Stifel GMP remains bullish on psychedelic stocks despite the recent challenges in the market that have weighed on share prices industry-wide.
“Shares in the biotech sector have significantly underperformed (year-to-date), creating a challenging backdrop for the earlier stage psychedelic industry which has generally fared worse within the sector as the cost of equity rose materially with companies dependent on external financing to drive shareholder value creation, in our view,” analysts wrote in a note.
That said, Stifel analysts remained confident of the fundamentals behind its thesis. In Stifel’s view, the sector has large addressable markets, inadequate first-line therapies creating significant unmet needs and a risk-adjusted pathway to address these needs, given the unusual existing body of research suggesting materially better efficacy.
READ: Lobe Sciences is developing innovative and accessible psychedelic-inspired medicines for severe anxiety, traumatic brain injury, and more
While the firm is holding firm on its bullish stance on the industry, analysts lowered targets on psychedelic biotech companies Reunion Neuroscience Inc, Cybin (NEO:CYBN) Inc, Awakn Life Sciences Corp (NEO:AWKN) and Wesana. However, analysts highlighted the “attractive” risk-reward opportunity for investors amid “undemanding” valuations.
“Matched with undemanding valuations, we believe the current risk-reward profile for companies under coverage is attractive and reiterate our Speculative Buy ratings,” analysts wrote.
Stifel also noted that it increased its discount rates to 35% in the 10-year discounted cash flows that drive its targets, with novel molecule programs garnering a less favourable rate given the potentially higher hurdle versus well known traditional psychedelics.
Of the companies Stifel noted, share prices were a mixed bag in midweek trading. Cybin (NEO:CYBN) was up around 3.4% at US$0.86, as was Wesana by nearly 9.1% at C$0.18. Reunion was down around 8% at US$3.82, while Awakn was down around 5% at C$0.58.
Elsewhere in the sector, psychedelics firm Braxia Scientific was up 7% at C$0.08, Revive Therapeutics Ltd (CSE:RVV, OTCQB:RVVTF) gained 1.3% at C$0.38; Universal Ibogaine Inc (TSX-V:IBO) was flat at C$0.04, as was Lobe Sciences Ltd (CSE:LOBE, OTCQB:LOBED) at C$0.07 and Psyched Wellness Ltd (CSE:PSYC, OTCQB:PSYCF) at C$0.12.
Contact Angela at angela@proactiveinvestors.com
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