2020 has certainly been the year of small/micro caps when it comes to Canadian stocks.
Right now, it seems that investors can’t lose, and those who just entered the markets in 2020 are seeing exceptional returns of, in some cases, 50% on an annual basis.
One stock that has caught the attention of Canadian investors across the country is popular pharmaceutical stock Mind Medicine (MMED).
This will be a somewhat shorter version of my video analysis. If you’re looking for a more in-depth look at Mind Medicine, check out the video and subscribe to the channel here.
Mind Medicine is up nearly 800% this year, and at its peak eclipsed the 1250% mark just a few short weeks ago.
The question many Canadians are asking however, is is it still worth it to get in on this stock, especially considering its run up over the last few months?
It’s hard to look at this company, who under 3 months ago had a market capitalization of $145 million, and stomach paying over $1.3 billion today.
But, there’s no question the company has potential. Huge potential in fact.
So, if you’re new to the Mind Medicine train, lets go over what they do first.
What does Mind Medicine (MMED) do?
Mind Medicine is a pharmaceutical company that is looking to change the way we treat debilitating mental illnesses like anxiety, depression, ADHD and drug addiction. The company is also looking for better ways to treat things like cluster headaches via LSD.
Yes, you read that right, LSD. Where the company differs is the fact that it’s using psychedelic drugs like psilocybin, LSD, MDMA and DMT to do so.
And it’s interesting to note that currently, all of these drugs are very much illegal, and you’d likely be faced with a jail sentence if you carried them in any sort of capacity.
So why exactly should you be purchasing a company that is currently in the trial phases of testing illegal drugs?
Society is warming up to the idea of using psychedelic drugs in a medical setting
There is no doubt there is a negative stigma towards these drugs. After all, they’ve been illegal for a very long time, and there have been a lot of people who’ve denied any sort of possibility these could benefit humans in a medical sense.
However, the stigma is changing, and it’s changing fast.
People are becoming more open to using these drugs in a medical sense if it can help the current crisis we are in. That crisis being a surge of opiate use, and subsequent opiate related overdoses and unfortunately deaths.
And according to the company, these aren’t street level opiates. These are prescription related overdoses and deaths. There are 92 million opiate users globally, and it is estimated that the opiate crisis in the United States costs the country $500 billion on an annual basis.
Since 1999, there has been a near 400% increase in opiate related overdoses, fueled by its highly addictive and potent nature. Mind Medicine is looking to solve this crisis by changing the way we look at addiction, and treating it in a different way.
Mind Medicine’s 18-MC is looking to change the way we treat addictions
Mind Medicine CEO JR Rahn stated that the company’s intent is not to put people on a pill a day for the rest of their lives. They instead want to solve one of the most challenging parts of addiction, which is a cue-induced relapse.
As a result, the company’s primary drug, one that is the farthest down the line in clinical trial studies, aims to take a schedule 1 substance Ibogaine, modify the substance and deliver it to those who struggle with addiction so they can avoid relapse.
The modified substance, 18-MC, removes the hallucinogenic and potential heart attack side effects of Ibogaine. In turn, the drug will aim to correct the dysregulation in the brains dopamine systems.
Mind Medicine has a plethora of other drugs in its pipeline
Another advantage to a pharmaceutical company like Mind Medicine is the fact it has numerous drugs in its developmental pipeline.
Although none of the company’s drugs are remotely close to production and the company doesn’t have any method of revenue generation, the fact it has numerous drugs in its pipeline reduces the overall risk of the company when compared to a single drug pharmaceutical company that would be materially impacted if its drug faced headwinds.
This is one of the key factors to Canadian investment mogul Kevin O’Leary’s decision to back Mind Medicine.
Don’t get me wrong though. Headwinds in Mind Medicine’s drugs would materially impact the company as well. Direct statements are littered throughout the company’s MD&A.
However, on a grand scale, the diversification in drugs increases the chances that some go through trials smoothly and make it to market.
There’s a bullish case, but there is also significant risks with Mind Medicine
It’s important we step back from the overall promise of this company, and the potential for them to change the pharmaceutical setting forever, and understand that this is still a company that poses significant risks.
It’s total addressable market, which is quoted at nearly $100 billion, is from a single research report developed by the investment bank that is an underwriter and advisor to Mind Medicine.
It states that there is a $100 billion market for mental-illness treatments, however it’s fairly naïve to think that all $100 billion will be treatable with Mind Medicine’s potential drugs.
Total addressable markets are what burnt a lot of investors in the cannabis sector, estimating that the markets were much bigger than they actually were. While I have no doubt that Mind Medicine’s potential market would be large, it’s relatively unknown as to how big the market actually is for the specific drugs they offer.
No revenue isn’t an issue right now, but it doesn’t necessarily mean no problem
It’s completely normal for a pharmaceutical company at this stage of development to post no revenue, and depend on share offerings and inevitable dilution of current share holders to cover day to day business expenses.
And in fact, with Mind Medicine’s recent share offering, they have a solid cash position that should stave off further dilution, assuming things go relatively smoothly.
But just because it’s normal, doesn’t mean it poses less risk. There is the possibility that a company like Mind Medicine’s drugs never make it to market, and there is a possibility that this company’s drugs may undergo issues and delays in trials and approval.
And, it’s pretty easy to understand that if this does occur, the company will require more funding to head back to the drawing board.
The average time it takes to get a drug through clinical trials and to market is 6-7 years. And to add to that, the average approval rate of a drug by the FDA is 14%.
There is more scientific evidence behind what Mind Medicine is doing, so I’m going to give the company the benefit of the doubt that it’s likely to be well ahead of this average FDA number, and I fully do expect the company’s drugs to be approved and sold one day. But, the numbers are the numbers.
Is there a chance that investors purchasing Mind Medicine at these price levels will nab a 10-bagger in the future?
I think if all goes smoothly, a 10-bagger could be on the low end of returns.
However, it’s very rare for everything to go smoothly with a company at this stage of its life cycle, especially one in the pharmaceutical sector. It’s very possible we could see headwinds, resulting in slower or delayed development, more share dilution and ultimately upset and impatient shareholders.
If someone were to ask me today if they should purchase Mind Medicine, my answer would be if you are, do so only with money you’re willing to lose.
If you think the space isn’t totally for you, we have tons more articles covering various other industries. One in particular I’ll put here is a piece where we explore whether or not Premium Brand Holdings (TSE:PBH) is still a strong growth play.