A Peter Thiel-backed startup has raised $25 million to unleash a 'virgin market of for-profit psychedelic research'

• A new biotech startup backed by Peter Thiel has raised $25 million to study the effects of psychedelics like psilocybin, the active ingredient in magic mushrooms, on depression.
• Called Atai Life Sciences, the company is a spinoff of another Thiel-backed company called Compass Pathways.
• German entrepreneur and investor Christian Angermayer will head up Atai with a focus on studying and producing psychedelics for mental health.
• Angermayer also has plans to study drugs designed to fight aging and extend life.

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In June, an under-the-radar startup backed by Silicon Valley tech mogul Peter Thiel made enough psilocybin - the active ingredient in magic mushrooms - to send 20,000 people on a trip. It was part of a larger effort by the company, called Compass Pathways, to study how psychedelic drugs could be used to treat depression.

It was just the beginning.

On Wednesday, German entrepreneur and Compass investor Christian Angermayer launched a new Thiel-backed startup focused exclusively on studying and producing psychedelic drugs for mental illness. Called Atai Life Sciences, the initiative has already raised $25 million from investors like Thiel, ex-hedge fund manager Mike Novogratz, and film producer Sam Englebardt.

Alex Tew and Michael Action Smith, founders of the popular meditation app Calm, also invested. Former National Institutes of Health director Tom Insel, who previously served as an advisor to Compass, will stay in that role.

Atai's parent company, Compass, laid the foundation for Atai's work on psychedelics, which will now be expanded to more studies and potentially more drugs. It raised an additional $33 million as part of the latest funding round, bringing its total to more than $38 million.

Earlier this summer, Compass received regulatory approval to begin one of the first large studies looking at the effect of psilocybin on treatment-resistant depression, a severe form of the illness that does not respond to other medications. Compass also secured a patent on a form of the drug that it makes in a lab.

Atai and Compass are already the world's leading producers of psilocybin, Angermayer told Business Insider. He hopes the new initiative can catalyze a "virgin market of for-profit psychedelics."

In other words, Atai might create a medical pathway for psychedelics similar to what the marijuana industry has seen in recent years.

In addition to its work on drugs for mental health, Atai will also study treatments designed to fight aging and extend life, Angermayer said. To do so, the company is partnering with German-based Innoplexus, which uses AI to develop drugs.

A resurgence of psychedelic research

Psilocybin has become a promising candidate for anxiety and depression treatment because it appears to disrupt the sorts of engrained brain activity patterns that are the hallmark of those diseases. One recent study looked at the compound's potential to help alleviate anxiety in cancer patients; others have looked at psilocybin's potential effect on depression, PTSD, and alcoholism.

Compass Pathway's study, which got FDA approval in August, looks at the effect of three different doses of psilocybin (1 mg, 10 mg, and 25 mg) on treatment-resistant depression. A "standard" dose of dry magic mushrooms is roughly 2 grams, or about 20 mg pure psilocybin, according to nonprofit educational organization Erowid. The clinical trial involves 216 people enrolled across several research sites in Europe and North America.

The magic mushroom isn't the only psychedelic drug getting renewed attention. There's been a steady trickle of scientific research on psychedelic drugs' potential therapeutic benefits for at least the last five years.

A study in 2017 indicated that ecstasy could help veterans cope with PTSD symptoms; one in 2012 hinted that ketamine might curb major depression. That spate of research finally seems to be leading to the development of promising potential treatments that could get government approval.

David Nutt, the former chief drug advisor for the British government and a current advisor to Compass Pathways, is optimistic about the federal approval process. He told Business Insider last year that he expects to see psilocybin approved as a treatment for depression by 2027.

Capitalism comes to psychedelics?

Not everyone is thrilled about the idea of a for-profit company leading the research on psychedelics. So far, the bulk of work in the field has been pioneered by researchers and nonprofits. Now that could change.

"Is this going to be the Eli Lilly of psychedelics? No one ever imagined that," Charles Grob, a professor of psychiatry at the University of California, Los Angeles and an author on one of the first studies of psilocybin in cancer patients, told Business Insider. Grob is also affiliated with the nonprofit research institute LA Biomed.

"Capitalism comes to psychedelics? I don't know what kind of fit that will be," Grob said.

Angermayer thinks the results of his company's studies will speak for themselves. He estimated that by the time the clinical trial results come out in the fall of 2019, it won't be more than two years until psilocybin becomes the first medically-approved psychedelic for depression.

"After that, there will be no doubt" that the drug works to treat depression, he said.