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Investing in Psychedelics w/ Brom Rector (Ep.138) | Infinite Loops

Check out the full Infinite Loops podcast show notes: Brom Rector — Investing in Psychedelics (EP.138)

About The Podcast Host

Jim O’Shaughnessy is the Chairman and Co-Chief Investment Officer of O’Shaughnessy Asset Management (OSAM). Jim is the author of four books on investing, and his book 'What Works on Wall Street' is a BusinessWeek and New York Times Business bestseller. Jim is the former Chairman of the Board of the Chamber Music Society of Lincoln Center and currently serves as the Chairman of the Capital Campaign for CMS.

This Week's Podcast Guest

Brom Rector (@therealbrom) is the founder of Empath Ventures, a Venture Capital fund that in invests in early-stage psychedelics startups. Prior to founding Empath, Brom sent several years as a portfolio manager and quantitative researcher.

Podcast Summary

Brom Rector joins the Infinite Loops podcast to discuss the current state of the psychedelics industry, the lessons learned founding a VC fund, the differences between psychedelics and cannabis, and a whole lot more.

Key Takeaways

  • In the United States, we often politicize things that don't need to be politicized (COVID, psychedelics, etc.)

  • Recent clinical trials involving psychedelics, as well as improving public onion point to a bright future for psychedelics

  • Psychedelics can be a tool in combatting mental illness - 20% of Americans are diagnosed with some form of mental health illness

  • We should not let fear stop us from experimenting and making progress

  • We didn't leave the Stone Age because we ran out of stones. We innovated and pushed boundaries forward

  • Do not be discouraged by naysayers - up until the 1800's medical doctors thought hand washing was dumb

  • Brom recommends that people at least research psychedelics to better understand them. From there, they can decide whether or not they want to try psychedelics

  • Trust your gut and intuition (as a bonus, measure the amount of times that your intuition has been right or wrong)

The Legacy of Richard Nixon's War on Drugs

  • Jim thinks Richard Nixon was genuinely crazy

  • Growing up, the propaganda directed at Jim and his friends was that psychedelics were off-limits

  • Kids were told that people on acid would jump off a roofs, among other outlandish stories

The State of Mental Health in the United States

  • 20% of Americans are diagnosed with some form of mental health illness

  • 1 in 6 Americans are on some form of psychiatric medication, most commonly SSRIs

  • For 1 in 3 people, SSRIs are completely ineffective

  • Even before COVID, mental health trends were moving in a negative direction

  • Deaths of despair (which includes deaths by suicide, drug and alcohol poisoning, and alcoholic liver disease and cirrhosis) have doubled since 1999

Deaths of Despair in the United States

  • Recent clinical trials point to the positive impact that psychedelics may have in treating mental illness

  • The stigma of psychedelics is finally waning, but there is still hesitancy

  • Ultimately, Jim and Brom foresee psychedelics being integrated into modern medicine

Treating PTSD with Psychedelics

  • Veterans are one of the first groups to get approval to treat PTSD with psychedelics

  • The political story of treating veterans with PTSD was effective in convincing both Republics and Democrats to greenlight clinical studies

  • We often politicize things that don't need to be politicized

  • Jim is funding two films that tell the story of people experimenting with psychedelic treatments

Investment Opportunities in Psychedelics

  • Brom is currently in the process of raising funds from investors for his venture capital fund

  • The target investor profile is someone who is already keen on the idea of using psychedelics, for either medical or recreational use

  • People who decline investing in Brom's fund typically say that they will have a hard time explaining the investment thesis to stakeholders

  • Some institutional investors are afraid of taking risk. For them, there is limited upside, but plenty of downside risk

  • Nobody gets fired for investing in IBM

Business Models in the Psychedelic Industry

  • Drug Development: Taking drugs that already exist, like MDMA, and trying to get it approved by FDA or other regulatory bodies

  • Drug Discovery: The process of trying to create new drugs that are better than the current ones

  • Drug discovery is a more complicated and risky business model

  • Psychedelic Medical Treatments: Delivering psychedelic telehealth (or in-person) treatment to patients

  • Brom's fund invested in a company called Nue.Life. Nue Life provides at-home ketamine treatment. A single dose of Ketamine can be prescribed via app. Then, they can provide a telehealth supervised ketamine experience

  • 50,000+ experiences have been provided since inception

  • Beond.US is a clinic in Mexico that provides Ibogaine treatment for Opiate addiction

  • Infrastructure and Accessories: Accessory businesses such as software and other services in the psychedelic industry

  • Wavepaths is a software that generates music to use during psychedelic treatments

Dealing with *psychedelic* naysayers

  • Many of the current psychedelic drugs were invented by humans over 100 years ago

  • Issue #1: 5-HT2A and 5-HT2B receptors are agonized by the drugs. Historically, the FDA has pulled drugs over agitating these receptors

  • There is concern that using psychedelics can cause heart valve damage. Level of risk varies by patient, and further study is required

  • Issue #2: Not everyone has 6+ hours to spend in a psychedelic state

  • Can we get the same result from psilocybin in 2 hours rather than 6 hours?

