Lilly deal puts new capital behind psychedelic drug developers

Eli Lilly’s planned acquisition of AtaiBeckley for as much as $3.8 billion has put a large-pharma price tag on psychedelic drug development for mental health conditions. The transaction follows clinical readouts across the sector, federal efforts to speed reviews and a market that Mordor Intelligence values at $4.63 billion in 2026, with an estimate of $8.75 billion by 2031.

AtaiBeckley is a clinical-stage company whose lead program, BPL-003, is an intranasal synthetic form of 5-MeO-DMT. The compound is derived from the venom of Sonoran Desert toads and is being tested for treatment-resistant depression, a form of depression that does not improve after standard therapies and affects about 4 million Americans.

Atai reported Phase 2b results a year ago showing rapid and durable reductions in symptoms, and BPL-003 now has Breakthrough Therapy Designation from the Food and Drug Administration. That designation is intended to shorten development and review timelines for drugs that may offer substantial improvement over existing treatments. The product is in Phase 3 trials.

Jefferies analysts wrote that Phase 3 success by early 2029 could create a $1 billion to $2 billion opportunity in treatment-resistant depression. The analysts also said key opinion leaders they consulted view psychedelics as a potential major change in psychiatry.

Clinical momentum and regulatory hurdles

Companies are studying LSD, psilocybin, MDMA-related compounds, ayahuasca, ibogaine and other psychedelic or psychedelic-adjacent drugs for depression, post-traumatic stress disorder, anxiety, eating disorders and substance use disorders. The treatment model generally aims to induce a temporary period of greater neural flexibility, often paired with therapy, so patients may process trauma, depression or addiction differently.

Ami Fadia, a biotech analyst at Needham, said the data generated so far suggest the class may deliver more meaningful effects than widely prescribed oral psychiatric drugs such as SSRIs and SNRIs. She said investor reluctance toward psychedelics has eased compared with several years ago.

The sector has also faced setbacks. In August 2024, the FDA declined to approve Lykos Therapeutics’ MDMA-assisted therapy for PTSD, the first time the agency had reviewed a Schedule I drug for medical use. Dr. Boris Heifets of Stanford University said at the time that the decision was a major blow to the field.

More recent trials have improved sentiment. Definium Therapeutics reported positive Phase 3 results for DT120, its LSD-based treatment for major depressive disorder, and its shares rose 50%. Jefferies analyst Andrew Tsai said the effect size was the largest he had seen. Definium Chief Executive Robert Barrow said the company could file a New Drug Application with the FDA within six to nine months if additional anxiety trial results are similarly strong.

Because LSD remains a Schedule I substance, Definium would also need the Drug Enforcement Administration and individual states to reschedule the drug for medical use. Coverage is another barrier. Fadia said companies will need insurance reimbursement, which requires coding overseen by the Centers for Medicare & Medicaid Services and separate negotiations with payers.

Spravato sets a commercial reference point

Johnson & Johnson’s Spravato, a ketamine-derived nasal spray for adults with difficult-to-treat major depressive disorder, remains the clearest commercial example. J&J reported last week that quarterly Spravato sales rose 40% year over year to $584 million, and analysts estimate annual sales will exceed $2 billion.

Other large pharmaceutical groups have moved into the field. Otsuka Pharmaceuticals acquired Transcend Therapeutics for $1.2 billion in June, while AbbVie bought Gilgamesh Pharmaceuticals’ next-generation psychedelic compound last year for $1.2 billion.

Compass Pathways has reported strong Phase 3 results for COMP360, a synthetic psilocybin therapy for treatment-resistant depression, and expects final Phase 3 data in the fourth quarter. Chief Executive Kabir Nath said the company expects to be commercially prepared by year-end, including provider education and a sales and marketing force of about 250 to 300 people.

The National Alliance on Mental Illness, citing federal data, says 23.4% of U.S. adults, or about 61.5 million people, experienced some form of mental illness in 2024. Tsai said he does not view the field as a winner-take-all market, comparing it with SSRIs and antipsychotics, where multiple drugs became blockbusters.

This story draws on original reporting from CNBC.