Atai Life Sciences (NASDAQ: ATAI) is a business with a wealth of promising looking therapeutic candidates. The business is known for championing alternative treatments for mental health problems, including psychedelics and stimulants such as ketamine, MDMA and DMT.
But is Atai the right life sciences stock for you?
What is Atai Life Sciences?
Atai Life Sciences is a Berlin-based company that was founded in 2018. The company operates as a clinical-stage biopharmaceutical company through its ATAI Life Sciences AG subsidiary.
It engages in developing various therapeutic candidates that focus on various mental health disorders. The company’s therapeutic candidates include PCN-101, a subcutaneous formulation of R-ketamine for treatment-resistant depression (TRD).
Other candidates include:
RL-007, which is for the treatment of cognitive impairment associated with schizophrenia.
DMX-1002 an oral formulation of ibogaine for treating opioid use disorder.
GRX-917 an oral formulation of a deuterated version of etifoxine for the generalized anxiety disorder treatment.
NN-101, a novel intranasal formulation of N-acetylcysteine to treat mild traumatic brain injuries.
VLS-01, a formulation of N,N-dimethyltryptamine for treating treatment-resistant depression.
EMP-01 an oral formulation of an 3,4-methyl enedioxy methamphetamine for the treatment of post-traumatic stress disorder.
RLS-01, a formulation of Salvinorin A for treatment-resistant depression.
KUR-101 an oral formulation of deuterated mitragynine to treat opioid use disorder.
DMX-1001 an oral formulation of noribogaine for the treatment of opioid use disorder.
The company was formerly known as Adripa Holding B.V.
How Does Atai Make Money?
The company does not regularly record revenue as it remains at the clinical stage and has yet to reach commercialization with any of its candidates.
However, the company has earned revenue through licensing, earning more than $20m in 2021, which was related to proceeds received from affiliate company Perception Neuroscience’s license and collaboration agreement with Otsuka Pharmaceutical.
ATAI Stock Financials
Atai Life Sciences stock has a price to book value of 1.81, compared to an industry average of 6.19 across pharmaceutical stocks, according to CSIMarket. This could indicate that the stock is undervalued.
Across the year to date, Atai Life Sciences' stock price has declined by 51.7% at the time of writing, falling to $3.70. Since Atai Life Science’s IPO in June of 2021, the stock price has fallen consistently from its initial high of $19.45. It has not since climbed this high and has hit a low of $2.95 in the meantime.
The business’ most recent quarterly results showed:
Total Operating Expenses: $33.4m
Net Loss: $37.6m
ATAI Investment Risk
The first thing to note when it comes to risk is that Atai is a clinical-stage company, with no products currently at the commercial stage. This means no revenue from sales for the foreseeable future, and means there is an increased likelihood that the company could run out of money.
Indeed, the company’s cash burn has been accelerating as it continues to develop a growing roster of treatment candidates. For example, the company’s most recent quarter saw total operating expenses come in at $33.4m, compared to $15.8m in the same three-month period a year beforehand.
This increase was driven by research and development costs, which nearly tripled to $15.5m. Cash and cash equivalents at the end of the period stood at $124.0m. As such, there is potential for investor concern about the accelerating rate of cash burn at Atai Life Sciences.
Psychedelics as Mental Health Treatments
Further risk comes from the nature of the treatments that Atai is developing. These mainly center around psychedelic drugs and stimulants like ketamine, MDMA and DMT. These substances are commonly used as recreational drugs and so are likely to face additional regulatory scrutiny.
However, it appears that the Biden administration is pushing towards approving MDMA and psilocybin treatments for mental health issues such as post-traumatic stress disorder and depression.
This is according to a letter obtained by The Intercept from Assistant Secretary for Mental Health and Substance Use Miriam Delphin-Rittmon, which discussed the possibility of forming a task force to monitor the progress of psychedelic treatments.
ATAI Growth Potential
With such a multitude of candidates, the business clearly has scope to grow in several different directions. However, it makes sense to begin by examining the addressable market of Atai’s product candidates, which are closest to commercialization.
Figures from the World Health Organization indicate that more than 300m people worldwide suffer from depression. The condition can be categorized into first onset depression, persistent depression and treatment-resistant depression.
One study published by the Journal of Clinical Psychiatry in the Spring of 2021 indicated that the estimated 12-month prevalence of medication-treated MDD in the United States was 8.9 million adults, of which 30.9% had treatment-resistant depression.
The latter, which Atai’s PCN-101 candidate is meant to treat, is diagnosed after two failed courses of antidepressants. A study released by DelveInsight Business Research in Spring 2021 indicated that the market for treatment-resistant depression has a compound annual growth rate of 15% over the coming decade.
The report indicated that this growth was due to increasing numbers of cases but also the development of many new therapies. These numerous therapies mean the business could find itself competing for market share with players like AbbVie Inc, Johnson & Johnson, Acadia Pharmaceuticals and more.
Additionally, many of these treatments and candidates appear to have applications or suspected applications for other mental health problems which Atai Life Sciences is also seeking to treat, such as schizophrenia and anxiety.
This potentially high level of competition could be detrimental to Atai’s future growth prospects. However, it could also be considered a potential takeover target for a bigger player in the space.
Is Atai Life Sciences Stock a Good Investment?
Having such a broad range of candidates is an encouraging sign for investors, though you should consider the risks inherent with backing a company that remains at the clinical stage.
The company’s cash burn is accelerating as it continues to push ahead with development of its multiple product candidates, and there is no word yet on when the company will be raking in serious revenues. However, its roster of candidates are exciting and there is a huge market for their use.
As of July 2022, 10 analysts rated ATAI stock a Buy, while one further analyst proffered a Hold rating for the stock. The consensus price target for Atai Life Sciences stock is $27.80, far higher than the $3.66 that the stock currently trades at.
Before moving ahead with an investment in Atai Life Sciences stock, or any investment opportunity, consider your own appetite for risk.