D.A.R.E.
"fun" drugs, for good. Our Mental Health Thesis Pt. 1
Remember D.A.R.E.? If you are of my generation —you certainly do. It stood for Drug Abuse Resistance Education. (And on a quick Google search, apparently it still exists?) The Google search also affirmed what I seemed to remember which is that it was in large part phased out of school systems as an "Ineffective Primary Prevention Program". I guess teaching kids about all the cool different street drugs available to them didn’t have the impact many had hoped.
There is a famous quote often attributed to the legendary P.T. Barnum along the lines of “no publicity is bad publicity”. While D.A.R.E. attempted to educate young folks on the negative outcomes of abusing drugs, all they really did, was educate young folks on drugs.
So what was the real lasting impact of D.A.R.E.? Well, maybe a society more open to the many potential positive uses of the very same drugs we learned all about in middle school. We are already seeing this trend unfold as Marijuana has gone from secret guilty pleasure to discussed openly at cocktail parties.
It seems like the logical next step in this movement is to the next chapter of the D.A.R.E. pamphlet: psychedelics.
In this context, I am speaking more or less to the compounds MDMA and LSD and the more-natural option, psylocibin. There are certainly other drugs to be explored here, we’re not making any statements on these three drugs. Rather, we are exploring this investment theme from a very high level (…haha).
We’ll base this thesis on three pillars.
Society is changing.
Bipartisanism in a zero-bipartisan-issue world
“Grandma, what’s early?”
Society
Society is always changing. Generations that were the movers, shakers, decision-makers, and world-shapers move to Florida and the next generation of society’s change-makers “come to power”. In this sense, we are referring to two coincident movements in society. One, my generation and above which are the (final) students of D.A.R.E. and well educated on all things formerly taboo. Two, my generation and below have seen a major shift towards desiring “natural” things. I’ll let you figure out what generation that puts me in. Worth noting, only some of our psychedelics fit the “natural” label.
Bottom line, the decision makers of the world are rapidly represented by more and more people who tend to be open-minded to potential benefits of drugs once thought to be strictly the realm of hippies and criminals.
Bipartisan
Mental health. It’s front and center everywhere you turn these days. Of course, mental health has always been a thing. But, now it is a real thing that we study, diagnose, and fear for loved-ones around us. It comes in infinite different forms, and I believe strongly we are only just scratching the surface of our understanding.
The human brain, in general, is an area of endless future investment. I will in the future write a piece on some of the potential investments in the neuro space more generally speaking. I actually think it is once area where AI may be able to take our understanding to new levels —and that will only be a tremendous step for humanity.
Back to mental health. It doesn’t take a political expert to understand that the world feels more divided than we have in a very long time. But one area there seems to be clear agreement on, is mental health. This really matters. Politicians will be looking for wins along the way and they will know this is once topic we all agree on. It needs to be better: diagnosing, supporting, understanding —all of it.
Within this investment theme, there is a clear first-use-case emerging, treating PTSD in military veterans. This was already the early emerging test case, but with the recent developments around the world, I imagine that has only been strengthened.
Early
My mom is the type who is never on time. No, like I mean never on time. When I was a little boy, one day my grandma and grandpa needed to drive me to swim class. When we arrived, my grandpa exclaimed “don’t get out yet, we’re early!” To which I responded, “Grandma, what’s early?” A hilarious family-story was born.
This pillar needs very little support. This entire space is made of newly formed companies. These are all small-cap stocks and I don’t need to explain to you that this isn’t a mainstream investment thesis yet.
We are early. Possibly, very possibly, too early. But being early allows us to take our time in constructing positions. It also allows us to position ourselves utilizing highly convex positions (something you will see as a theme throughout my trading/investing). If we get this one right, the belief is some of these names will see massive moves from their current valuations and be the target of large pharmaceutical buyouts.
The Names
Time to point out that I have absolutely zero professional understanding of various drug compounds and have done very little deep research on the different approaches of the individual names I will list below (ahem, I may have however done some “unprofessional” hands-on research over the years 🤭). That is not my edge here. I am combining a very long-term intuition about the direction society is heading with some shorter-term indications that the prices of the names below are beginning to support the thesis.
As a result, I am approaching this trade as a basket. Spreading the risk amongst the names using a loose market-cap weighting within the basket. Our current holdings in the basket are: DFTX (formerly, MNMD), ATAI, GHRS, DRUG, and CMPS.
DFTX — Definium Therapeutics ~$1.76B
ATAI — AtaiBeckley ~$1.4B
GHRS — GH Research ~$911M
DRUG — Bright Minds Biosciences ~$731M
CMPS — Compass Pathways ~$560M
That means per $5000 invested in the basket, your share breakdown would look something like:
DFTX — 36.8% — $1842 — 86 shares
ATAI — 24.6% — $1228 — 325 shares
GHRS — 16.0% — $799 — 52 shares
DRUG — 12.8% — $641 — 8 shares
CMPS — 9.8% — $491 — 86 shares
Risk
It goes without saying, this is a basket full of extremely risky biotech names. In the end, trading/investing is just so much about position sizing. I’m not going to suggest any exact position size for your portfolio as this is for education purposes only, but, size accordingly. This is a basket you expect you can lose the majority of the investment on. With that said, it is also highly convex —and that is what we look for here at Koorbwodaem. This basket can only go to zero. If our thesis plays out over the next few years or more, a single name could easily 10x or 100x from here and pay for the entire basket and much more.
