Last week, Eli Lilly (LLY) announced that it would buy a development-stage psychedelics biopharma, AtaiBeckley, for roughly $2.8 billion in cash now, and a potential $1 billion more if Atai meets development and regulatory milestones. It may sound like a big number, but it is a drop in the bucket for the cash-rich Lilly, with its market cap of over $1 trillion. Nonetheless, it is notable.
Lilly is the third major pharmaceutical company to buy into the psychedelic field within a year, following AbbVie, which took Gilgamesh’s bretisilocin program for up to $1.2 billion last August, and Otsuka, which bought Transcend Therapeutics this spring for $700 million against a potential $1.225 billion.
Fifty-six years after Congress placed the major classic psychedelic molecules in Schedule I, as part of a culture war that most have forgotten (but that was tremendously hot and heavy in its day), the molecules are now changing hands at pharmaceutical prices. How the fallen have become mighty!
Some History (A Necessary Prologue)
Albert Hofmann synthesized LSD in 1938 and found out what it did five years later, by accident (leading to one of the world’s most famous bicycle rides). Through the 1950s and 1960s these compounds were studied seriously and widely, across tens of thousands of participants, in mood disorders and in alcohol dependence, producing results that looked encouraging but that wouldn’t survive scrutiny by a modern regulatory statistician: no standardized diagnostic instruments, no dependable blinding, little of the apparatus that now distinguishes a real effect from mere enthusiasm. (“Blinding” means that the participants don’t know whether they’ve gotten active drug or a placebo.)
Then the drugs left the clinic for the culture, the political reaction followed, and the Controlled Substances Act of 1970 placed psilocybin, LSD, mescaline and the DMT family in the schedule reserved for substances held to have high abuse potential and no accepted medical use. MDMA, which entered clinical use later and figures in much of what follows, was not swept up until 1985, when the DEA placed it in Schedule I on an emergency basis.
Serious research stopped for the better part of thirty years. It resumed in the late 1990s under non-profit sponsorship, at Johns Hopkins, at Imperial College, and through MAPS (the Multidisciplinary Association for Psychedelic Studies), where brain imaging work revealed a mechanism that modern psychiatry could regard with interest: the classic psychedelics act on the serotonin 5-HT2A receptor, appear to increase the brain’s capacity to form new connections, and briefly loosen the “Default Mode Network,” the circuitry associated with self-referential thought. The change in the past decade has been one of sponsorship rather than chemistry or neuropsychiatric analytics, as philanthropic research has given way to research funded by companies that work within the universe of patents, protocols, and, most acutely, billing codes.
This letter is general commentary — the wide-angle view. It is not a portfolio. What we do for the families we work with is the opposite of “wide-angle”: we make portfolios built around one household’s circumstances, taxes, timelines, and appetite for exactly the kind of volatility described above. We keep that roster of clients deliberately small, because that sort of attention doesn’t scale. If you’d like to talk about what it would look like for you, Aubrey Ford will make the time.
Changing Culture and the Patent Cliffs
All of this was going on within the context of a cultural sea change that has become more intense in recent years. Put simply, the use of psychedelics has gone more culturally mainstream. In the same way that Elon Musk’s toke on Joe Rogan signalled that the time for cannabis legalization had truly arrived, Silicon Valley’s elite embrace of psychedelics (movers and shakers have been “microdosing” for cognitive benefits for more than a decade) foreshadowed and in some way facilitated the current change in the regulatory landscape. The culture has changed, and prohibition has lost.
Big pharma is paying attention to that because of the relentless pressure of “patent cliffs.” Seasoned pharma investors know that as flagships and blockbusters inevitably fall to generics and biosimilars, pharma companies are on a neverending quest for what will fill those gaps (one of the basic questions about any pharma company is what their forward landscape of patent expiry and potential new approvals looks like). The cultural mainstreaming of psychedelics and the new wave of research is grabbing managements’ attention precisely because it’s fertile ground for finding compelling new pipeline assets.
