Investors are so laser focused on the winning drug therapies that they have been neglecting another significant opportunity in the psychedelics sector. Yes, the revenue from a winning drug can be significant, but to get there scientists need a pure and stable source of psilocybin and other psychedelic drugs. For every drug that gets approved there are dozens more that do not, yet all research pipelines require high quality raw materials. This is the opportunity we are exploring today.
Ketamine | History & Market Background
Ketamine was developed in 1962 by Calvin Stevens at Parke-Davis (Pfizer) as an alternative anesthetic to phencyclidine (PCP). It was approved for use and introduced into medical clinical practice by 1970. It has been used as an anesthetic for patients undergoing minor surgeries and children, but it is mainly used for veterinary purposes. Ketamine is used as a recreational drug, powder and liquid form and often referred to as “cat tranquilizer”, “K” and “Special K”.
Ketamine shows hypnotic (sleep-producing), analgesic (pain-relieving) and amnesic (short-term memory loss) effects – no other drug used in clinical practice produces these three important effects at the same time.
It is on the World Health Organization’s List of Essential Medicines. Ketamine (ketamine hydrochloride) is marketed in the U.S. as a general anesthetic for human medical use under the trade name Ketalar® (Pfizer). It is marketed as a veterinary drug under a variety of brands including, Vetalar®, Ketaset® and Ketajet®.
The most frequently documented source of the drug is veterinary clinics. The drug is generally not manufactured illegally – unlike PCP the synthesis of ketamine is difficult. Ketamine is made available through common distribution channels by the major pharmaceutical companies that manufacture it. Namely, Pfizer, Mylan Institutional, Par Pharmaceutical, Hikma Pharmaceuticals, and Hospira.
According to the Ketamine Clinics Directory, the price of Ketamine infusion can cost up to $2000 per treatment, depending on the dosage, duration of the infusion, the provider, location, and the condition being treated. For example, some conditions like depression call for a relatively lower concentration of ketamine than the concentration for pain conditions.
The relevant figures for the psychedelic industry would range from $400 – $800, which is the general range for mental health related conditions like depression, post traumatic syndrome disorder (PTSD) and Obsessive Compulsive Disorder (OCD). So, the appropriate range for Ketamine for psychedelic therapy is around $400 to $700 per infusion.
Ketamine therapy clinics have opened in major cities in North America and the current market size is estimated at $900 million. There is a long-established supply chain in the U.S. and abroad for Ketamine. In recent years, the U.S. has seen a proliferation of clinics offering Ketamine-based therapies and treatments. From 2015 to 2018, the number of clinics increased from 60 to 300.
North American Supplies of Pharmaceutical Ingredients
Currently, the U.S. supplies about 28% of Active Pharmaceutical Ingredients (API) facilities to the global market. The Food and Drug Administration (FDA) has tracked 370 of the drugs on the World Health Organization’s (WHO) Essential Medicines List with products made for the U.S. market, looking for the location of the facilities used to manufacture their APIs.
In 2019, the FDA data shows that there is a total of 1,079 API facilities worldwide that make the 370 drugs on the WHO list that are marketed in the U.S. Out of the facilities worldwide, 221 (21%) are in the U.S., 166 (15%) are in China, and 687 (64%) are made in the rest of the world.
This data reveals that there may be a push to shore up supplies of these critical medicines, so more North American sources of manufacture should increase in demand over time. There are calls from members of the U.S. government for a strategic supply of pharmaceutical ingredients to ensure the health of its citizens.
General Costs | Production of a Drug Batch for Clinical Trials
According to the Ketamine Clinics Directory, the price of Ketamine infusion can cost up to $2000 per treatment with a general cost range of $400-$800, depending on the dosage, duration of the infusion, the provider, location, and the condition being treated. For example, some conditions like depression call for relatively lower concentration for ketamine than the concentration for pain conditions. Drug manufacturers state that the cost to produce a drug “batch” for use in clinical trials, generally ranges from $300 thousand to $1 million.
The production of drugs for clinical trials generally consists of two elements: the API and the drug product, in the form of a vial or capsule. For example, a biotech company going thorough Phase I or II clinical trials in oncology may require 3,000 vials of an injectable drug. This may entail the following (conservative) costs:
• Project Planning $35,000
• Supplier Management $4,000
• Drug Analysis $40,000
• Batch Manufacturing $230,000
• Total $309,000
These costs do not include the costs of actually cultivating or sourcing of the API itself. There is a huge demand for APIs and other drug development elements as researchers are unable to manage the economies of scale to source ingredients at an affordable price. Requirements for these sources include facilities (infrastructure, capital), and licensing/regulatory demands etc.
Good Manufacturing Practice | Meets Psychedelic Drugs
Good Manufacturing Practice (GMP) is a system for ensuring that products are consistently produced and controlled according to quality standards. The main risks to pharmaceutical production are unforeseen contamination of products, mislabeled containers, insufficient or too much active ingredient(s) in the final product – anything that could cause damage to human health or even death.
