Last week, Psychedelic Stock Watch published our latest look at the ATAI Life Sciences IPO, including speculation that the new listing could come as early as the end of January. As we noted, this means that investors need to quickly decide upon their strategy re: investing in ATAI.
In formulating that strategy, perhaps the first question that investors will address is: ATAI or MindMed?
Comparing the industry leaders
ATAI has the largest, most-diversified business model in the psychedelics space. It has a total of nine research partnerships in place with different corporate partners, including its flagship investment (>20%) in Compass Pathways (US:CMPS).
MindMed Inc (CAN:MMED / US:MMEDF / GER:MMQ) is the closest parallel to ATAI. Via its research partnership with the University of Basel (Switzerland), MindMed has the deepest portfolio of drug R&D initiatives that are already into formal clinical trials.
Purely from an operations perspective, any serious investor in psychedelic stocks would like to hold positions in both companies. Currently, these are simply the two psychedelics companies with the most meat-on-the-bone for investors.
But markets don’t work like that. Investors also need to factor in the cost of taking a position in one or both companies. In other words, it becomes an exercise in cost/benefit analysis.
For investors who bought in early with MindMed as a public company or who participated in one of ATAI’s previous financing rounds, this isn’t an issue. For everyone else, price is a critical factor in reaching their decision.
Currently, MindMed sits with a market cap above US$1 billion. ATAI is expected to be priced between $1 – $2 billion. Not much to choose between the two companies if those numbers remain the same by the time ATAI has its IPO.
Which is the better opportunity for investors (at that price)?
Part of the answer to this question is dependent on an investor’s risk profile.
Less risk with ATAI, more upside with MindMed?
More conservative investors will likely lean toward ATAI. The best-capitalized psychedelics company. Expected to have a premier NASDAQ listing. A deep IP portfolio via its corporate partnerships. For those reasons, it will likely trade closer to fully valued, right from its IPO.
On the other hand, those with greater risk tolerance may lean toward MindMed.
MindMed doesn’t have a premier exchange listing – yet. It hasn’t raised capital quite as well as ATAI. But it’s added roughly CAD$200 million via its 2020 financings and currently sits with US$145 million in cash. A proven ability to raise lots of capital.
MindMed’s clinical R&D is at least as advanced as that of ATAI. But because it works with a single research partner (University of Basel), it may not be quite as diversified as ATAI’s partnerships.
Should investors in psychedelic stocks be holding both companies?
That’s a likely strategy for more conservative investors who are looking to focus their holdings on only a couple of companies. Broad exposure to the sector while minimizing risk.
For other investors, whether or not to hold both companies will depend upon their own Big Picture view of the industry.
Some investors see the psychedelic drug industry as primarily a drug development story. A Mental Health Crisis is raging across that already affects over 1 billion people.
The current standard of care is grossly deficient for most of these mental health conditions. Meanwhile, clinical trials with psychedelics-based therapies have been yielding spectacular results.
Numerous multi-billion-dollar drug markets are potentially on the table.
Investors primarily focused on the home-run potential of drug development may feel compelled to hold both stocks.
Conversely, other investors see the psychedelic drug industry more in terms of a drug treatment story. Nearly all psychedelic drugs currently in clinical studies are being integrated with some form of psychotherapy.
Consequently, when it comes to revenue streams, many investors are more tuned-in to the services/treatment side of this industry. In the United States alone, total revenues for mental health services are currently ~$300 billion per year.
Investors wanting a strong portfolio emphasis on psychedelics-assisted clinics and ancillary services may only have room in their portfolio for one industry leader or the other.
Then they can augment that with holdings in some of the psychedelics companies that have already staked out a stronger position on the treatment side of the industry. Companies like Field Trip Health (CAN:FTRP / US:FTRPF), Numinus Wellness (CAN:NUMI / US:LKYSF) or Mind Cure Health (CAN:MCUR / US:MCURF).
Industry leaders are especially attractive to investors in emerging industries. These are companies that generally offer:
- Greater visibility
- More liquidity
- Deeper operations
- Better capitalization
For all those reasons, such companies generally represent lower risk propositions than smaller peers.
ATAI Life Sciences and MindMed Inc have already attracted strong investor following for good reasons. Each offers multiple investment drivers in a very well-capitalized business model.
It would be difficult for any serious investor in psychedelics to turn their back on both companies. With many similarities, which of the two companies is the better value may largely come down to the price at which investors can gain entry.
DISCLOSURE: The writer holds shares in MindMed Inc, Numinus Wellness and MindCure Health. Mind Cure Health is a client of Psychedelic Stock Watch.
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