A Failure Launches a New Wave
Providentially, perhaps, a major turn recently came through a failure rather than a success — a failure that was painful and poignant for psychedelic advocates but offered regulatory clarity that has opened a door. In August 2024 the FDA declined to approve an MDMA-assisted therapy for post-traumatic stress, after an advisory committee had voted heavily against it that June. (The groundswell of popular interest in this trial, as well as moving testimonials from trial participants, had helped bring its apparently remarkable therapeutic success into wider public consciousness.)
The objections reviewers had were procedural, but that doesn’t mean they were minor: questions about data integrity, the near-impossibility of blinding a study in which participants can plainly tell whether they received a powerful psychoactive drug, therapy protocols that varied by site and practitioner, adverse events that reviewers believed had gone uncaptured, and the likelihood that participants with prior personal experience of the drug carried expectations into the trial that colored the results. When the agency published the letter’s contents in September 2025, the underlying difficulty was plain to see; nobody could separate the drug from the therapy layered on top of it, and nobody had the long-term data to show that the benefit persisted.
People in the sector read yet more into that decision. The FDA’s psychiatry division has spent nearly four decades assessing daily oral antidepressants — Prozac was approved at the end of 1987 — and its evaluation methods were built around them; a single-dose treatment whose effects are unmistakable to the patient does not fit that template well at all. Psychedelic proponents can complain of an unjust asymmetry in the FDA’s objection, in that functional unblinding is treated as close to disqualifying for psychedelics, while comparable problems are tolerated in daily agents whose side effects are equally obvious to anyone taking them.
Follow the Money
Some go further, holding that incumbent franchises for established psychiatric drugs (SSRIs, SNRIs etc.) benefit from where the bar has been set, and that the institutional traffic (also known as the “revolving door”) between the pharma industry and the industry’s regulators helps keep that bar where it is. Obviously the claim about motive is not something we can verify, only something we can suspect from long observation of regulated industries with similar dynamics.
Be that all as it may, what matters commercially is the response developers have made: they stripped the therapist out of the protocol altogether, and this has cut delivery costs, disposed of credentialing and liability questions, and converted these programs into conventional drug trials that conventional reviewers can assess. The commercial response was to make lemonade out of regulatory lemons. Further, developers have begun to concentrate on chemical modifications to the established psychedelic molecules that would dial down, shorten or eliminate the euphoric experiences they induce, and thus address the regulators’ concerns with the efficacy of experimental blinding.
More Supportive Federal Policy
Federal policy has since then rapidly turned supportive — something perhaps predictable given the heavy Venn-diagram intersection between interest in and openness to psychedelics, and the MAHA orientation now ascendant in the Department of Health and Human Services.
An executive order signed on April 18 directs the FDA Commissioner to issue Commissioner’s National Priority Vouchers to psychedelic drugs that already hold Breakthrough Therapy designation, the FDA’s mechanism for prioritizing drugs that address serious conditions with early evidence of substantial improvement. The voucher, rather than the designation, is the instrument that actually compresses review time. The agency issued the first such vouchers to three psychedelic sponsors on April 24 (Compass Pathways, the Usona Institute, and Transcend Therapeutics). The order also directs the FDA and DEA to build a “Right to Try” pathway for investigational psychedelics, including ibogaine, and tasks HHS with allocating at least $50 million through ARPA-H toward collaboration with states.
Lilly’s AtaiBeckley Buy Was Not the Only Thing That Happened Last Week
A memorandum that HHS and the VA signed on July 13 runs five years, and it commits the two departments to enrolling more veterans in psychedelic trials, training the therapists, nurses and physicians who would eventually administer these drugs, drafting treatment protocols and patient education materials, and gathering real-world data on safety and effectiveness. The executive order further directs HHS, FDA and VA to sign data-sharing memoranda so that trial data generated elsewhere in the government reaches the FDA’s reviewers.
Nothing in any of this makes a treatment available to a veteran tomorrow, and officials were careful to say so; the whole exercise is preparation for approvals that have not happened. Still, the VA runs the largest integrated health system in the country, and by the HHS Secretary’s account at the signing ceremony, roughly six million veterans live with mental illness or substance use disorder, about a million of them with serious mental illness.
