The pharmaceutical giant Eli Lilly and Co (NYSE: LLY) announced last Thursday its agreement to acquire clinical-stage psychedelic drug developer Atai Beckley (NASDAQ: ATAI) for up to $3.8 billion. This move signals a growing acceptance by major pharmaceutical firms of these long-stigmatized substances as potential alternative treatments for a range of mental health conditions. This development follows a series of positive clinical trial results for various psychedelic compounds and an executive order signed by U.S. President Trump in April directing the Food and Drug Administration (FDA) to expedite the review process for such therapies, collectively fueling momentum in the sector.
Atai Beckley's lead investigational drug, BPL-003, is a synthetic form of 5-MeO-DMT—a substance derived from the venom of the Sonoran Desert toad—administered as a nasal spray for Treatment-Resistant Depression (TRD). TRD is a severe form of depression that does not respond adequately to standard treatments, affecting an estimated 4 million people in the United States. A year ago, Atai reported Phase 2b study results showing BPL-003 provided rapid and sustained reduction of TRD symptoms. The company is also developing other psychedelic-based compounds, including one related to MDMA. BPL-003 has received FDA Breakthrough Therapy designation, a program designed to expedite development and review, and is now in Phase 3 clinical trials.
Where to begin
Analysts at Jefferies noted in a report that successful Phase 3 results by early 2029 could unlock a market opportunity of $1 to $2 billion in the TRD space. They further stated that key opinion leaders confirm psychedelics could represent the most significant change, even a paradigm shift, in psychiatry, with patient demand appearing to outstrip current supply.
5-MeO-DMT is part of a broader class of psychedelic substances—including LSD, psilocybin (from "magic mushrooms"), MDMA, ayahuasca, and ibogaine—that have been formulated into medicines by innovative biotech firms. These have shown promising trial results in treating depression, post-traumatic stress disorder (PTSD), anxiety, eating disorders, and substance addictions. Mechanistically, psychedelics appear to temporarily relax the brain's rigid communication patterns, allowing new connections to form between regions that don't typically "talk." In this more plastic state, especially when combined with psychotherapy, individuals may be able to reframe trauma, depression, or addiction and form healthier mental pathways, a process some experts call "rewiring" the brain.
Growing confidence from data
Ami Fadia, a biotechnology analyst at Needham, stated that sufficient accumulated data now indicates these drugs can deliver significantly greater efficacy than oral medications like SSRIs and SNRIs, which have been the mainstay for treating mental illnesses for over three decades. She added that while some investors were hesitant a few years ago, such concerns are now rarely heard.
The journey for psychedelics has been long and complex. Research began in the 1960s with encouraging results, but their association with recreational use in the counterculture led to the Controlled Substances Act of 1970. Psychedelics were classified as Schedule I drugs, deemed to have no medical value, and research largely halted. After decades in the wilderness, research began to revive from the late 1990s onward, a renaissance chronicled by author Michael Pollan in his 2018 book.
Recent clinical progress and setbacks
The path has not been without significant setbacks, most notably in August 2024 when the FDA rejected Lykos Therapeutics' application for an MDMA-assisted therapy for PTSD. This was the first FDA review of a Schedule I substance for medical use, and the rejection was a blow to both the company and the broader movement. Despite this, clinical trials have continued to advance with positive outcomes. For instance, Definium Therapeutics (NASDAQ: DFTX) announced positive Phase 3 results for its LSD-based drug DT120, showing significant symptom improvement in patients with major depressive disorder, sending its stock soaring 50%.
Jefferies analyst Andrew Tsai noted the clinical effect size for DT120 is among the most impressive he has seen. Definium's CEO Robert Barrow said if upcoming Phase 3 results for generalized anxiety disorder are equally strong, the company could submit a New Drug Application (NDA) to the FDA within six to nine months. He noted that even under an expedited review, the cycle takes about eight months. A key hurdle remains DEA rescheduling of LSD, which Barrow expects would be to a schedule lower than Schedule I with appropriate safety controls.
Market access challenges
Another obstacle to market access is insurance coverage, which requires establishing a billing code for each drug, a process overseen by CMS. Fadia emphasized that coverage is critical for patient access, and each company will need to negotiate pricing with payers.
