Investors pile into psychedelic drug start-ups tackling mental health

Biotechnology start-ups seeking to use psychedelic drugs to treat mental health disorders are raising hundreds of millions of dollars, as investors are tempted back to the sector by watershed clinical data and regulatory approvals expected this year.

Groups seeking to harness mind-altering substances including MDMA, psilocybin mushrooms and 5-MeO-DMT, a hallucinogen found in desert toad secretions, raised at least $163mn across five deals in January, according to PitchBook and company data.

It is the second-highest month of fundraising ever recorded, after March 2021. Multiple people who work in the sector said they expected more backing for psychedelics groups, as promising scientific data and positive signals from regulators attract high-profile investors.

Singapore’s $300bn investment fund Temasek and the venture capital arm of one of Abu Dhabi’s largest sovereign investors, Mubadala, have held talks with biotechs to fund development of psychedelic mental health treatments and clinics, according to three people familiar with discussions.

The funds both have a history of investing in biotechs but are bankrolled by countries that have some of the world’s most restrictive laws on drug possession; Singapore has executed at least 15 people for drug-related offences in the past two years.

Temasek declined to comment. Mubadala said it was “continuously evaluating all possible clinical and therapeutic prospects to address significant unmet needs”.

Once considered a relic of the 1960s counterculture, psychedelic drugs have experienced a renaissance both in society and healthcare research in the past two decades, such as the rise of “microdosing” by Silicon Valley tech executives.

While many of the early studies into the effect of psychoactive substances on mental health were funded by philanthropy, billionaire…