Eli Lilly’s $3.8 billion play for AtaiBeckley has fueled speculation that Big Pharma is ready to embrace psychedelics. But while the acquisition does validate the drug class, analysts say it is unlikely to trigger a broad wave of Big Pharma deals.
When Eli Lilly announced its intention to buy psychedelics developer AtaiBeckley for up to $3.8 billion, it was the ultimate validation for the novel drug class. Does that mean psychedelics M&A is about to take off?
The answer for one analyst is simple: no.
“I don’t view it as floodgates open where all 20 big pharma companies look at psychedelics in a serious manner—it could just be a handful, ultimately,” Jefferies Managing Director Andrew Tsai told BioSpace in an interview on Wednesday .
For starters, “there aren’t that many big pharma players in neuro currently,” Tsai noted. And two of these companies, AbbVie and Otsuka Pharmaceutical, recently struck their own deals for psychedelic compounds.
Just last month, Japan-based Otsuka closed a $1.2 billion deal for Transcend Therapeutics and its methylone program TSND-201. Meanwhile, AbbVie picked up Gilgamesh Pharmaceuticals’ lead depression candidate for $1.2 billion last year. While not pharmacologically considered a psychedelic, Johnson & Johnson sells Spravato, an inhaled form of ketamine for treatment-resistant depression (TRD).
Beyond a shortage of buyers, Tsai continued, there simply aren’t a lot of psychedelic biotechs to target.
“I don’t think there’s that many to pick from,” he said.
Currently, the most likely targets would be late-stage companies Compass Pathways and Definium Therapeutics. Compass “retains the most clinically and regulatorily advanced psychedelic asset,” according to a July 20 note from H.C. Wainwright analysts, referring to the company’s synthetic psilocybin candidate COMP360, which has been validated in two late-stage TRD trials. Compass has started the process of submitting a rolling submission with the FDA for the candidate.
Meanwhile, Definium—formerly known as MindMed—recently shared Phase 3 efficacy data for its major depressive disorder candidate that Jefferies deemed “profound.”
But the late-stage nature of these companies could actually hinder pharma’s appetite. With no pure psychedelic on the U.S. market yet, there are a lot of logistical questions that still need to be ironed out, Tsai explained. He emphasized that AtaiBeckley’s lead asset, BPL-003, is still three years out, with Phase 3 data expected in early 2029.
“I guess it’s just a step-wise thing where maybe Big Pharma first wants to see an approval actually happen,” Tsai said, underscoring the fact that the first psychedelic developer to make it to market will need to establish the initial framework for reimbursement, risk evaluation and mitigation strategy (REMS) and treatment-center models.
“Maybe Big Pharma is willing to pay only if they see sales pick up, so it might not be [until] six to nine months later after the launch,” the analyst noted. “Ultimately, it is a sales question for Big Pharma, in my opinion, and so to prove that out in the first few quarters would definitely help reassure [the industry].”
H.C. Wainwright agreed. While Lilly’s Atai buy legitimatized psychedelics as a genuine franchise opportunity, the analysts wrote to investors on Monday, the deal “should not be interpreted as supporting a uniform re-rating of every psychedelic developer.”
Even so, Tsai said he believes all psychedelics makers are currently undervalued.
“I’ve dealt with the depression landscape for a long time now—many years—and the class of drugs, the type of efficacy we’re seeing, is disruptive and paradigm shifting,” he said. “When you talk to doctors or psychiatrists specifically, they’re eager to adopt, and they tell me that patients are lining up the door for these psychedelics.”
Tsai noted that despite the fact that there are multiple antipsychotics such as selective serotonin reuptake inhibitors (SSRIs) on the market, “The newer antidepressants or antipsychotics still manage to do blockbuster sales.” Because of this, he believes there is a large enough market for numerous psychedelic entrants.
“Sure, there are advantages and disadvantages within each, but I don’t really think there’s a winner take all scenario,” he told BioSpace. “I think all of them can win ultimately.”
