Mind Medicine: No News = Good News

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Mind Medicine’s share price has responded very strongly to a third quarter update that contained very little new information.The market appears to have moved to a bullish stance following confirmation...

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(NASDAQ:MNMD) released 3Q24 results on November 07, 2024. In late August, I published a Sell rating on the stock, which was then trading at ~$6.25. MNMD almost touched $5.00 in October 2024, but had recovered to close at $6.15 on the eve of Trump’s election victory. The stock appears to have benefitted from a Trump Bump on November 06, trading up ~9.8% on the day. MNMD rallied further after releasing its 3Q24 update, closing November 08 at $8.49, up by ~38% on the closing price just one week earlier. Followers of the listed psychedelics sector will be very familiar with big share price swings, and this volatility is a reminder that psychedelics are not a natural hunting ground for the risk-averse investor. In this note, I’ll review noteworthy aspects of MNMD’s 3Q24 update, consider what could be behind MNMD’s share price bounce, and revisit my rating for the company. 3Q24 Update Review There was virtually no new news in MNMD’s 3Q24 result materials. In fact, if you compare the group’s 2Q24 presentation with the company’s November 2024 Corporate Presentation, you will see that the two documents are almost identical. It must have been a pretty stress-free market update for MNMD’s investor relations team, and I’m sure they’ll have more work to do for future quarterly presentations. MNMD’s main focus is on the development of MM120, a proprietary form of LSD, primarily for treating Generalized Anxiety Disorder (‘GAD’). The FDA granted MM120 for GAD Breakthrough Therapy Designation (‘BTD’) in March 2024; this followed Phase 2b trial results in December 2023 that demonstrated significant improvements in anxiety levels. The group is now pushing forward with Phase 3 trials for GAD treatment. The program consists of two trials: the Voyage study and the Panorama study, each featuring a 12-week controlled trial followed by a 40-week extension period. The Voyage study is expected to start in late 2024 and will enroll about 200 participants. Panorama will enroll approximately 240 participants and is targeted to commence in early 2025. Topline readout results for Voyage and Panorama are expected in the first and second half of 2026, respectively. It should be noted that the ongoing regulatory review/discussion process could result in changes to one or both Phase 3 trials that would probably extend the expected timelines beyond current targets. Although more advanced with GAD, MNMD is also pursuing development of MM120 for the treatment of Major Depressive Disorder (‘MDD’). The Emerge study, a Phase 3 trial enrolling at least 140 participants, is scheduled to begin in the first half of 2025. Topline readout results are expected in late 2026. A second Phase 3 trial for MDD is planned, with its design to be informed by the Emerge study's progress.   Source: MNMD Presentation November 2024, slide 6. The market recently punished Compass Pathways (CMPS) for its announcement that Phase 3 trials for COMP360 psilocybin therapy for treatment-resistant depression (‘TRD’) will be significantly delayed. Please see my recent Seeking Alpha note for a detailed overview of the CMPS announcement. MNMD's confirmation that there had been no change to its targeted timelines for Voyage, Panorama, and Emerge is likely to have significantly boosted investor sentiment. MNMD now looks like it could be a serious threat to what, I think, would previously have been the consensus view that Compass Pathways will be the first listed psychedelics player to submit a new drug application (‘NDA’) to the FDA. The Functional Unblinding Challenge Following the emergence of details regarding the FDA’s rejection of the NDA by Lykos Therapeutics (formerly MAPS Public Benefit Corporation) for the use of MDMA-assisted therapy, it is perhaps not surprising that the topic of functional unblinding featured heavily in management commentary and Q&A discussion for the recent quarterly updates from CMPS and MNMD. Functional unblinding occurs when clinical trial participants/investigators can guess which treatment (active/placebo or high dose/low dose) a participant received due to the drug's observable effects. Functional unblinding is a significant challenge for clinical trials involving medium-to-high-dose psychedelics. If somebody is tripping on LSD, it’s going to be pretty obvious to both that person and an independent observer that something well out of the ordinary is going on. Functional unblinding is inconsistent with the double-blind clinical trial gold standard. Trials that are unable to address functional unblinding will therefore result in questions marks regarding efficacy, reliability and bias. In the 3Q24 management speech, MNMD CEO Robert Barrow made a rather interesting comment regarding ‘the reality of functional unblinding’: While the qualitative nature of these effects may be unique, the reality of functional unblinding in psychiatry is common to virtually every approved psychiatric drug. Source: MNMD 3Q24 Transcript, Seeking Alpha. I think it is fair to say that Barrow was trying to persuade listeners that there is nothing particularly unusual about psychedelics when it comes to clinical trials relating to the treatment of mental health conditions. Whilst I understand Barrow’s motivation, is his claim reasonable? Are virtually all psychiatric drug applications really affected by functional unblinding? It can be argued that functional unblinding is intrinsic to psychoactive compounds because such compounds typically produce noticeable effects (either intended therapeutic effects or side effects) that make blinding impossible. It’s also the case that drugs with relatively mild side effect profiles still tend to produce some subjective changes that could lead to functional unblinding. Whilst these points support Barrow’s claim, it’s not too hard to come up with examples that prove his assertion to be wrong. Several drugs in the SSRI (serotonin reuptake inhibitors) family have a gradual/gentle onset of action. This quality makes it difficult for trial participants/investigators to discern the active drug from a placebo. There are also some drugs used to treat bipolar disorders that have therapeutic effects which build gradually over time. Similar to the SSRI example, the slow pace of change in relation to these drugs will make it harder for participants/investigators to identify