Published at seekingalpha.com.
I like the psychedelics sector because the regulatory tide seems to be turning. However, there seems to be little coverage of the companies from this field on SA and I think the reason for this is that many of them are based in Canada. Well, I’ve already covered Numinus Wellness (OTCPK:LKYSF) and Cybin (OTCQB:CLXPF) and today I’m taking a look at Mydecine Innovations Group (OTCPK:MYCOF). The latter has several advantages over its competitors such as collaborating with military personnel as well as access to a mycology lab. The company also has a license to legally research psilocybin and it owns a virtual telehealth app for psychedelic after-care remote therapy.
Just like Numinus and Cybin, Mydecine is another narrative-driven stock in the psychedelics space and I like the story behind it.
In its own words, Mydecine is an emerging biotech and life sciences company dedicated to developing and commercializing innovative solutions for treating mental health problems and enhancing vitality.
What does this mean? Well, in layman's terms, the company plans to use magic mushrooms to treat posttraumatic stress disorder (PTSD). Yes, psilocybin is found in magic mushrooms. Mydecine has seven molecule designs and its clinical trials are at Phase 2A, with test sites approved at Leiden University, University Of Alberta, Royal Ottawa Hospital, and Western Ontario University. Overall, it’s at a pretty early stage but it has developed partnerships and secured licenses that provide it with several advantages over its peers.
It’s too early to tell if any of the molecules can lead a commercial success.
In December 2020, Mydecine completed a commercial harvest of 20 kilograms of magic mushrooms and in March 2021 it became the first company in the world to complete an international legal export of dried magic mushrooms.
Notice how I keep mentioning legal. This is because psychedelic-assisted therapeutic solutions companies are in limbo at the moment. Some of the leaders in the sector like COMPASS Pathways (CMPS), MindMed (MNMD), and Numinus have high valuations based on the eventuality that governments around the world will approve the therapeutic use of psychedelics. And as I mentioned at the start of this article, the tide is turning, especially in the USA.
In 2018, COMPASS’ synthetic psilocybin (COMP360) was granted breakthrough therapy status by the U.S. Food and Drug Administration. In June 2021, the Drug Policy Reform Act was introduced in Congress. It has the potential to become the first bill to federally decriminalize possession of all currently illicit drugs and this would likely lead to a loosening of restrictions on research into psychedelic therapies.
The mental health market opportunity for psychedelic-assisted therapeutic solutions is estimated to be pretty large. According to data from the National Institute of Mental Health, the direct and indirect economic costs of mental disorders in the USA alone are $467 billion.
Worldwide sales of antidepressant drugs are expected to reach almost $16 billion by 2023, according to a report of Allied Market Research.
As I said, this is a narrative-driven stock and the legalization of psychedelic-assisted therapeutic solutions is likely to provide a huge boost to most companies in the sector.
Let’s talk about the company’s telemedicine offering. In August 2020, Mydecine bought a company named MindLeap Health for C$2.5 million ($2 million) in shares, and in September 2020 it launched a digital telehealth mobile application for mental coaching and wellbeing.
The app is free and it aims to provide analytics into mental health to improve outcomes through goal-setting, mood, emotion, and habit tracking.
Mydecine will make money through in-app purchases of mental health and wellbeing programs by charging a 9% fee for each session. At the moment, the app doesn’t seem to have gathered much traction but at least the reviews are pretty good. Most of them are five stars and the average rating stands at 4.8 stars as of the time of writing.
The plans for the app are ambitious for 2021 as Mydecine plans to significantly expand the specialist and partner network as well as the social media presence.
The acquisition agreement foresees several bonus payments based on revenue milestones but unfortunately, it seems unlikely that these will be met. However, I still view this app as a good asset considering the growing valuation of telemedicine companies due to the Covid-19 pandemic.
The most significant red flag for me regarding Mydecine is high expenses, especially G&A. As you can see, corporate development and consulting fees alone totaled over C$3 million ($2.5 million) in Q1 2021.
The balance sheet looks fine at the moment thanks to C$20 million ($16.1 million) raised through bought-deal financings during the period. However, I think you should keep an eye on the cash burn rate.
Turning our attention to valuation, it seems nearly impossible to come up with numbers for early-stage biotech companies. The story is narrative-driven and it’s not prudent to use traditional metrics such as P/S, P/E, or EV/EBITDA. Taking this into account, I’m just going to say that I’m bullish on Mydecine at today's share price. I really like the company’s network, its ability to export magic mushrooms as well as its telehealth app.
In the long run, Mydecine needs to advance its molecules through the clinical trial process and hope it’s legal to sell them if they are proven to be effective. Also, the company has to bring its app to the mainstream and manage to monetize it successfully. It looks like a good app and the reviews are great so far.
I’m bullish on the psychedelics space and Mydecine is among the companies that I like in this market. What sets it apart from its competitors is its vast partnership network, its licenses, and its telehealth app. I think the latter has a pretty good potential to be successful.
I’m bullish on Mydecine and the company is listed on the NEO Exchange, just like Cybin. However, if you want to get exposure to its shares, the OTC market also seems like a good option as liquidity is similar there at the moment.
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am not a financial adviser. All articles are my opinion - they are not suggestions to buy or sell any securities. Perform your own due diligence and consult a financial professional before trading.