The end of the COVID-19 public health emergency could create unsurmountable hurdles.
Psychedelics have garnered increasing attention for their potential as breakthrough therapies for various mental health conditions, but recent turmoil in the space suggests that the industry may be in need of a new vision for its business model.
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With the loosening of legal restrictions and growing investor interest, psychedelic clinics have mushroomed across the United States and Canada, offering ketamine infusions, psilocybin retreats, and other psychedelic-assisted therapies. However, the rapid growth of the industry could be putting the clinical model under strain, as evidenced by the recent closure of Ketamine Wellness Centers late last month alongside other psychedelic treatment centers.
According to Statnews, KWC CEO Kevin Nicholson sent a late-afternoon email on March 10 to employees and patients, informing them that the company would cease operations immediately. Nicholson said the collapse was due to a thinning and neglectful business relationship with its parent company.
KWC was acquired by Delic Holdings Corp. (CSE: DELC) (OTCQB: DELCF), a Canadian psychedelic wellness platform started by the original editors of High Times magazine, in 2021, with the promise of providing funds to expand quickly, yet Nicholson claims that KWC became Delic’s funding arm instead. Nicholson pointed to lower patient counts in new clinics and swelling overhead costs that forced him and his wife to pay employee salaries with their own money since November 2022. The shuttering of four clinics in the final week failed to buy time for the company, as a last-ditch effort to secure funding from investors never materialized. Nicholson said he had no choice but to close all operations, leaving thousands of patients in limbo. Employees were given little notice and faced delays in receiving their final paychecks. The sudden demise of KWC raises several questions about the scalability and sustainability of the psychedelic clinic model. One of the main challenges is the reliance on external funding and the pressure to expand quickly. KWC’s growth was impressive, with treatments rising tenfold in four years, eclipsing 12,000 infusions in 2022, according to company filings. At the same time, the acquisition by Delic and the anticipation of the legalization of other psychedelic treatments, such as MDMA and psilocybin, may have created unrealistic expectations and stretched the resources of the company. For example, according to filings, Delic only made $5,930 on its Meet Delic event in 2021, despite boasting of more than 2,500 attendees and 22 brand partners. This suggests that the company could have overspent on the event without properly covering its spread. Delic’s executive chairman is Matt Stang, the former chief revenue officer of High Times magazine. Kraig Fox, who was a CEO at High Times, sits on the board. Regulatory woes The downsizing across the sector also spotlights the vulnerability of the clinical model to external shocks and regulatory uncertainty. Ketamine is a controlled substance that requires careful administration and monitoring, which means that clinics have to comply with various regulations and guidelines from federal and state agencies, as well as professional associations. In addition, the federal government announced last month that it would formally end the public health emergency sometime during the first half of the year, throwing a wrench in virtual psychedelic therapy programs born from pandemic lockdowns. Those relied on an exception to the Ryan Haight Act that permitted prescribing of controlled substances such as ketamine by telemedicine during the emergency order. Another psychedelic firm, Field Trip Health, stated in its own earnings report last month that it would be “evaluating its strategy” around its virtual ketamine therapy program due to the change and apparently stopped enrolling new clients for it. As more clinics and companies compete for funding and market share, they may converge on similar business models, treatment protocols, and marketing strategies, leading to homogenization of psychedelic therapies. The closure of Field Trip’s facilities across the country, as well as the shutdown of Oregon’s magic mushroom therapy center Synthesis Institute, show that the challenges are not limited to ketamine clinics or Delic. Synthesis Institute CEO Rachel Aidan detailed the company’s demise in a March 6 email to students, stating that the “reached the end of its financial runway in early 2023.” Aidan also wrote that a sister company on Feb. 27 had filed for bankruptcy in the Netherlands.
Field Trip’s CEO said at a recent investor conference that patients are seeing between 10% and 60% of the costs after insurance, if they have health coverage. The treatments can range between $750 and $1,000 a session, and patients usually need four to six sessions, leading the costs to hit roughly $6,000 a head.
“However, we have heard from other sources in the industry that the total cost for a full course of ketamine-assisted treatment could be higher at $10k per patient per treatment cycle based on Field Trip numbers,” Water Tower Research wrote in a report.
In other words, even if a patient gets reimbursed at the 60% level, that still leaves a $4,000 out of pocket cost, putting the treatment out of range for many people. What the future holds
Still, investors continue to support research and development efforts despite the lack of revenue from most listed companies, which are expected to operate more cautiously and efficiently with their proceeds.
Numinus Wellness, one of the few psychedelics companies, will likely achieve profitability in the next 18-24 months. On the other end, Atai Life Sciences stock tumbled in January following a failed clinical trial, part of the fluctuating nature of the industry.
And while psychedelic therapies have shown promise in clinical trials and anecdotal reports, their integration into the mainstream health care system will likely require more research and standardization. One potential solution is to foster a diversity of approaches and models for delivering psychedelic therapies, rather than relying on a few dominant players or models.
For example, Ketamine Clinics Los Angeles told Statnews that it managed to maintain its independence and quality control by rejecting offers from investors and companies that could compromise its values and practices.
Other clinics benefit from partnerships with universities, hospitals, or research organizations that can provide resources and expertise while maintaining academic rigor and patient safety. KWC’s collapse could serve as a cautionary tale that the clinical model might not be ready to meet the expectations of not only investors, but of patients too.