The FDA’s final guidance reached the Federal Register the following day, finalizing a draft that had sat since June 2023 and covering manufacturing, abuse potential, clinical pharmacology and trial design for the classic psychedelics acting at the 5-HT2A receptor — psilocybin and LSD among them — together with entactogens such as MDMA. Sponsors gained some latitude in how they model abuse potential and demonstrate effectiveness.
However, on the question that sank the MDMA application, the agency gave no ground, stating that the perceptual intensity of these drugs biases patients, therapists, monitors and raters alike and leaving sponsors to separate the drug’s contribution from spontaneous improvement, placebo response, and observational bias. A public hearing on therapeutic use will follow on September 14: investors in the space will be watching closely.
We have watched enough policy-driven themes to know that a published rulebook tends to re-rate a sector immediately, and begins to really pay off only several years later at least, with a few major disappointments highly likely to occur in between.
Few Public Stocks, For Now
Four listed developers carry almost the whole field.
- Compass Pathways (CMPS) is furthest along, with a proprietary crystalline formulation of synthetic psilocybin that has now cleared two Phase 3 trials in treatment-resistant depression, meaning depression that has failed at least two prior medications. Six-month durability data arrived on July 7, a rolling application to the FDA — supported by one of the new National Priority Vouchers — should complete in the fourth quarter, and the company guides to a launch in the first half of 2027 if the FDA approves and the DEA reschedules.
- Definium Therapeutics (DFTX), which readers may know by its former name, MindMed, has the deepest late-stage program: DT120, a fast-dissolving LSD tablet holding Breakthrough designation in generalized anxiety, with four registrational trials now running across anxiety and depression and a fifth, in post-traumatic stress, expected to begin in 2027. The first to report, in depression, read out positively in June, beating placebo by 8.1 points on the standard depression scale six weeks after a single dose, and both anxiety readouts are guided to this quarter.
- GH Research (GHRS) is developing an inhaled formulation of the very molecule Lilly just bought — mebufotenin, or 5-MeO-DMT, delivered by vaporiser rather than by nasal spray. The psychoactive episode is startlingly brief, with a median duration of nine to fourteen minutes per dose and most patients ready for discharge inside the hour. That makes GH Research a far more direct read-through from the Lilly transaction than the market initially treated it as.
- Helus Pharma (HELP), formerly Cybin, uses deuteration, the substitution of a heavier hydrogen isotope into the molecule, to slow metabolism at the sites where the compound would otherwise break down unpredictably, producing more consistent exposure from patient to patient; the resulting session runs under four hours. Its Phase 3 depression data is expected late this year. Note that its lead asset is being developed as an adjunct to an existing antidepressant rather than as a replacement for one — it sits on top of the daily tablet rather than displacing it.
Lack of Exclusivity (Which Fattens Profit Margins) Could Slow Uptake
An awkward fact sits underneath all of this. Psilocybin, LSD and the DMT family are public-domain molecules that cannot be patented as chemical entities, so enterprise value rests entirely on engineering around them. Three routes are in use:
- Companies modify the chemistry, as Helus does with deuteration and others do with fluorinated analogues or prodrugs, which produces a genuinely new chemical entity carrying full composition-of-matter protection.
- They patent the delivery instead, which is what Definium’s fast-dissolve tablet and the various nasal, inhaled and buccal formulations amount to.
- Or they isolate and patent a specific crystalline form of the drug, as Compass has with its psilocybin polymorph. (“Polymorphs” are different crystalline molecular structures that modulate a molecule’s pharmacodynamics.) Sponsors describe exclusivity running past 2038.
Formulation and polymorph patents, however, are thinner and more vulnerable than composition-of-matter claims and get litigated more often, which is a risk the sector’s valuations do not obviously reflect.
Different Strategies For Commercialization
Johnson & Johnson (JNJ) has already built a commercial template. Spravato, an esketamine nasal spray approved in 2019, must be administered in a certified clinic with two hours of observation afterward. That requirement was read at launch as a commercial handicap; instead, it became a foundation for a franchise. Spravato sold $1.7 billion in 2025 and $584 million in this year’s second quarter, an annualized pace above $2.3 billion, on a base of roughly seven to eight thousand certified American sites and more than two hundred thousand patients treated.
