This story is part of a new Prospect series called Rollups, looking at obscure, under-the-radar monopolies. If you know of a rollup like this, contact us at rollups(at)prospect.org.
In December 2017, one of the godfathers of the contemporary psychedelic renaissance, Bob Jesse, penned a manifesto for the commercial era of hallucinogens, one that echoed as far and wide as when Timothy Leary famously evangelized, Turn on, tune in, drop out, in 1966. Jesse delivered a very different kind of message: Open science for all!
A philanthropist and independent researcher, Jesse was instrumental to reviving a new wave of medical interest into psychedelic-assisted therapy starting in the 1990s. This new form of therapy offers a revolutionary approach to treating the rising cases of depression and anxiety in the U.S. But Jesse began to see this pioneering research pillaged by Big Pharma, as soon as it showed commercial value as a breakthrough treatment for mental illness.
In the manifesto, Jesse took a stand against would-be monopolists for flagrantly misusing patent laws, advocating instead for a shared creative commons for psychedelic research, with limited intellectual-property rights. The statement attracted over 100 co-signers, including every major figure in the psychedelic research and NGO community, from philanthropic funders to grassroots advocates.
But there was a notable absence from the list: the founders of Compass Pathways, a rapidly growing psychedelic therapy company bankrolled by major investors, notably Peter Thiel, the PayPal co-founder and right-wing political financier.
It was very suspicious when they didnt sign on to the letter. It gave a lot of people pause about what their plans were, said Carey Turnbull, a longtime philanthropist in the psychedelic community who has become one of Compass Pathways main detractors.
Over the last several decades, the guardrails against rapacious patent use have eroded.
Compasss foundersmillionaire couple George Goldsmith and Ekaterina Malievskaiahad already raised eyebrows by quietly transitioning from a charity organization to a for-profit corporation in 2017. Compass was also conducting dubious drug trials on the Isle of Man, an infamous tax haven for the uber-wealthy with lax regulatory oversight. Suspicions abounded about the unusually restrictive contracts it pushed researchers to sign, and reports that Compass had blocked other organizations from signing a deal with one of their drug manufacturers.
The unwillingness to sign the letter was more than a snub. It was a harbinger of things to come.
After assembling a phalanx of patent lawyers, Compass Pathways began filing broad claims to control key synthetic versions of psilocybin, the psychoactive component in magic mushrooms, as well as its therapeutic application for patients. Now the highest-valued publicly traded company in the magic mushroom market, Compass has amassed a war chest of U.S. patents, with a large application of claims under review by international patent authorities. It has also secured FDA breakthrough therapy designation, which virtually guarantees that it will be first to market.
Several organizations have banded together to stop Compasss path to a magic mushroom monopoly. A new petition filed by the organization Freedom to Operate, a psychedelic patent watchdog group founded by Turnbull, calls into question the validity of Compasss overly broad and in some cases fraudulent IP claims.
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The U.S. is witnessing an unprecedented mental-health crisis, which has only increased during the pandemic. In a healthy commercial market, psychedelic therapy could provide a transformative approach to treatment. But giving one company exclusive rights on psilocybin threatens to unleash the all-too-familiar predatory practices and exorbitantly high prices of drug monopolies that put patients at risk. The race for ownership of psilocybin reveals a patent system in dire need of reform to incentivize real medical innovation, not monopolistic abuse.
BEFORE RECREATIONAL USE of psychedelics became a rite of passage in the 1960s counterculture, major medical institutions and universities had seen high promise in their potential to treat a range of psychiatric disorders. Researchers conducted over 1,000 studies, many of them with public funding, involving around 40,000 human subjects. The results were so encouraging that government-run clinics in Canada and even some psychiatric practices in the U.S. had started using psychedelic treatment for alcoholics and long-time sufferers of mental illnesses. But the full scope of research was cut short when Richard Nixons U.S. Drug Enforcement Administration banned the drugs in 1970.
This all might have been relegated to the ash heap of history if it werent for a core group of well-connected philanthropists, including Jesse, devoted to the promise of psychedelics. They began to recover this lost body of research in the 1990s, and funded new studies.
Johns Hopkins, NYU, and several other universities conducted a series of clinical trials looking into psychedelic-assisted therapy to treat depression, anxiety, PTSD, and other illnesses. The positive results from those studies set off meteoric hype in the mental-health medical field as a potential breakthrough.
This new wave of research has coincided with an escalating awareness of the mental-health crisis afflicting the U.S. As rates of anxiety and depression have skyrocketed over the past few decades, antidepressantsstarting with Prozac in the 1980shave utterly failed to meet expectations. Some medical professionals now even call them quackery.
A number of new studies suggest that the hallucinogenic experience is more effective than antidepressants, because it can actually rewire neural networks of patients, rather than just sedate them.
