While there are several FDA-approved psychiatric medicines on the market, many patients still struggle to achieve lasting symptom relief. Psychedelics could help fill this gap.
The psychedelics space is “at the cusp” of hitting it big, according to Graig Suvannavejh, as clinical evidence and policy support mount.
The industry is waiting with “rational exuberance” for psychedelics to hit primetime, the Mizuho Securities managing director and senior biotech and biopharma analyst told BioSpace in an email interview.
“With each year, excitement for the class only continues to grow,” Suvannavejh said. Despite outstanding concerns about safety and abuse risk, doctors and patients are eager for new psychiatric treatment options that are more effective and faster-acting than current drugs.
Indeed, there has been an air of careful excitement across the industry for this drug class of late. A few weeks ago, Eli Lilly moved to acquire AtaiBeckley for up to $3.8 billion, setting its sights on a synthetic psychedelic for treatment-resistant depression (TRD). While some analysts saw the deal as a sign that the industry giants are finally buying into psychedelics, others aren’t so sure.
“It’s very hard to say what, if any, the implications of the LLY deal are,” Paul Matteis, head of Therapeutics Research at Stifel, told BioSpace via email.
The firm has observed “a lot of enthusiasm” across the industry for psychedelics, but also “some trepidation” over the ability to scale and deploy these drugs in clinical practice.
Still, Matteis added, the AtaiBeckley acquisition at the very least shows “that the societal acceptance of psychedelics has come a very long way.”
For Jama Pitman, strategic advisor at Rose Hill Life Sciences, this change is critical—and long overdue.
“The drugs were there, the science was there, the medical need was there—we were just unable to move the field forward because of laws that prohibited it and the associated stigma,” she told BioSpace via email. “Where would we be today if we had been able to study this class of drugs over the last 40 years?”
But better late than never, and now, Pitman said, “there is finally widespread agreement among policymakers, regulators, physicians and patients” that psychedelics, with proper and careful administration, “may be an effective tool in the treatment armamentarium” for psychiatric conditions.
Medical need and market opportunity
To date, doctors have turned to selective serotonin reuptake inhibitors (SSRIs), serotonin-norepinephrine reuptake inhibitors and antipsychotics, among others options to treat patients with psychiatric conditions.
These drugs are “highly useful,” H.C. Wainwright & Co. Managing Director and Biotech Analyst Patrick Trucchio said. They offer patients effective means to control their conditions, “particularly earlier in the treatment pathway,” and they still have a place in overall mental health care, he told BioSpace in an email.
But existing medicines also leave key gaps, through which millions of patients fall through. Some 4 million people in the U.S. have TRD, many of whom don’t reach remission even after moving from one treatment to another, Trucchio said.
This is true, too, of other psychiatric conditions such as PTSD and anxiety.
Current treatment options are typically slow to show any effects, need to be dosed over long periods of time and often “leave a substantial group of patients inadequately treated,” Trucchio explained.
In recent months, companies like Compass Pathways and Definium Therapeutics have released clinical data that further cement psychedelics as an effective treatment option for those patients whose needs are not met by current agents—and they typically require only one or a few doses.
Last month, two fixed doses of Compass’ psilocybin drug COMP360 significantly eased disease severity in a Phase 3 TRD study. In February, the same regimen showed impressive durability in a pair of Phase 3 trials in the same indication. Meanwhile, a single dose of Definium’s LSD-based treatment eased symptom burden in a late-stage trial of major depressive disorder [MDD] that read out in June.
The field has “crossed an important clinical threshold” with these findings, Trucchio said. Psychedelics can be “particularly compelling” for patients with TRD who no longer respond to typical therapies, he added, “but they are unlikely to replace simpler first-line therapies across the broader depression market.”
That doesn’t mean, however, that the commercial opportunity for psychedelics is slim. While Stifel’s Matteis concedes that psychedelics are likely to be relegated as later line therapies, he argued that “even later line therapies in MDD/TRD can generate blockbuster revenues at branded pricing.”
As proof, he pointed to Johnson & Johnson’s Spravato, an esketamine-based nasal spray that was approved in 2019 for TRD alongside oral antidepressants. Although the pharma has previously told BioSpace that it doesn’t consider Spravato a classic psychedelic, analysts often look to the drug as a barometer for the market. Spravato in January 2025 became the first monotherapy for the condition and surged 57% last year to make $1.7 billion. J&J saw continued growth of the drug’s sales into the second quarter of this year, with a 40% year-on-year increase to $584 million worldwide.
