Clara Burtenshaw, Neo Kuma Ventures, on shattering the stigma of psychedelic medication

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In this episode, we sat down with Clara Burtenshaw, Partner and Investor at Neo Kuma Ventures. Neo Kuma Ventures is the first psychedelics focused venture capital fund in Europe. Clara is a biotech and life sciences investor with significant transactional, VC, IP, and operational experience. Prior to founding Neo Kuma Ventures, she served as General Counsel at a PE-backed major retail group, growing revenue to £365M through M&A, international rollouts and restructuring. Clara began her career at Slaughter and May, a leading British law firm. She received degrees from Oxford University and the NYU School of Law.

We discussed:

• The evolution of the psychedelics industry from a stigmatized counterculture phenomenon to a scientifically robust industry with support from the FDA for fast-tracking drug development
• The clinical potential of psychedelics to treat ailments ranging from mental illness to pain management and other nervous system disorders
• Neo Kuma’s focus on investing in early stage companies backed by sound science and building a strong founder network
• Predictions that psychedelics as medication is here to stay, and the growing commercialization opportunities in the space

Clara Burtenshaw, Neo Kuma Ventures, on shattering the stigma of psychedelic medication

Start to 20:08: Overview of the psychedelics medical industry and recent industry trends

• Pivoting to psychedelics investing from corporate law: Clara sought to expand her experience within an industry instead of the more general practice common to corporate law. Given her experience in M&A, Clara thought she would make the most immediate impact through raising capital for leading companies as an investor. She was drawn to the world of psychedelics through friends who had mental health conditions, some of whom traveled to receive psychedelic treatments that were more effective than conventional therapies. This initiated Clara’s interest in the world of psychedelics as a novel and effective treatment for disease burdens even beyond mental healthcare.

“Unlike other aspects of healthcare that have undergone exciting scientific and clinical advancements, mental healthcare hadn’t. In fact, innovation had really stagnated and this is all despite the fact that the world is facing a mental healthcare crisis. It was only a matter of time before the excitement around psychedelic research and institutions investing in it would translate into commercial opportunities to disrupt the healthcare system.”

Editor’s Note: Additional context on the latest news on psychedelic medication is provided below. This information is current as of the date of publication (July 6, 2021).

Regulatory: In the US, Oregon and the District of Columbia have loosened laws on magic mushrooms (2020); California is preparing to vote on a similar bill legalizing several psychedelic drugs (2021).

In the UK, regulators have approved a psychedelic drug trial to treat depression (2020).

Investment: More investors, including big names such as Peter Thiel, have invested in psychedelic medication companies.

MindMed and Compass Pathways, two companies focused on creating psychedelic medication and therapies, have raised tens of millions in funding and recently went public.

Popular adoption: Michael Pollan’s “How to Change Your Mind”, a New York Times Bestseller, has exposed many to the history and medical use cases of psychedelic treatments.

• Origins of psychedelic therapy: LSD was first used by Humphrey Osmond to treat alcoholism. Psychedelics were seen as medically beneficial because they could help patients view their conditions from a fresh perspective and aid psychotherapy through its ability to induce dreamlike hallucinations reflecting the patient’s unconscious thinking. The initial treatment held a lot of promise, but despite its potential research was halted mainly for political reasons as part of the backlash against the hippie counterculture. In 1962, Congress passed new drug safety regulations and the FDA began to clamp down on LSD research. In parallel, the following year LSD began to spread as a drug for recreational use and became heavily associated with student riots and anti-war demonstrations. Spurred by the political backlash, the U.S. federal government outlawed LSD in 1968 resulting in a hiatus in psychedelic drug research.
• Resurgence of research for psychedelic treatment: In the 1990s, there was a resurgence of interest and research in investigating the potency of psychedelics as medical treatments. Clinical trials launched to test the clinical efficacy of psilocybin, ketamine, and MDMA on patients with depression and other disorders. However, the use of these drugs is still severely restricted, and there are limitations on practitioners who can lead clinical trials. Interestingly, the FDA has identified psilocybin, ketamine, and MDMA as breakthrough-stage drugs, highlighting their potential to provide therapeutic benefits for patients.
• On the safety of psychedelics: Psychedelics pose some risks, which is non-unique to all medical treatments. With psychedelics, there are some known cardiotoxicity risks driven by the way the drug works with serotonin receptors in the brain. One mitigation strategy is to put the drug through an optimization process to identify the area that can create cardiotoxicity risk. Psychedelics can be further modified through the creation of chemical iterations that tone down the cardiotoxicity risk to minimize this risk. By developing an optimized profile for the drug, drug companies are also creating a safer drug that is more likely to clear clinical trials and pass through regulatory checks and be reimbursed. In addition, patients with known heart conditions should be cautioned when taking these drugs.
• On dealing with stigma: Part of addressing the stigma associated with psychedelics is to frame the drug as a new type of medicine that has been through the same robust clinical trial process as other drugs. Psychedelics also have fewer side effects (e.g. insomnia, libido issues) than other drugs prescribed for similar medical conditions. In addition, the psychedelic medications being developed today are designed to be controlled, predictable, safe, and able to be rolled out at scale, unlike historically recreational uses of psychedelics.

