[3D conformer image of LSD tartrate courtesy of PubChem]
The psychedelic therapeutics market could be worth billions of dollars in the coming years. The FDA has awarded breakthrough therapy designation to psilocybin and MDMA, potentially accelerating its approval of the currently Schedule I substances.
Despite the promise, several psychedelic therapeutics companies have seen substantial drops in stock price. For instance, MindMed has seen its stock fall from nearly $65 per share in late April 2021 to $3.24 on January 18, 2023.
Freeman Capital Management (FCM), which represents investors holding approximately 6.1% of MindMed’s total shares outstanding, believes the loss in stockholder value is essentially a result of the company’s lack of a clear strategic plan, poor communication to stockholders and a history of dilutive and damaging equity issuances.
In August 2022, the firm sent a proposed value enhancement plan to MindMed, which asked the company to “drastically” cut the development time of MindMed’s two original drugs and reduce annual cash burn from $45 million to $24 million.
MindMed did not immediately respond to a request to comment on the proposal from Freeman Capital Management.
Last year, MindMed CEO Rob Barrow told MarketWatch that “FCM’s proposals are not realistic and demonstrate a lack of understanding of how an emerging growth biotech company such as MindMed will ultimately deliver value to shareholders.”
In September, MindMed announced a plan to launch a public offering to issue 7,058,823 additional shares at a discounted price with warrants to purchase an additional 7,058,823, potentially diluting existing shareholders by more than 31%.
Freeman Capital Management has also accused MindMed’s board of misconduct and has filed a complaint with the SEC.
To learn more about MindMed Zone, we reached out to two of its leaders, Dr. Scott Freeman and Jake Freeman. Dr. Freeman was the former chief medical officer of MindMed. Jake Freeman is the chief executive manager at Freeman Capital Management.
Their responses have been lightly edited.
Can you share more about the genesis of MindMed?
Dr. Scott Freeman: MindMed started from a company called Savant HWP, which was developing a drug known as 18-MC to treat opioid addiction. 18-MC is a congener of ibogaine, a psychedelic used in the 1960s in the hippie movement. It showed promise as a treatment for heroin addiction. In the late 1960s, FDA assigned ibogaine Schedule I classification.
Decades later, Dr. Stanley Glick, an investigator at Albany Medical Center, made a congener of ibogaine, which basically took out its hallucinogenic activity and some of the toxicities and made 18-MC.
Savant HWP licensed that as a non-hallucinogenic ibogaine derivative to test as an opiate addiction treatment.
From Savant, we took 18-MC and started Mind Medicine (MindMed) with the premise that we were developing psychedelic-inspired medicine. So the starting point was 18-MC. And then, from there, we started looking at other psychedelics and began to develop LSD.
Eventually, I left MindMed. Over the last year, the psychedelic space has gone through some ups and downs. We started the MindMed Zone and developed a value enhancement plan to see how we could better Mind Medicine and better the ways that psychedelics can be developed.
Can you say more about your role in establishing a psychedelic collaboration between MindMed and Dr. Matthias Liechti?
Dr. Scott Freeman: When we first started Mind Medicine, we were looking at which psychedelic drug to develop. There was some debate early on whether we would focus on psilocybin or LSD.
When you start a startup, investors don’t want to invest in preclinical studies — they want to be in the clinic. One of the advantages of psilocybin was that there were a number of companies and nonprofits like Usona that had GMP psilocybin that we might have been able to access. I thought LSD was a better drug than psilocybin, and psilocybin was a more crowded space.
The issue was there was not that much LSD available for clinical trials. There seemed to be one group in the world, led by professor Liechti, that had LSD they could use in clinical trials. LSD was developed in Basel, Switzerland, at Sandoz Laboratories.
Swiss regulators were allowing the use of LSD by academics. Professor Liechti at the University Hospital Basel seemed to be the leader. So we went to Basel and struck up a collaboration with him. His group became a center of excellence for us. That allowed the company very early on to be doing LSD trials through Professor Liechti while we were developing our LSD manufacturing. Professor Liechti is a great investigator. He does great work on a number of psychedelics. You can see that a lot of the MindMed press releases, publications and intellectual property are coming out from his work.
What is your take on why the broader psychedelic therapy market, including MindMed, is down?
Dr. Scott Freeman: One of the reasons the whole psychedelic space is down relates to a Phase 2b study of psilocybin from Compass Pathways for treatment-resistant depression. The study was overall positive, but there was some suicidal ideation. That was known and expected, but that caused real negative repercussions for the market. That data seemed to start this downward spiral.
There was a lot of work done in the 1950s and 1960s, and then psychedelics were banned. And then, decades later, some groups like Usona and MAPS came about. They have moved the field along, but I’m not sure you have the best drug development there.
Part of the value enhancement plan that we proposed was to move clinical trials along quicker and get drugs into Phase 2 and Phase 3 quicker.
I think one of the reasons Compass is down is that they are now doing two Phase 3 studies. Each one will cost several hundred million dollars, and you have to raise a lot of capital to do this.
Can you share more about Freeman Capital Management’s value enhancement plan and its recommendation to eliminate non-core expenditures?
Dr. Scott Freeman: Over the last year or more, MindMed’s stock values have come down, as has the market.
When you are in a bad market macro environment and markets are down, you need to focus and conserve. So part of it is administrative costs.
During the good times, there may have been too much hiring. You probably need to be leaner.
At MindMed, there was a focus on things outside the core business, like medical devices. Again, some of that can be helpful, but given the need to conserve cash, you probably need to focus more on your core assets.