  • Issue #3: Not everyone is comfortable with hallucinations

  • Can we eliminate hallucinations from psychedelics? Do we need the "trip" to benefit from the psychedelic experience?

  • Brom believes the hallucinations are a critical component of introspection and self-discovery during a hallucinogenic trip

  • Non-hallucinogenic psychedelics can potentially aid in increasing brain plasticity. Potential applications include recovering from stroke, preventing dementia, and more

  • We should not let fear stop us from experimenting and making progress

  • David Deutsche - We can't possibly know what our future knowledge will be

What role does Big Pharma play in psychedelics?

  • Brom does not buy into the narrative that Big Pharma is opposed to psychedelics

  • Many of the anti-depressant patents expired many years ago; pharmaceutical companies don't make that much money off of SSRIs

  • Perhaps the business model and treatment paradigm change. Instead of a daily SSRI, maybe people go for a supervised psychedelic treatment twice a year

  • Cessation of depression usually only lasts for 3-12 months before it returns

Exciting Psychedelic Business Models

  • In terms of business models, Brom is most excited about:

  • Pangea Botanica: They are combing though the catalog of less-commonly known psychedelic compounds to discover how they might be turned into psychedelic products

  • Opiate addiction Treatments: There are no great solutions to treat opiate addiction currently. Ibogaine appears to be very effective in treating opiate addiction.

  • For whatever reason, ibogaine seems to diminish withdrawal symptoms overnight

  • 1-3% of people who take ibogaine have some form of detrimental heart episode

Connection between the Mind & Body

  • Historically, western medicine has refuted or ignored any discussion about the mind-body connection

  • Dr Russell Kennedy on anxiety: "Our society worships the mind and doesn’t trust our body. We cannot use the mind to heal the mind, we need to also involve the body".

  • Dr. John Sarno had incredible success in curing people, largely by integrating both the body and the mind

  • Psychedelics can play a major role in bridging the mind body gap

  • Many people think they have no mental health issues. Most, if not all, people would benefit from introspection and improved mental health

  • Psychedelics work by agonizing serotonin responses. The body has more serotonin receptors than the brain

  • Many people are sharing anecdotes of treating irritable bowel syndrome with psychedelics

  • If you are alive, you're going to have problems. The only way to solve those problems is to keep learning and pushing forward

  • We didn't leave the Stone Age because we ran out of stones. We innovated and pushed boundaries forward

Cultural Lag & Convincing Others to adapt

  • There is always cultural lag - there are people who are tuned in and those who are not yet tuned in

  • Hand-washing was once seen as dumb by medical professionals

  • Hungarian physician Ignaz Semmelweis worked in a maternity clinic in Vienna. Dr. Semmelweis investigated why so many women were dying from puerperal fever — commonly known as childbed fever

  • Dr. Semmelweis discovered that one of the maternity wards had a nearly 5x rate of death than the other. After much research and analysis, Dr. Semmelweis identified the key difference - hand washing

  • After much convincing, Dr. Semmelweis convinced his colleagues to start washing their hands - death rates immediately dropped

  • However, Dr. Semmelweis passed away. His successor reversed the decision to require hand washing, and death rates skyrocketed for the next 70 years

Cannabis Vs Psychedelics

  • The medicinal benefits of cannabis are mostly immediate relief of physical pain

  • In comparison, the benefits derived from psychedelic use are a bit longer-term and involve multiple touch points (also multiple business opportunities)

  • Psychedelics are a portfolio of products versus cannabis is a single product

  • There are multiple clinical trials ongoing for psychedelics, but not much clinical research going on for marijuana

  • Cannabis is similar to old SSRI model. Have to consume consistently to get desired effect

Drug Tolerance

  • There are certain people that do not get any impact from psychedelics - people metabolize and react to psychedelics differntly

Micro dosing

  • Not many clinical studies that have been conducted on the effects of micro dosing

  • Micro dosing is largely anecdotal, more study is required

  • Many people micro dose for work and productivity - but the results are mixed

  • For example - what is the exact amount to be considered a "Micro-dose"?

  • Not enough evidence to reject the hypothesis

How has Brom's life changed since starting his fund?

  • As a hedge fund analyst, Brom spent most of his time building models and coding. Now, 95% of his day is talking to people

  • Fundraising takes significant effort

  • Operating in an emerging sector has pros and cons

  • There is plenty of whitespace and opportunities in the psychedelic industry

  • At the same time, people need to be pitched and convinced to invest because psychedelics is still an emerging industry

  • Psychedelics has built in virality - people tell their friends and family about their experience

  • Brom believes that this is a great time to invest in psychedelics

  • Brom recommends that people at least research psychedelics to better understand them. From there, they can decide whether or not they want to try psychedelics

  • Trust your gut and intuition (as a bonus, measure the amount of times that your intuition has been right or wrong)

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