UK government set for psychedelics investment windfall

The UK government is on track for a seven-figure windfall from an investment in a psychedelic drugs company that is readying a float on the Toronto stock exchange.

State-backed investor Angel CoFund holds a 5.5 per cent stake in London-based Small Pharma, which has announced its intention to list via a reverse takeover through the Canadian capital pool company Unilock Capital Corp.

It aims to raise C$20m ($15.6m) to fund a clinical trial of therapy-assisted depression treatment using dimethyltryptamine (DMT), the active compound in the Amazonian psychedelic brew ayahuasca.

The Angel CoFund is privately run but funded by a £100m loan from the UK government’s Department for Business, Energy and Industrial Strategy, which recoups profits made by the investor.

Small Pharma said that it expects the Angel CoFund to make a £2m return on its investment, based on its forecast valuation, adding that the state-backed fund invested in the company before it began researching psychedelics. Angel CoFund declined to comment.

There has been a resurgence in research around psychedelic drugs and their impact on the human brain, following a decades-long hiatus after early studies were halted amid a backlash against mind-altering drugs.

DMT remains illegal in the UK and many other countries, much like other drugs that are being explored by biotech groups to treat depression and post-traumatic stress disorder such as ketamine, MDMA and psilocybin, a natural substance found in “magic mushrooms”.

Peter Rands, chief executive at Small Pharma, told the Financial Times that roughly a third of the hundreds of millions of patients around the world who suffer from depression do not respond to selective serotonin reuptake inhibitors, a common type of antidepressant.

Small Pharma is aiming to offer an alternative as it seeks to prove that therapy under the influence of DMT can help patients come to terms with the underlying causes of depression, rather than temper the symptoms as many antidepressants do. 

Past studies of ayahuasca have suggested that it helps to alleviate symptoms of depression, but larger placebo-controlled trials of the active compound DMT are needed to convince medical professionals — and regulators — of its efficacy and safety.

The US Food and Drug Administration has already designated three potential medicines, one based on MDMA and two on psilocybin, as “breakthrough” drugs, meaning regulatory review will be sped up because of the potentially significant impact on people’s health.

Compass Pathways, the UK-based firm that holds a breakthrough designation for its psilocybin-assisted therapy method, in September became the first psychedelics biotech to go public on the Nasdaq.

A challenge for companies developing psychedelic drugs is the resource-intensive delivery — patients need to be observed by therapists for as long as the psychedelic effects last, which with psilocybin might be as long as eight hours.

Mr Rands is hoping that DMT-assisted therapy will be easier to scale up, as the drug’s effects last up to 30 minutes. “It might not be more effective than psilocybin but the shorter delivery time will make it much easier to administrate,” he said.