Healthcare funds focus on innovation and psychedelic therapy

As science and technology drive revolutions in medical treatment, investors have two new opportunities to back companies using pharma and biotech to tackle prevention and present cures.

 healthcare funds

Two new funds have launched: one, an investment fund dedicated to psychedelic healthcare, the other an open-ended investment company (Oeic) investing in health challenges.

The Psychedelic Healthcare Fund is launched by Neo Kuma Ventures, a London based newly formed venture capital firm focused solely on psychedelic medicine.  The fund has attracted millions of pounds in investment, has no set cap and will continue to draw venture capital through the first half of 2021.

Its launch comes as recent rigorous clinical trials have demonstrated psychedelics’ potential to treat unmet needs in mental illnesses including post-traumatic stress disorder (PTSD), depression, addiction and anxiety.

Neo Kuma Ventures will use the fund to invest in “the most exciting, high quality and scientifically sound players in the industry.” The firm has an investment thesis focused on clinically proven psychedelic medicines which it believes will hit the market in the next five years.

Sean Mclintock, founder of Neo Kuma Ventures said: “As the medical benefits of psychedelics become more well-known and regulators steadily increase their embrace of these types of drugs, the industry is set for a boom. While much of the conversation on psychedelics is taking place in the US, Europe is the true hub of the burgeoning psychedelic healthcare sector.

“We look forward to investing in the most exciting, high quality and scientifically-sound European players in the industry to facilitate their ground-breaking research.”

Last year Neo Kuma’s founders backed biotech company ATAI Life Sciences AG, a part owner of COMPASS Pathways – which recently became the first psychedelic medicine company to float on Nasdaq and is now trading at a market cap of $1.98 billion.

The managers say the fundraising underscores the growing appeal in the re-emergence of psychedelic medicine following the approval of several previously outlawed drugs to treat mental illnesses. It says parallels to the rise of psychedelic healthcare have been drawn to the medicinal cannabis industry which in the US surged from an estimated total value of $2 billion in 2014 to an estimated $35 billion in 2020.

It highlights that last year a new ketamine nasal spray by Johnson & Johnson was approved for use in the US and Europe to treat adults suffering with treatment-resistant depression. According to Dr David Nutt at Imperial College London, this breakthrough marked the first major advance in the treatment of depression since the late 1980s.

Then that in the US, the Food and Drug Administration (FDA) also recently designated psilocybin therapy — a hallucinogenic substance found in magic mushrooms – as a “breakthrough therapy” in treating major depressive disorder (MDD). And finally, last year, in the UK the NHS started prescribing its first cannabis medicine for epilepsy.

By way of background the managers highlight:

  • Research by the World Health Organization found that one in four people will be affected by a mental or neurological disorder in their lifetime, and one in 20 will be severe cases;
  • In England, the Centre for Mental Health has predicted that up to 10 million people – almost a fifth of the population – will need mental health support as a direct consequence of Covid-19;
  •  That an estimated 264 million people worldwide suffer from depression;
  • A report last year by the Lancet Commission, a body of experts, estimated that mental-health disorders could cost the global economy $16trn by 2030, and
  • Sales of antidepressants were $14bn in 2017 and analysts expect them to grow to $16bn-19bn by the middle of the next decade.

Petronella West, chief investment officer at financial planners Investment Quorum said: “It is definitely not a widows and orphans fund and you need to make sure you are happy to have a high level of illiquidity and that you are prepared for a capital loss. But this is the kind of thing that we think is changing the world. There is so much more development around these kinds of investments, lots around pharmaceuticals and bio-medicine, it is how we are using what we learn to advance medical science faster, we are seeing a lot of that. It is small pharma over big pharma. It is very interesting, we probably wouldn’t invest in it and it comes with a big wealth warning but it is very interesting.”

Health innovation Fund

Baillie Gifford meanwhile has launched a UK OEIC Health Innovation Fund, which invests in a new generation of companies tackling the world’s big health challenges.

The new OEIC will sit alongside the Dublin-registered UCITS fund which was made available to external investors in April this year, having launched 01 October 2018 with an initial investment from Baillie Gifford partners. Total assets under management for the Baillie Gifford Health Innovation UCITS fund are currently $113m plus an additional $206m in segregated mandates (at 16/12/20).

Both funds are managed by a team of three: Julia Angeles, Rose Nguyen and Marina Record plus an advisory group of five other investment managers. Performance will be measured over five years or more, however since inception, the UCITS fund performance has been 87.4% gross of fees* (in USD) versus 23.9% for MSCI All Countries World Index.

The portfolio has around 35 listed mid-size high-growth companies, which are driving transformational changes in the future of healthcare with pioneering therapies, diagnostics and digital technology. Baillie Gifford already invests £29bn in health-related companies across several funds, believing that society is on the cusp of a revolution in our understanding of human biology and approach to health.

James Budden said: “With increasing convergence within the fields of science and technology, medicine is likely to be further revolutionised towards prevention and cure in order to help us live healthier and longer lives. As patient investors, we are keen to help companies build sustainable business models for the breakthroughs they are working on. For the moment, we are focused on building up a track record for the Baillie Gifford Health Innovation Fund and developing awareness of the OEIC within the UK marketplace.”

Petronella West said: “The objectives of the fund are to provide superior returns over the long-term by investing in a global equity portfolio selected from companies engaged in the wide subject of the healthcare industry.

“Baillie Gifford has a strong reputation in delivering excellent investment returns over long term time horizons.

“We just invested in the Baillie Gifford Positive Change fund, we have just brought that into our strategy and I think the focus around technology healthcare is exactly where Baillie Gifford sit really well – they are a great house for innovation around technology and healthcare and also they seem to have really got the sustainable buzz. Were launching a sustainable strategy and ESG at end of January 2021 for our clients – it is the first new strategy we have launched since we started doing discretionary in 2006 simply because the demand is ever increasing and the pressure from the United Nations to have sustainability measured across all investments and portfolios is obviously key. It’s a new fund so not something we would necessarily immediately look in terms of how the capital grows but I think this is where investors are going to get a real return in the future but you have to ride out the volatility.”

Further reading: Medical cannabis investing through an Exchange Traded Fund

 

 

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