“It’s really about looking at [psychedelics] as a new type of medicine, which has gone through the same sort of clinical design process that a lot of drugs on the market have gone through.”

• On gaining buy-in with regulators and consumers: Regulators largely understand the immense medical potential of psychedelics. For example, the FDA has expedited some clinical trials for psychedelics to treat depression. On the consumer side, Michael Pollan and others have done a lot to educate the consumer about the medical opportunity in psychedelics. Testimonies from those who have received effective care through psychedelics have also helped usher in greater consumer adoption. A push factor for psychedelics is that current conventional treatments work poorly to address some complex diseases, and there is growing need for more effective therapies.

20:08–25:45: On psychedelics as a medical treatment

• Ensuring a consistent experience: Patients are meant to take psychedelics in a clinical setting with a trained therapist. The full experience is more similar to a medical experience than a counterculture experience. While the experience is tailored for the patient, the typical treatment may result in a series of sessions in which the patient is in a psychedelic state. The patient may then meet with the clinician to unpack their experience. Protocols are in place to ensure the usage of a safe drug and proper drug administration.
• Application of psychedelics beyond mental healthcare: Psychedelic therapies are used to treat conditions including cluster headaches, pain management, neurodegenerative disorders, and other central nervous system disorders. For these, psychedelics may be used for their anti-inflammatory properties without inducing the patient into the psychedelic state. Instead, the goal is to expand the pharmaceutical toolkit by giving clinicians more options to treat patients.
• Expanding to D2C: Patients should be able to access drugs that do not require the patient going into a psychedelic state with a prescription. One potential application of this is through Bright Minds, a Neo Kuma Ventures portfolio company, that is developing a drug originating from psilocybin used to address cluster headaches. This drug will not carry a psychedelic trip, and may eventually be able to be administered by patients independently with a subscription.

25:45–34:04: On Neo Kuma’s approach to investing

• Leading with science: Neo Kuma Ventures was founded with an emphasis on leveraging cutting-edge science to inform investment decisions. Given the barriers to accessing and understanding information on psychedelic medication, Neo Kuma serves as a unique bridge between companies working in psychedelics and investors who are interested in the space.
• On maturity of investments: Neo Kuma Ventures invests from pre-seed, seed, to Series A companies. There are some exceptions where Neo Kuma Ventures may invest in later stage companies, but their focus is on early stage investing because this is where they think they can add the most value. Neo Kuma Ventures may conduct a diligence on later stage companies and offer these to investors as an additional opportunity.
• Criteria for investment: Neo Kuma Ventures looks for ambitious teams focused on practicing solid science that are looking to fulfill goals beyond going public. In doing this, Clara and her partner evaluate companies from the perspective of the patient to think about how to advance the standard of patient care. Specifically, they look for companies with new drugs, better clinics, and a way to roll out these drugs in an efficacious way. Neo Kuma Ventures also evaluates what illnesses are currently not treated well and whether psychedelics are uniquely positioned to treat these gaps in care.

“No matter what stage the company is that we are looking at, we are always taking this from the patient’s perspective and how do we advance the standard of patient care moving forward. For us, what this requires is three things: new drugs, better clinics, and the ability to roll out the drugs in an efficacious way which includes tools to make this enjoyable, helpful and safe for the patients.”