GMP coves all aspects of production, from starting materials and equipment, to the training and hygiene practices of staff; including written systems and proof that procedures are consistently followed at the manufacturing process. Many countries have formulated their own GMP-based standards and have harmonized their requirements (ex. Pharmaceutical Inspection Convention used in the European Union).
Psychedelics as well as other Schedule I and II drugs are becoming more available to worldwide markets, as regulatory changes have made these drugs more accessible to researchers. The DEA has proposed to increase the quotas for the importation of Schedule I drugs for research purposes. Here is a table for previously approved amounts and the proposed amounts for 2022:
A Psychedelics | Supply Chain | Logistics Opportunity
There are psychedelics firms which are addressing the demand for APIs and other sources for research and drug development purposes. For example, a leader in the field, HAVN Life Sciences has partnered with PAB – a pharmaceutical manufacturing company in Jamaica. This gave HAVN access to the facilities to cultivate GMP-standardized psilocybin-containing mushrooms, extract, and package the psilocybin whilst following the necessary protocols for export from Jamaica to import into Canada and the U.S. HAVN harvested its first crop of mushrooms in the summer of 2021.
HAVN Life is now able to bring a GMP standardized, naturally derived psilocybin to the psychedelics market in three ways:
- Dried homogenous ground mushrooms (for use in infused beverages and capsules/pills)
- Crude extracts (higher concentration of active ingredients)
- Isolate of API for psilocybin/psilocin specifically
HAVN is aggressively pursuing supply agreements with a number of operators in the psychedelics industry for their naturally derived psilocybin. Their supply partner roster includes Revive Therapeutics, Allied Health and Mycrodose Therapeutics. Regarding the Mycrodose deal, HAVN and Mycrodose have an exclusive distribution agreement for import of psilocybin in the U.S. for research purposes.
Mycrodose is one of a few pharmaceutical companies that are authorized by the DEA and FDA to import psychedelics. Partnerships with companies that have established supply chains gives access to the market (researchers, institutions, businesses), and de-risks market entry and involvement in the process. HAVN has an early entry / first mover advantage, having tackled the legal barriers to entry. Demand for raw ingredients will increase as the psychedelics market evolves, as demand is raised by stakeholders struggling with supply chain issues to find GMP grade psilocybin at affordable prices.
Psychedelics Market Growth Forecast
The psychedelics market, psilocybin / psilocin specifically will evolve and open three markets over the next ten years. The opportunities can be summarized as follows:
- Providing psychedelic APIs to short-term small, and longer-term largest clinical trials conducted by psychedelic companies, institutions, and researchers
- Providing GMP grade psychedelics to clinics currently using ketamine, that have received legal approval to supply psilocybin and other drugs to patients for therapy
- Doctors prescribing psychedelics to patients for at-home and supervised use (GMP grade psilocybin/psilocin and other drugs in tablet / liquid form)
Total Addressable Market (TAM) and Outcomes
In a recent interview Tim Moore, CEO of HAVN Life (CSE:HAVN) summarized their market opportunity for supplying psychedelics for research purposes and an eventual clinic therapeutic practice. Using a clinical trial scenario with 250 patients as an example, a 10-week trial would entail 3 threshold doses (25 mg) of psilocybin. In this instance, each trial would be worth approximately $750 thousand of revenue.
Current prices for a gram of pure, high quality grade psilocybin range $7 thousand to $10 thousand per gram. Being a primary source (i.e., cultivation, processing and partnering for distribution of psilocybin) gives HAVN the opportunity to refine and increase efficiencies and win a potential competition in price points for an API product. At over 50 psychedelic clinical trials being conducted at any given time, this would equate to a current TAM north of $38 million for supplying research studies alone.
The evolving prospects of ketamine clinics administering psilocybin are very promising. For example, if 1 ketamine clinic added 10 psychedelic patients to their therapy regimen per day, at a 25mg dosage that clinic would be worth about $360 thousand in revenue to an API supplier like HAVN. There are currently 300 clinics (and growing): a potential TAM of $100 million even assuming zero growth in locations, which is unlikely.
The true longer-term opportunity is to supply psychedelic ingredients for doctor prescribed treatment (psilocybin or psilocin). Billions are being spent on research into psychedelic drug candidates for indicators like Treatment Resistant Depression, anxiety and more, so the market potential is huge for drugs that receive FDA approval.
The Psychedelic Supply Chain Opportunity
The lion’s share of media attention and praise in psychedelics has gone to drug discovery and development, as the moratorium on psychedelic research resulted in a tremendous increase in clinical studies and investment capital poured into scientific activities. The overlooked opportunity in psychedelics is in the supply of stable, consistent materials for both research and doctor assisted patient treatment.
When looking at the competitive landscape there really is only one company exploiting this opportunity at the moment, HAVN Labs. As we’ve outlined, the total addressable market is significant for HAVN, $38 million dollars for research and $100 million dollars for treatment facilities.
HAVN has already tackled the legal barriers to importing psilocybin into North America and with a head start on achieving GMP status for its Jamaican production facilities, HAVN is uniquely positioned to exploit the lucrative opportunity of becoming the psilocybin supplier of choice to researchers and clinics across North America.
HAVN Life is a market awareness client of Capital 10X.
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