(Bloomberg) -- Companies developing psychedelic drugs are no longer seen as niche investments with key regulatory decisions on the horizon.

Six months ago, investors “couldn’t get comfortable” with psychedelics, said Michael Jiang, a senior managing director at Guggenheim Partners, an investment bank with a focus on health care and biotech. Jiang, who spoke at a conference on the topic in New York City Thursday, said attitudes are changing as interest in the biotech sector rises. 

Plus, a key decision expected this summer from the US Food and Drug Administration on whether to authorize MDMA (also known as ecstasy) to treat PTSD could help push investment in the industry more into the mainstream.

“We’ve already seen a meaningful shift in terms of institutional investors’ interest in the space, and that should only broaden,” Jiang said, speaking on a panel about funding prospects for the industry. He said he’s noticed more participation among those who don’t specialize in psychedelics in recent funding rounds of companies including Cybin Inc., which raised $150 million in March, and Mind Medicine Inc., which had a $175 million private placement. 

Recent years have seen an uptick in research into whether psychedelic drugs with a history of underground use like psilocbyin (also known as magic mushrooms) and MDMA are effective for treating a variety of mental health conditions. Funding to research-stage startups in psychedelics, however, hasn’t kept up. According to Psychedelic Alpha, which tracks deals, 2023 had fewer, smaller deals, bringing in just around $296 million in funding for the industry, down from $1.9 billion in 2021. Large pharmaceutical companies have mostly stayed on the sidelines, with notable exceptions like Otsuka Pharmaceutical Co.’s investment in Mindset Pharma Inc.

The AdvisorShares Psychedelics ETF, which provides exposure to the industry, is trading down about 8.8% year to date.

Read More: Psychedelics Shakeout May Follow Biotech’s Trajectory

Ritu Baral, a senior biotech analyst at TD Cowen, said Thursday she sees “companies that are sniffing back around,” to do deals, but noted that there’s still a lot of concern about the financial model for a drug that would be paired with a therapy, and how intellectual property will work given the psychedelic substances are based on plants that have been around for years. She cited upcoming data from Compass Pathways later this year, which is testing an experimental therapy based on magic mushrooms, as another reason for more interest.

An FDA advisory committee will review Lykos Therapeutics Inc.’s clinical trial data and application for MDMA, in conjunction with therapy, on June 4, and is expected to make a decision by Aug. 11. MDMA is seen as bellwether for the industry, indicating how the FDA could decide on other psychedelics.


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