for president in 2020 (that's president of the US, not Reddit). The Financial Times ran a story that pointed out that Jake invested $27 million in Bed Bath & Beyond before running an activist campaign that made him $100 million.
That comment from the FT was enough; Twitter, Reddit, Wallstreet Bets et al. went into overdrive, assuming that a new activist campaign was on the way and another $100 million was about to be made. The MEME stock rally began, and the shares increased significantly.
MindMed the actual business
Putting the meme rally aside and looking at the actual business of MindMed is almost as confusing as the story presented already. I contend that their business plan may never generate any profit and that their lead drug candidate will be a low-earning compound without patent protection if it ever gets approved. The remainder of the business is just searching for an effect from psychedelic drugs in the hope that they can find one to commercialize.
The lead drug candidate, MM-120 (LSD)
MindMed announced in January that the FDA had removed its clinical hold on MindMed's LSD MM-120 targeted at General Anxiety Disorder and that it was about to start a phase 2b trial. Phase 2b will look at different doses to decide how much to give patients in a later phase 3 trial. Getting from a phase 2b trial to market will likely take 4 years without any special designation from the FDA. This LSD product is MindMed's most advanced; they announced on the 25 th of August that they had dosed their first patient in the study.
The efficacy of LSD is not that well proven; a search for meta-analysis studies into the effect of LSD on General Anxiety did not reveal any significant research ( I searched PubMed ). One report from 2014 does look at LSD on anxiety, but those patients had anxiety caused by a life-threatening disease. I could only find one other company sending LSD to trial, Eleusis, which has a phase 1 trial exploring LSD as a treatment for Alzheimer's. There is some evidence on PubMed that LSD can help with alcohol addiction and positively affects mood. Still, I could not find any studies on helping anxiety in the area MindMed is focusing its efforts on.
MindMed did present a study of 46 patients . The study was very positive, and researchers reported that 65% of patients receiving LSD (20 received LSD and the rest a Placebo) showed a clinically measurable response. The effect was fast acting and was still significant at 16 weeks. The drug was at its most potent two weeks after the second dose. Other endpoints were also met with reduced depression amongst patients. Researchers reported that the greater the hallucinogenic response, the greater the effect on anxiety. It was also noted that the hallucinogenic effect lasted 12 hours (much longer than psilocybin). The drug had a good safety profile, but one serious adverse event was recorded with a patient reporting acute transient anxiety and delusions (the patent needed immediate treatment). That represents 5% of those receiving the LSD and will be closely watched in the subsequent trial.
During questioning, at the release of the data, the lead researcher was asked if the effects of LSD differed from the research done using psilocybin; he said not. You cannot patent LSD meaning the price you charge will be low, and it offers no benefit to psilocybin which has a much shorter hallucinogenic reaction; psilocybin is much closer to market. That may seriously affect the commercial viability of this product and its chance of getting approved.
Having already put one clinical hold on MM-120, the FDA does not seem in any rush to press ahead with this approval process. It will be a least five years before MindMed can get this, their most advanced compound, to market. It may never be approved and may never generate revenue.
MindMed has the following trials currently taking place, they are all relatively early stage, and we do not yet have any data to judge their progress. (apart from the first one already discussed)
MindMed current trials (Author generated)
The first four trials test LSD against a variety of different problems. LSD cannot be patented, so even if successful, this will not generate significant income.
The next four investigate different compounds to see their effect in the hope of finding something to take to a phase 2 trial. Of these, Mescaline is probably the most interesting; I could not find any other companies investigating this naturally occurring compound that is reported to have similar effects to LSD and psilocybin.
The final one is testing MDMA for social anxiety in autism. It is currently only at phase 1, so we have no information about how this works. I could find no research or similar studies in this specific area.
Collaboration
Since its launch in 2020, MindMed has announced collaborations with the following companies:-Sphere Health, Liechti Labs, BioXcel, Forian, Datavant, Nextage Therapeutics, and The Chopra Foundation.
Liechti labs are the organization looking at MM-120 and general anxiety disorder; the deal gives MindMed the rights to all the data from the study and any patents or discoveries.
Management changes
MindMed appears to be somewhat of a revolving door. Six major changes in the last nine months, including a new CEO, CFO, and board Chairman, and both founders resigned.
Valuation
MindMed has around $110 million of cash on its balance sheet; it has signed a deal with Liechti Labs that gives it the rights to the data from several LSD trials, including the one discussed in detail in this article. It also has the rights to any patents that come from this research.
MindMed has a patent for a single oral dose of LSD and MDMA combined (candy flipping, known in the drug-using community, is a common practice). If this combination of drugs is ever approved, this might be useful, but people could take two pills at the same time; I think the patent is of minimal value.
MindMed has applied for large numbers of patents that are not yet public. They are researching several areas that might lead to valuable IP; the most important, in my mind, is developing new psychedelic compounds, perhaps through Mindshift, who they teamed up with last year . The second area of potential IP is modifying existing psychedelic compounds in the way that Atai Life Sciences ( ATAI ) and COMPASS Pathways ( CMPS ) have done. MindMed explains its IP strategy in this video , and they may be quietly building a strong IP portfolio, but there is no evidence of it yet, and they have not taken any new drugs to phase 1 testing yet.
The final area is digital medicine. MindMed is researching digital technology that may help determine dosing sizes for psychedelic drugs. Until a drug is approved, this research is somewhat arbitrary, and it is unclear if the technology is for their own drugs or works with other psychedelic compounds.
On the drug front, 18-MC was abandoned, and LSD is going to phase 2b trial but cannot be patented.
A phase 2 trial will normally take several months to two years ; it takes around 1 year for the FDA to agree to a phase three trial, which will generally last from one to four years. Adding all of this together, it is fair to assume that MindMed's lead drug candidate is at least four years away from revenue generation.
It is unlikely that MindMed will generate any revenue in the next four or five years and, burning cash at around $17 million a quarter, will run out of money inside two.
I cannot see any value here.
Conclusion
MindMed appears to be in a mess; it has lost its founders, dropped what was its flagship drug candidate, and is continuing with a phase 2b trial of LSD, which it cannot patent. LSD may never get approved; its hallucinogenic state lasts twice as long as other psychedelics and offers no benefits.
MindMed continues to explore other psychedelic compounds in the hope of finding a use for them, this strategy might uncover a blockbusting drug, but it will take a long time, as much as seven years to get from drug discovery to full approval and revenue. If MindMed does announce a major new drug or innovative digital breakthrough, it will support the share price and reduce the need to come to the market for more money.
Based on the stage it is at with its lead candidate drug, I believe that MindMed will slowly burn through its cash pile over the coming years before returning to the market to ask for more money.
I expect the share price to drop gradually to around $1 again in the coming months. Of course, my bearish thesis could change quickly if MindMed finds a potential blockbusting drug candidate from its research or collaborations.
If you know how to play the MEME stock game, you may have a different view, but I cannot see any alpha on this psychedelic horizon.
For further details see:
MindMed: Confusing MEME Rally Hides A Company That Looks Empty Of Value