Everything now in their late-stage development will be delivered through that same network, and the network’s capacity is measured in supervised hours, one patient per monitored room per qualified nurse for however long the drug lasts. Medicare pays for an esketamine session through a bundled code covering drug, supervision and observation, roughly $950 or $1,360 depending on dose, and the American Medical Association has issued interim codes that let clinics bill psychedelic monitoring by the hour, with the intention of gathering enough cost data to make them permanent.
The economics follow directly from session length. Lilly’s nasal spray discharges a patient in about a hundred minutes and fits the existing two-hour slot; the Compass and Definium assets occupy a chair for six to ten hours and must earn that back through durability, one or two dosing days a year against the fifty-plus visits an esketamine patient may make. Both models can work, but we note that the three big pharma buyers so far have all chosen compounds that fit inside a short supervised window. Otsuka’s choice is the most striking of the three: methylone acts at the monoamine transporters and has no activity at the 5-HT2A receptor at all, meaning it is not hallucinogenic — the acquirers have been buying the therapeutic effect while shopping for as little of the trip as they can get away with.
Some Cautions
Nobody in this listed group sells anything. Every valuation is a claim on a future execution, and the whole cohort repriced together on the recent Lilly announcement.
Rescheduling by the DEA sits between any approval and the first paid dose. Getting enough clinics certified is a binding constraint on the launch curve. Insurers will impose step therapy, requiring patients to fail cheaper generics first, and the health-economic case for going straight to a $1,000 time-heavy session has not yet been made. The unblinding problem that sank the MDMA application has not been solved so much as designed around, and it remains to be seen if those redesigns will really work or how well.
What Effect On Incumbents?
Perhaps the most interesting second-order question has attracted almost no comment. Depression has been treated for nearly forty years with a daily tablet and a repeating prescription, an arrangement that suits manufacturers, pharmacies and benefit managers in ways nobody had to design deliberately. The global antidepressant market is worth something above $23 billion a year, though the American slice of that is far smaller — on the order of $7 billion — and overwhelmingly generic. The money that would actually be at risk sits in the branded adjuncts prescribed alongside the generics, and that is precisely where the recent big pharma buyers of psychedelic assets live.
A treatment given once or twice a year in a clinic challenges the old model deeply, if it turns out to be efficacious. Notice who’s buying the interloper molecules: Lilly, which made Prozac and Cymbalta, bought AtaiBeckley. AbbVie, whose Vraylar earned $3.6 billion last year, bought Gilgamesh’s lead programme. Otsuka, which co-owns Rexulti, bought Transcend. Johnson & Johnson sells both Spravato and, after a $14.6 billion acquisition, Caplyta. The incumbents are hedging themselves with what they likely view as a new generation of adjuncts… but the prospect that those new “adjuncts” may become stars in their own right is piquing investors’ interest.
Looking Closer at the Lilly Deal
Lilly, flush with GLP-1 cash and with all the relevant proprietary data in hand after their due diligence, still chose to leave a quarter of the price contingent, even though the outlay was chump change compared to their war chest. It is worth knowing what that earn-out is keyed to: a dollar a share turns on starting a Phase 3 of VLS-01, the buccal DMT film that is AtaiBeckley’s second asset, and fifty cents on the lead compound actually winning approval and being rescheduled by the DEA. In other words, Lilly declined to pay full freight either for the depth of the pipeline or for the regulatory endgame. When the best-informed buyer at the table insists on an earn-out, the investor paying cash at spot is accepting a risk (or multiple risks) the acquirer specifically declined, so caveat emptor. At least be clear-eyed about what you’re getting into.
One Final Observation
The depression intervention with the widest supporting literature outside the pharmacy is physical exercise, and the 2024 network meta-analysis everyone cites places it alongside psychotherapy and antidepressants as a core treatment. Of course, the evidence there suffers from precisely the defect the FDA has been beating psychedelic sponsors over the head with: nobody can blind a patient to whether or not they’ve been jogging. Still, we hope that whatever other unexplored and unemphasized avenues MAHA opens up, there’s some new stress laid on that one, and that somebody eventually funds the hard version of that study. (We’re not holding our breath, because no one will be selling more pills if that study shows a robust benefit.) As the kids say, “touch grass.”
Thanks for listening; we welcome your calls and questions.
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