MindMed Inc (CAN:MMED / US:MMEDF), one of the industry leaders in the emerging psychedelics space, has had a tough run in the market.
Since closing at CAD$5.31 on February 16th, MMED has dropped by over one-third. It’s down nearly 50% from its 52-week high in December.
The financial highlights:
- Total assets of UD$85.6 million
- Current cash balance: US$161 million
- Net loss of US$35.1 million
- Total cash burn of US$24.2 million
The stock closed down a further 4.64%. Even after a huge 21% bounce the following day, MindMed’s market cap has slipped to ~US$900 million.
Time for investors to fold the tent? Abandon ship?
Total cash of US$161 million. An annual burn rate of US$24.2 million.
Factor that out and (at the current burn rate) MindMed is financed for approximately seven years of additional operations.
Obviously, MindMed’s burn rate will increase as it advances the R&D in its impressive drug pipeline. But even taking that into account, MindMed’s current cash balance represents a financial cushion that can sustain the company for several years, without needing to return to the market for additional capital.
For small cap companies in need of financing, a serious trough in the share price can represent a financial crisis. Either the company goes out and raises capital – on highly dilutive terms – or it is forced to scale back operations.
Neither of those options is appealing either to public companies or their shareholders.
Conversely, for a small cap company with a robust corporate treasury, a plunge in the share price is a severe annoyance, and possibly an embarrassment for management. But it’s not a crisis.
The company doesn’t need to scale back operations and thus derail its own development. In an emerging sector like the psychedelic drug industry, this is especially important.
Such investments are seen as highly speculative. Investors want assurance that their money is well-placed. And nothing is more reassuring than a company that remains busy in its evolution.
MindMed has been busy.
In 2020 alone, the Company issued over 40 press releases, many of them material developments. It has put out an additional 15 releases so far in 2021. Very busy.
Clearly, MindMed has not given investors any reason to sell its stock from a corporate development standpoint.
Sell the industry?
What about the sector itself?
As Psychedelic Stock Watch frequently observes, investment prospects for the psychedelic drug industry continue to get better.
The main thrust of psychedelic drug R&D is in providing real, effective medicines to address a Mental Health Crisis that already afflicts over 1 billion people worldwide.
Unfortunately, the COVID pandemic (and oppressive government lockdowns) is rapidly and severely escalating this Crisis. The worse that COVID gets, the longer the pandemic persists, the more urgent the need for legalized-and-approved psychedelic drugs.
Huge amounts of revenue dollars are on the table. In the U.S. alone, mental health drugs and services eats up $300 billion per year.
And psychedelic drugs represent the only hope of getting the global Mental Health Crisis under control.
Meanwhile, psychedelic drug development has rapidly expanded into many other major treatment markets. An example is the huge-and-growing Traumatic Brain Injury (TBI) market. Already a $120 billion market, it’s predicted to grow to $182 billion by 2027.
Again, psychedelic drugs are seen as the best hope for a treatment breakthrough.
Dennis Carcillo, CEO of private company Wesana Health, is a former National Hockey League “tough guy”. Psilocybin use personally rescued him from the increasingly devastating long-term symptoms from his own TBIs.
Renowed neuroscientist, Dr. Dan Engle, is an acknowledged expert on both Traumatic Brain Injury and psychedelic medicine. He also sees psychedelics as the treatment solution for TBIs. Engle is leading the new TBI research program for Mind Cure Health (CAN:MCUR / US:MCURF).
Wesana just raised US$4 million to launch its research. MINDCURE closed a US$18.4 million financing on February 10th.
MINDCURE is another psychedelic stock trading at less than half its 52-week high. But, like MindMed, it’s well-capitalized for its operational commitments. In fact, the stock is so beaten up its trading at less than two times cash.
Very discouraging for existing shareholders. But a great opportunity for new investors.
The story is the same for many of these emerging psychedelics companies. Over US$400 million in new capital has been raised by the 12 best-funded public companies – in roughly the past 6 months alone.
Lots of cash. Severe troughs in the share price.
A concern. But definitely not a crisis.
Psychedelic stocks have been caught in the downdraft as U.S. markets have pulled back – especially the tech-heavy NASDAQ. The poor recent performance in psychedelic stocks has nothing to do with internal fundamentals, just exogenous factors.
What’s another reason why investors in psychedelic stocks should be very hesitant about bailing out of their holdings in the middle of a deep trough?
Just look at why U.S. markets have been weak in recent weeks.
Selling stocks because of rising inflation?
Investors have been doing a lot of stupid things in recent years, but selling stocks because of “inflation fears” may take the cake.
What is inflation? Your cash losing purchasing power (value). A depreciating asset.
Rising inflation = cash depreciating more rapidly.
Investors are selling stocks – and going to cash – because they are afraid that cash is now depreciating more rapidly. Selling one investment (stocks) to take a new position in an asset (cash) that is depreciating even more rapidly than normal.
You spell that strategy S-T-U-P-I-D.
Psychedelics companies like MindMed and MINDCURE have been falling in value. But they are backed by real assets and positioned in (arguably) the best investment opportunity in life sciences today.
Cash is backed by nothing. It continually loses value. But it never bounces back.
In the 108 years that the Federal Reserve has been “managing” the U.S. dollar, it has lost 99% of its value.
The myth that the U.S. dollar is a “safe haven” is just a bad joke. And now the U.S. dollar (and these other paper currencies) are depreciating even faster.
Do you really want to bail out of psychedelic stocks (in panic) and hold cash instead?
It is not the holders of (well-financed) psychedelic stocks that should be most worried about the asset they are holding – and considering bailing out. It is the holders of cash who need to “fear inflation”.
In fact, in episodes of high inflation (when cash is depreciating rapidly) stocks are historically one of the better performing asset classes.
Sometimes it makes sense to sell a losing holding.
The company (or the industry) underperforms from an operational standpoint. Future prospects look bleak. Better opportunities present themselves.
With psychedelic stocks, by no means have these companies underperformed. The industry is advancing in leaps-and-bounds.
Future prospects for the psychedelic drug industry look exceptional.
And only the King of Idiots would view cash as “a better opportunity” than psychedelic stocks.
DISCLOSURE: The writer holds shares of MindMed Inc and Mind Cure Health. Mind Cure Health is a client of Psychedelic Stock Watch.
Published at Thu, 01 Apr 2021 06:00:03 +0000