Jake Freeman: It’s never great when you have three or four HR people for a company with approximately 40 employees.
There’s a lot of excess employees. And you know, you have an executive assistant for the CEO. Again, there are only about 40 people. There are a lot of people that are either duplicative or could be combined. You should not see that in this kind of market where cash is king. You’re paying millions of dollars annually for employees who aren’t needed. They probably make the company marginally better, but I’d say marginal cost versus marginal benefit.
Please share more on how the strategic plan calls for reducing executive compensation?
Jake Freeman: We plan to reduce base salary and align executive compensation with option-based compensation. We don’t think executives should be getting much money until we get a drug to market. We want executive compensation aligned with shareholders. Right now, they receive a very lofty salary and obviously, they don’t care that much that the stock is down because they get a lot of money regardless of how the stock performs. We want to change that to focus them on looking at long-term performance by ensuring they don’t make substantial money until we get a drug to market and we have revenue and profits.
I think MindMed’s executive team will want to try and consolidate because it gives them an out. It gives them a way out of this unwinnable situation for them. But on the flip side, they need to get two-thirds of MindMed shareholders to support them, and no one’s going to go for that at these pricing levels.
MindMed is a story of optimistic projections. They said they had enough cash to go through 2024 before they did dilution at these low prices. They said their Phase 2 18-MC trial was supposed to be done in 2020. And then it went into 2021, 2022 and then 2023. Their story is one of constantly being pushed back and poor projections. I think MindMed will be unable or unwilling to make the required cuts to slim down the company.
What do you make of MindMed’s acquisition of HealthMode, a digital medicine startup focused on clinical research and patient monitoring, in 2021?
Jake Freeman: There’s no competitive advantage that MindMed has in developing medical technologies such as HealthMode. They’re not experts in coding. There’s no real advantage in doing that. At the time, the acquisition made sense, given the market cap of MindMed. But now it’s clear that the big suck on cash with very little monetary value that the company is getting, even if it does bring a product to market, it’s a fairly crowded space. There’s no real differentiation that MindMed can offer.
What has MindMed’s response been to the FCM’s value enhancement plan?
Jake Freeman: As one would expect, whenever you call for someone to take a pay cut and actually do work, they were not too happy about it. They strung us along with negotiations for a bit and then offered a very lowball offer. They then sort of blindsided us with an unwarranted dilution of the stock price in an attempt to dilute our power.
Dr. Scott Freeman: One of the reasons why we did go to Basel, as we discussed, is professor Liechti has been working for 10 or more years now on LSD. He has two randomized Phase 2 trials in anxiety that show statistical significance. He has done a Phase 1 trial of different doses of LSD in normal volunteers to look at toxicity.
Mind Medicine insisted on doing the Phase 2 study to look at finding the dose for the Phase 3. We already know the dose for the Phase 3 because he’s already shown statistical significance in two Phase two trials.
And he’s also shown what the differences in toxicities are at different doses.
There might be a marginal benefit in having more dosing data. But it could set you back four years.
They originally announced in May 2021 that the trial would be done in two years, which would have been this May. They didn’t even start the trial until 15 months later — in August of 2022. They said they would make the same timeline.
Time will tell, but I don’t think it’s possible to make that timeline in the year. It’s a 200-person trial. Compass did a similar dose-finding trial of 200 patients in a Phase 2 study. It took them close to three years.
MindMed has a wealth of data, which Compass didn’t have. They didn’t have professor Liechti.
A central drive off going to Basel and getting this data was to fast-forward some of the programs.
What are your thoughts on why MindMed ceased development of MM-110/18-MC, Zolunicant HCl for opioid withdrawal?
Dr. Scott Freeman: Opioid addiction is a huge market. There’s good anecdotal data that ibogaine works, although there’s never really been a randomized study for it.
If you look at the animal addiction models with ibogaine, they are equivalent to 18-MC. 18-MC is safer. One of the reasons why we licensed 18-MC is that ibogaine, at least anecdotally, seems to have activity. I always thought it was a really good bet.
MindMed stopped the trial and the development efforts for 18-MC. They said in their press release that the FDA requires them to do a lot of preclinical safety studies and that it would “continue further development for our MM-110 program subject to successful pursuit of non-dilutive sources of capital and/or collaborations with third parties.”
Did they know the preclinical safety studies were required? If they did, why didn’t they do it?
It’s curious because they came out with a press release with top-line results when the study ended. First, it said it was safe, and everything was wonderful. And then, in August of 2022, they did a 180 and said, “Oh wait, FDA wants all these preclinical studies.”
According to MindMed CEO Robert Barrow, it would take months to years to do the studies, and the outcome was unknown of what the studies would be.
What are your thoughts on MM-402, MindMed’s MDMA derivative?
Dr. Scott Freeman: I haven’t seen the data on MM-402, but supposedly it’s a safer than MDMA. If they’ve identified an enantiomer that has the same effect as traditional MDMA and it’s safer, that will be used for all of these indications, such as PTSD. Assuming it is safeer, that’s a big deal. And you have patent protection too. With regular MDMA, you don’t have composition matter.
In the past several years, many ketamine clinics have emerged. Do you see something similar happening with classic psychedelics?
Dr. Scott Freeman: I think structured psychedelic clinics will be the way to go.
The FDA always wants to be involved in these things. But [classic psychedelics] have been around for a long time. LSD and psilocybin are pretty safe, in my view.