the active/placebo arms of a trial. I suspect that digging just a bit deeper will reveal more examples of psychiatric drugs that would not trigger functional unblinding concerns. MNMD’s Panorama trial has clearly been designed with functional blinding in mind. Its 240 participants will be randomized 5:2:5, and receive MM120 ODT of 100 micrograms: MM120 ODT of 50 micrograms: placebo. MNMD say that 50 micrograms of MM120 ODT is too low of a dose to demonstrate a meaningful clinical response but sufficiently high of a dose to lead participants to think that they have had the active (therapeutic) dose. This is a clever way of tackling functional blinding. I lack the experience and knowledge to judge how effective the approach will be, but a possibly problematic issue is that MNMD will need to prove two things to the FDA at the same time: a) that the active 100 microgram dose ‘works’, and b) that a 50 microgram dose ‘doesn’t work’. After reading through the CMPS and MNMD materials, and having reflected on this issue for a while, I remain of the view that functional unblinding is a very difficult problem to solve. Will the FDA approve psychedelics if functional unblinding cannot be avoided? This seems to be one of the central questions when it comes to considering the probability of MNMD and peers obtaining FDA approval. I’m not currently feeling optimistic about the likelihood of MNMD convincing the FDA that functional unblinding isn’t a big issue, but it is important to remain open-minded and monitor what emerges when the early data releases begin to flow from the MNMD and CMPS Phase 3 trials. Could MNMD Benefit From Being First-to-Market? If MNMD is able to leapfrog CMPS and become the first drug psychedelics developer to obtain FDA approval, this will certainly provide the group with some real advantages. If MNMD wins the race, it will be at the front of the queue for the substantial additional funding that will be required to take MM120 to commercialization. As MNMD note in the 3Q24 10Q, even if the group has sufficient cash to make it through to the point of FDA approval, much more capital will be required in order to deliver MM120 to the market: In order to complete the development of our product candidates and to build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates, if approved, we will require substantial additional funding. Source: MNMD 3Q24 Form 10Q, page 24. The first psychedelic drug approved by the FDA will attract huge amounts of media attention. This would provide MNMD with lots of free marketing and the potential to establish a strong brand name before competitors enter the arena. However, I question whether being first-to-market is actually a big advantage with psychedelics. The ultimate drivers of market success when it comes to health-related drugs are efficacy and safety. Cost is an additional factor that should not be overlooked. With many companies seeking FDA approval for various different psychedelics, it is far from certain that the company that first obtains approval will have a long period of time before competitors enter the market – at which point, the first mover advantage could be very quickly squashed by a better and/or cheaper alternative. Let’s say that MNMD is the first-to-market with a drug/treatment for GAD. They make substantial investments both in terms of money and time, and collaborate with partners to build the necessary infrastructure to deliver MM120 to patients. However, two years after their costly product launch, a competitor enters the market with a different psychedelic treatment that has better efficacy, lower delivery cost and fewer safety issues. In that scenario, MM120 would likely see rapid market share erosion as patients and healthcare practitioners opt for the superior alternative. What initially appeared to be a valuable first-mover advantage could transform into a financial burden, as the revenue from declining sales may not offset the massive infrastructure investments made to support the MM120 product launch. Cash Burn Analysis The 3Q24 materials reiterated management’s view that the company now has enough cash to make it through to early-to-mid-2027. In the Exhibit 1, I track MNMD’s operating activity cash burn and provide an estimate of the total cash burn for FY24E. Note that the rate of ongoing cash burn is rather uncertain. Exhibit 1:   Source: author’s calculations based on MNMD quarterly reports.  Exhibit 2 provides a simple analysis that estimates MNMD’s cash runway under different assumed quarterly cash burn rates. Note that I have allowed for the scheduled repayment of debt in 2026 and 2027. Based on this analysis, management’s view that MNMD has sufficient cash to make it through to early-to-mid-2027 appears supportable if the group’s cash burn rate is less than -$25m per quarter. Exhibit 2:   Source: author’s calculations based on MNMD quarterly reports.  Considering the extent of the group’s clinical trial programs, my current base-case scenario is that MNMD will have an average cash burn rate of ~$30m per quarter for the next 2-3 years. On that basis, management’s view on the adequacy of its cash balance appears to be too optimistic, as MNMD will run low on cash by late 2026. Closing Remarks & Rating The 38% bounce in MNMD’s share price over the last week seems extremely difficult to justify. Other than a possible first-mover advantage benefit (which is of questionable value), I cannot identify meaningful drivers of the increase in economic value that the market has attributed to the stock. With CMPS running into difficulties with its Phase 3 trials, I suspect that MNMD’s share price has benefitted from a sectoral switch of investor sentiment. It should be recognized that MNMD is yet to initiate its Voyage trial. There is no certainty that trial participant recruitment issues experienced by CMPS will not also be problematic for MNMD. There are many question marks regarding the commercial viability of operators in the sector in a post-FDA approval scenario. I continue to hold the view that psychedelic-based treatments are likely to be very expensive to deliver, and that this cost factor will limit the size of the addressable market. CMPS appears to be materially ahead of MNMD in terms of developing a ‘go-to-market’ strategy, and my assumption is that we will hear quite a lot more from MNMD in regard to its commercialization plans in the group’s coming quarterly updates.  The lack of new news in the MNMD 3Q24 update, combined with an unexpected share price bounce, provides me with no logical reason to change my previous rating of Sell.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2482066264"}