• Focus on drug discovery and applications: Clara cites drug discovery as an area where Neo Kuma can make the biggest impact. This entails leveraging leading IP and finding various innovative applications for amplifying the use cases for these drugs, including digital applications.
• Building an ecosystem: Neo Kuma Ventures has consistently built a network of founders who connect the fund to other founders, resulting in an ecosystem of portfolio companies that leverage each other as resources. Neo Kuma Ventures is also a founder-led firm, emphasizing collaboration with innovative founders that continues even after they stop investing in future funding rounds. In this way, Neo Kuma Ventures plays an active role in helping shape the direction of earlier stage investment companies.

34:04–43:16: On developments in the psychedelics industry

• Shorter time horizon for realizing investment: Smaller drug companies working on developing psychedelics that can be commercialized may partner or license with Big Pharma before passing all clinical trial stages. The potential for endorsement from Big Pharma shortens the time horizon for realizing returns from investing in psychedelics drug companies, where initial conversations on partnership or licensing may occur at the preclinical stage with a potential exit between Phase 2 and Phase 3 of clinical trials. Other psychedelics companies confident in their IP may also seek to raise capital from public markets to fund clinical trial completion.

“We like to look at this not just from the lens of psychedelics, but also from the perspective of a market that has a lot of excitement now, but may not last. Where do we want to be when the water rushes out of the bubble?”

• Large revenue potential: A growing number of psychedelic drugs are going through clinical trials, such as Compass Pathways recently raising capital to take a psilocybin therapy past Phase 3 of clinical trials. Ancillary tools used to support pre-and post-care are additional opportunities for commercialization. Ultimately, the field of psychedelics offers a variance of capital requirements and time horizons for realizing revenue potential.
• Potential for geographic expansion: Neo Kuma investments are geography agnostic. The fund makes investment decisions based on the strength of the opportunity, team, and science. However, many of its early investments were in the U.S. and Canada. Moving forward, Clara sees great potential in Europe. The U.K. and Netherlands are the sites of many clinical trials for psychedelics, and have been on the forefront of novel drug development.
• Differences between Europe and North America: Europe trends towards more conservative valuations for companies compared to the U.S., where companies like MindMed and Compass Pathways recently IPO-ed. Some companies in Europe are also receiving undiluted funding, which entails funding from governments and institutions that signal potential for broader adoption and regulatory support.

43:16 to 48:58: On lessons learned from working with founders and startups

• Best ways to work with founders and early-stage startups: Neo Kuma Ventures takes a position on the board and regularly communicates with founders to understand challenges and discuss potential solutions. Neo Kuma Ventures also unlocks synergies with startups across its network connecting founders across its portfolio. Clara also emphasizes the importance of understanding the founders’ goals before initiating a partnership to assess the best mode of partnership to enter, e.g. joint venture, licensing arrangement, etc.
• Tensions with investors during valuation: Neo Kuma Ventures has open and direct conversations with founders about investing rounds and timing. Specifically, Neo Kuma Ventures looks for founders who are realistic and who can back up valuations for their companies with strong potential and real leads.

48:58 to 55:14: On the future outlook of psychedelics

• Psychedelics are here to stay: Psychedelics as medical treatment is building momentum, and will continue to be used especially as more psychedelic drugs pass through clinical trials and gain regulatory approval. Countries such as the U.S. are also investing in psychedelics as potential treatments for complex ailments such as PTSD that currently lack effective mainstream treatments. COVID-19 has led the FDA to accelerate approvals for drugs, with the potential to speed psychedelic drug approvals.
• Expanding applications of psychedelics: Psychedelics can be used to treat illnesses outside of mental healthcare. In particular, psychedelics may be especially useful as a non-opioid pain management medicine. Beyond a direct medical application, the growing trend of personalized medicine and the various ways in which companies can support the full care journey of patients undergoing psychedelic therapy have already initiated the genesis of a market that is here to stay.
• Consolidation in the industry: Following trends in the cannabis industry, Clara predicts growing consolidation within psychedelic medications. Better capitalized companies such as MindMed and Compass Pathways may be interested in acquisitions to enable delivering a full suite of care for the patient, including investments in the digital technologies underlying these capabilities.

55:14 — End: Personal and professional advice

• Take risks: Do your homework and know that while taking chances may not always pan out, the act of taking the plunge will build resilience. When switching careers, contemplate how your existing skillset augments the field you are pivoting to. This can build confidence and help you leverage your strengths in a new industry or function.
• Maintain a sense of humor: Keep a sense of humor especially when going through challenges. In the words of Winston Churchill, “If you’re going through hell, keep going.”