A model for success
While not traditionally classified as a psychedelic, Fadia pointed to Johnson & Johnson's (NYSE: JNJ) Spravato—a nasal spray derived from ketamine for treatment-resistant depression—as a model for the market. In J&J's recent quarterly report, Spravato sales grew 40% year-over-year to $584 million. Approved in 2019, analysts project it will generate over $2 billion in sales this year. "They've put in tremendous effort," Fadia said, "but they've proven it's possible."
A crowded and growing field
Beyond Definium and Atai Beckley, numerous public and private startups have emerged over the past decade, including Compass Pathways (NASDAQ: CMPS), Transcend Therapeutics, Helus Pharma, GH Research (NASDAQ: GHRS), Psyence BioMed (NASDAQ: PBM), and the non-profit Usona Institute. Eli Lilly is not the only large pharma company entering the space. Japan's Otsuka Pharmaceuticals acquired Transcend for $1.2 billion in June, and AbbVie Inc (NYSE: ABBV) bought Gilgamesh Pharmaceuticals and its next-gen psychedelic compounds for $1.2 billion last year.
According to Mordor Intelligence, the psychedelic drugs market size was $4.08 billion in 2025 and is projected to grow from $4.63 billion in 2026 to $8.75 billion by 2031, at a CAGR of 13.55%.
Leading candidates nearing the finish line
Compass Pathways, developing COMP360, a synthetic psilocybin, reported strong Phase 3 results for TRD earlier this month, with final data expected in Q4. The company is one of three biotechs granted an FDA Commissioner's National Priority Review voucher under President Trump's order to accelerate approval. CEO Kabir Nath stated they will be "launch ready" by year-end, with all commercial preparations complete, including education and a sales force. If all goes well, the product could launch in the first half of 2027. Tsai estimates initial annual sales for COMP360 could be around $50 million.
Transcend Therapeutics, now part of Otsuka, is trialing its methylone formulation, TSND-201, for PTSD. Phase 2 results released in February showed statistically significant, rapid, and durable improvement in severe PTSD symptoms. John Kraus, Otsuka's Chief Medical Officer, called the results unprecedented compared to approved PTSD drugs. Transcend also holds an FDA priority review voucher. Phase 3 trials are ongoing, with data expected possibly in early 2026.
Exploring ibogaine's potential
The only psychedelic substance specifically mentioned in the President's executive order and signing ceremony was ibogaine, a natural compound used for centuries in spiritual rituals. Interest has grown in its potential for treating substance use disorders, though unlike other psychedelics, it has not undergone large-scale trials. Several biotechs, including Atai Beckley, Gilgamesh, Psyence, and DemeRx, are researching ibogaine and its derivatives.
Deborah Mash, founder and CEO of DemeRx, is developing non-hallucinogenic noribogaine, ibogaine's active metabolite. The company plans a small alcohol interaction study followed by a Phase 2 trial for Alcohol Use Disorder. Mash noted the FDA has allowed DemeRx's noribogaine research under an IND. She acknowledged known cardiac risks associated with ibogaine but said extensive cardiac testing of noribogaine has not shown clinically significant QT prolongation, suggesting its benefits may outweigh risks if safely administered.
Ibogaine recently gained attention for its use in treating veterans with PTSD. A 2024 Stanford study showed an 88% reduction in PTSD symptoms in a cohort of 30 special operations veterans with traumatic brain injury history. Texas allocated $50 million last year for ibogaine clinical trials.
The size of the opportunity
The National Alliance on Mental Illness (NAMI) reports that 23.4% of U.S. adults—about 61.5 million people—experienced some form of mental illness in 2024. This presents a vast opportunity for psychedelic drug makers to offer alternatives to currently prescribed traditional medications. However, this does not necessarily mean the field will be a winner-take-all market.
Tsai concluded, "From a macro perspective, I don't view this as a winner-take-all market. Historically, multiple SSRIs have been blockbusters, multiple antipsychotics have been blockbusters. So I think multiple [psychedelic] players can be successful. It's a very large market."