Policy support mounts
Responding to the growing need for better psychiatric therapies, the U.S. government in recent months has enacted a slew of key policy changes designed to support companies working on psychedelics and minimize regulatory barriers to their approval and uptake.
In April, President Donald Trump issued an executive order instructing the FDA to leverage its new priority review program to accelerate psychedelic development. Weeks later, the agency awarded Commissioner’s National Priority Vouchers to Compass, Transcend Therapeutics and Usona Institute.
Then, last month, the regulator finalized its psychedelic guidelines, giving sponsors more flexibility and mechanisms for blinding their trials—addressing a key stumbling block of psychedelics studies.
For Suvannavejh, the Mizuho analyst, Health Secretary Robert F. Kennedy, Jr. has had a lot to do with the recent policy changes favoring psychedelics. Kennedy has been “a long-time supporter” of the drug class and under his stewardship, the Department of Health and Human Services has pushed an “agenda whereby patients are being asked to look to more natural remedies and medicines for their illnesses.”
Kennedy in May launched a campaign to “curb psychiatric overprescribing,” taking aim specifically at SSRIs and alleged overuse in children. The effort, according to the HHS release at the time, will involve a reassessment of prescribing patterns for these medications, as well as another look at their benefits and risks.
Kennedy also wants to “elevate the role of nonmedication treatments and scalable, evidence-based solutions to improve mental health,” according to the government’s announcement, which doesn’t explicitly name psychedelics as such an alternative.
“We believe the political winds are very much at the backs of the newer psychedelic-based drugs and the groups that are looking to develop them,” Suvannavejh said.
But the policy momentum backing psychedelics started before Kennedy, noted Rose Hill’s Pitman. As early as 2017, the FDA had already granted breakthrough therapy designation to Lykos Therapeutics’ MDMA-based medicine for PTSD. (The treatment was rejected in August 2024 for methodological concerns.) And while the current HHS leadership has certainly heavily advocated for psychedelics, Pitman also gave credit to veteran welfare organizations that have been “demanding that we close the gap in mental health support for our military members.”
“It has long been recognized that the medical field has been making very small incremental gains in the treatments for psychiatric disorders,” she continued. “The care options being offered to our veterans are inadequate and we are in crisis.”
‘Going in the right direction’
Despite mounting clinical evidence, policy support, and even a societal shift in perception, some outstanding concerns continue to hold the psychedelics space back.
One major stumbling block, according to Jefferies Managing Director Andrew Tsai, is the problem of functional unblinding in clinical trials involving psychedelics, given that patients can typically feel if they’ve been given a psychedelic intervention or placebo.
Tsai in particular pointed to Lykos Therapeutics, whose MDMA-assisted therapy for post-traumatic stress disorder was rejected by the FDA in August 2024 amid concerns that included functional unblinding.
Trucchio called this issue the “central trial-design challenge” in the psychedelics space. “Patients and investigators can frequently infer whether an active psychedelic was administered,” making it difficult to eliminate or even account for bias, he explained.
To establish credibility and maintain data integrity, programs should include an “independent or centralized rater” to assess study outcomes, alongside strong controls in a particular site and appropriate comparator doses, Trucchio recommended. Companies would also do well to show consistent treatment benefits and evidence for their programs across many trials.
Aside from improving trial integrity, safety will also be key for psychedelic therapies as regulators scrutinize psychiatric side effects, such as suicidality and the risk for abuse and addiction.
These concerns will continue even after approval, Trucchio noted, adding that sustainable and widespread uptake of these therapies will require “workable” risk mitigation strategies.
Payer coverage and reimbursements will also be important for the broad adoption of psychedelics, he added, as well as the capacity of clinics and treatment centers to dispense psychedelic treatments and monitor patients.
The rescheduling of the controlled substances by the U.S. Drug Enforcement Agency is also an outstanding worry, though Jefferies’ Tsai is confident, given the encouraging policy environment, that this “shouldn’t be a bottleneck.”
None of these barriers are insurmountable, Tsai believes. Companies are taking the challenge of functional unblinding “very seriously” with strictly-controlled trials, he said, while some developers are “actively engaging” with government bodies regarding trial management.
“We think the field is going in the right direction by being cautious,” Tsai said, “without taking shortcuts for the sake of speed.”
