Psychedelic therapy developer Mind Medicine (NASDAQ:MNMD) stock has been on fire this year, generating more than 100% in returns in the past six months.
It currently has the most diversified pipeline of psychedelics in clinical development and R&D, tackling mental health.
There has been a steep rise in mental health ailments in the past few years, and MNMD stock provides much-needed novelty in the sector. However, there are a bunch of risks with its business model that continue to hold it back for now.
Mind Medicine is tapping into the mental health sector, which will be one of the fastest-growing industries in the future. Globaldata suggests that the market can grow by 50% from $27.4 billion last year to $40.9 billion in 2025. Hence, such exponential progress can change the fortunes of small biotechs such as Mind Medicine.
Moreover, the company has multiple projects in line, with a sizeable cash balance of $161 million. Investors can look forward to these developments, stemming from its new technology division and its progress in clinical trials. Nevertheless, several risks limit the attractiveness of MNMD stock at this time.
Growth Catalysts for MNMD Stock
Mind Medicine has a lot on its plate that will drive future growth for the company. It has three headliner projects currently in phase two trials.
Two of these projects use LSD to treat mental health conditions such as attention deficit hyperactivity disorder (ADHD) and anxiety. The third involves a compound using a psychoactive called ibogaine for the treatment of addiction.
Phase 2b for its LSD-for-anxiety trial is likely to take place in the fourth quarter this year. Moreover, a phase 2a proof of concept trial will also be launched soon to investigate the effect of LSD on adult ADHD. However, the most promising is its phase 1 trial for addiction using ibogaine.
If everything goes smoothly, it can move on to the next phase soon.
Other than its clinical projects, it is diversifying into digital health. For example, the company might soon generate some meaningful revenue through its new Albert digital medicine platform.
Details about the platform are scarce at this time, but it’s essentially a telehealth service that effectively integrates telehealth with comprehensive health metrics from patients.
Mind Medicine’s bear case consists of several compelling arguments that limit its attractiveness at this time.
Firstly, the company has $161 million cash on hand, which it believes should be enough to carry out its trials until 2024. However, that is based on the management’s expense estimates, which are subject to change. Moreover, three years is a considerable amount of time during which the company could face multiple challenges.
From a statistical standpoint, success in phase 2 trials in psychopharmacology is around 24%. Hence, there is a chance that none of its big projects move on to phase 3 and beyond.
More importantly, though, there is a risk real risk that new companies start pursuing their clinical trials on various compounds as anti-addictive substances.
There are some inherent risks in the psychedelics sphere that could further complicate the process. Some of these include the FDA’s approval process, the stigma towards hallucinogenics and concerns of the medical community.
Moreover, I am also skeptical about the company’s plans to conduct LSD-assisted psychotherapy via telehealth. Things could get tricky for patients going through psychedelic experiences and are taking psychotherapy sessions online without a professional presence.
Bottom Line on MNMD Stock
Mind Medicine has a fascinating pipeline that could potentially disrupt the mental health industry. If its projects can successfully pass through the trial stage, they could generate millions in revenue for the company.
Moreover, the mental health industry will continue to advance at a healthy pace for the foreseeable future. However, the company faces multiple risks which are holding it back.
Until it finds a way to navigate through them, it is tough to invest in a speculative stock such as MNMD.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.