Dave Hodes
Investment in a biotech company is a tricky move for any seasoned investor. It’s always challenging, with great potential wealth tied up for years while the results of clinical trials get published and the approval process of the Food and Drug Administration (FDA) slogs on.
To really understand it, there is complicated medical jargon to figure out amidst starry-eyed promises being promoted of treating a human illness or disease for the first time with a new life-changing drug.
The process of investing in the biotech business—which is now experiencing a sort of market rout after witnessing the end of a promising surge in pandemic-driven investing—is really the only model for investing in psychedelics.
But investing in psychedelics offers a whole slew of additional challenges for a biotech investor. Can any drug developed by a psychedelics company live up to the truly breath-taking predictions about what a psychedelic-substance can do for humans—treat alcohol and nicotine and drug addictions, handling or overcoming pain, managing or even eliminating depression, or post-traumatic stress disorder, or autism, or Alzheimer’s or, well, who knows what other human mental health conditions psychedelics could successfully treat?
But even without all of that extra investor worry that comes with psychedelic substances, many investors in the business have to overcome issues about the stigma of their use. And most psychedelics companies in the U.S. are still caught up dealing with the Drug Enforcement Administration (DEA) restrictions about psychedelics that on some level that affect their business development.
Biotech investors already know there are enough bigtime risks that can bring down any biotech business almost overnight no matter how many clinical trials are conducted or how much deep research was involved.
They have to find a careful balance of managing their or their client’s money; belief in the veracity of claims by psychedelic companies about the results of trials; and hopes that the FDA not only understands the medical value of a particular psychedelic as a mental health drug, sorting out all its complicated medical-ese, but can quickly approve it for treating humans.
In short, it’s a messy hands-on watch-the-headlines type of investment that even established biotech companies backed by experienced biotech investors can get burned on.
One example: On July 15, 2021, Food and Drug Administration’s (FDA) Cardiovascular and Renal Drugs Advisory Committee (CRDAC) voted 13 to 1 that the “benefit-risk profile..does not support approval for the treatment” of FibroGen’s (NASDAQ:FGEN) drug roxadustat. The drug is an oral medicine that could be the first in a new class of treatments called oral HIF-PH inhibitors designed for the treatment of anemia (insufficient red blood cells) due to chronic kidney disease (CKD) in adult patients.
Approximately 15 percent of U.S. adults—37 million people—are estimated to have CKD, and most (9 in 10) adults with CKD do not know they have it. From an investor point of view, it looked like a good and potentially profitable drug to bring to market.
In asking for FDA approval, FibroGen, working in a global partnership with AstraZeneca and Astellas Pharma, presented clinical development results for roxadustat in patients with CKD anemia that included 9 phase 2 studies, 8 U.S. and global phase 3 studies, and 8 additional phase 3 studies in Japan (with 1,028 patients) and China (456). Results of those studies were submitted to the FDA for consideration.
Roxadustat had been approved in China since 2018, and in Japan since 2019. It’s also been approved in Chile and South Korea, and is under regulatory review in the European Union. Available post-marketing safety data from studies did not show any new unexpected risks. But all that seemingly deep due diligence and positive news on a drug for an unmet need to treat chronic kidney disease was not enough to gain FDA approval.
As a result, FibroGen’s stock price crashed from $27.67 a share on June 21, 2021 to around $8.46 a share today—a five year low.
Then there is the controversy with Biogen’s (NASDAQ: BIIB) Alzheimer’s drug aducanumab, approved by the FDA on June 7, 2021 but hounded by claims that Biogen people allegedly met with members of the FDA outside of the regulatory process, and that 10 of the 11 members of an advisory committee of independent experts that the FDA convened for guidance voted that there was not enough evidence to justify approval. “The data included in the applicant’s submission were highly complex and left residual uncertainties regarding clinical benefit,” Dr. Patrizia Cavazzoni, director of the FDA Center for Drug Evaluation and Research, writing on the FDA website announcing the approval of the drug. “As is often the case when it comes to interpreting scientific data, the expert community has offered differing perspectives,” she wrote, adding that “the FDA concluded that the benefits of aducanumab for patients with Alzheimer’s disease outweighed the risks of the therapy.”
Nevertheless, Biogen took a serious hit on its hoped-for big money-maker (the drug would reportedly cost $56,000 a year for patients). The company’s stock price is down nearly 20 percent from five years ago, now at its lowest level over that same period, with its steepest decline beginning June 11, 2021.
BioGen is huge, reporting $11 billion in revenue in 2021, so it can weather this particular storm. That’s the good news of investing in an established biotech business. But there are no psychedelics company that come even close to that revenue amount (most show no revenue at all for now), or that safety net for drug development gone wrong when they have just one drug development in the pipeline. One clinical trial with bad results, one denied FDA approval, and all bets are off for a psychedelic drug company as a profitable, good investment.