Treatments being offered by psychedelic clinics bear little resemblance to how hallucinogens like psilocybin, LSD, or MDMA are portrayed in the pop culture zeitgeist. Thats because the research shows that the medical setting is crucial for avoiding bad trips, which some patients have a much higher risk of facing. Hallucinogens wont be sold over the counter at local pharmacies anytime soon for that reason. Clinics facilitate the patients trips with trained guides who shepherd them through the experience in curated environments, with ambient music and visual stimuli. Its also paired with several therapy sessions before and after the experience.
Weve done enough studies now to know the environment set up for patients is incredibly important for their safety, said Matthew Johnson, a professor at Johns Hopkinss Center for Psychedelic & Consciousness Research.
It didnt take long for Wall Street to recognize the enormous financial upside of the psychedelic treatment market, which some estimates expect to reach $200 billion.
Policymakers have begun to take notice of the promising research. In 2020, Oregon became the first state to legalize magic mushrooms. An increasing number of cities have followed suit in decriminalizing mushrooms, including Washington D.C., Seattle, Detroit, and Berkeley, California.
It didnt take long for Wall Street to recognize the enormous financial upside of the psychedelic treatment market, which some estimates expect to reach $200 billion. The real seat of power for financing is of course Silicon Valley, where Steve Jobss acid trip has taken on an almost mythic significance, and microdosing has practically become part of the work culture.
But the growing field of startups threatens to undermine the idealist energy that propelled the psychedelic movement for so many years. Commercialization simply as profit maximization has raised a lot of tough questions about our ethics in the movement, said Joy Sun Cooper, head of commercialization and patient access at the Multidisciplinary Association for Psychedelic Studies (MAPS), an influential psychedelic organization.
The companies that flocked to psychedelia brought along teams of patent lawyers, setting off a land rush to lock up intellectual-property rights. Psilocybin currently has the largest sales potential because of the breadth of mental illnesses it can treat. Its also closest to regulatory approval. Thats why its drawn a fierce patent fight.
Magic mushrooms, as a naturally occurring substance, cannot be patented. But through a crystallization process carried out in a lab, companies can rearrange the chemical compounds and create new polymorphs of psilocybin. With only a limited number of commercially relevant synthetic versions, the IP rights have an incredibly high value.
WALL STREET AND SILICON VALLEY are financing the psychedelic renaissance, but the power center deciding its fate is headquartered in a government building in Alexandria, Virginia. Thats where the U.S. Patent and Trademark Office is located. Patents are the main legal apparatus that structures power in drug markets, awards companies billions in profits, and ultimately determines how patients can access lifesaving drugs and treatments.
In theory, patents reward innovation by giving companies a period of market exclusivity, nominally 20 years in the U.S. In reality, the patent system incentivizes drug monopolies to engage in price-gouging, to drive the highest profits before generic versions of a drug can be sold.
Before the 1980s, government policies tried to maintain an open pharmaceutical market by limiting the length of patent monopolies, and even forcing companies to license out their IP if they became too dominant. Famously, when a cartel of drug companies in the 1950s rigged prices in the market for tetracycline, a broadly useful antibiotic, the Federal Trade Commission intervened and forced them into compulsory licensing agreements for their patents.
Over the last several decades, the guardrails against rapacious patent use have eroded. As a consequence, drug prices have skyrocketed and innovation has lagged.
Big Pharma kingpins now enjoy longer reigns as monopolies, having developed an arsenal of techniques for extending their market control. Companies use tactics such as evergreening and product hopping to refresh their IP with slightly adapted versions of a branded drug. Even when companies patents theoretically run out, they will often use pay-for-delay schemes, essentially paying off competitors not to issue generic versions.
Gaming patent laws is hardwired into the DNA of every major pharmaceutical giant. Still, its ironic that magic mushrooms, used by civilizations for centuries to open the doors of perception (as Aldous Huxley famously put it), are now getting locked up in the bureaucratic morass of IP law.
Several organizations have banded together to stop Compasss path to a magic mushroom monopoly.
No firm is in a better position to dominate the psychedelic market than Compass Pathways. The company provides synthetic psilocybin therapy for patients suffering from depression and anxiety. Compass had a successful IPO in 2020 that raised over $300 million and is currently valued at $1.5 billion.
The first move that secured Compasss market power came in 2018, when the company received breakthrough therapy designation from the FDA. This created a fast track to regulatory approval that all but ensures Compass will be the first to market for psilocybin therapy.
Along with regulatory approval, Compasss main pitch to investors highlights its rapidly growing IP portfolio on psilocybin, guaranteeing an extensive period of market dominance and high profit margins.
In an email to investors last year that was leaked to Vice, Compasss top shareholder, the German billionaire Christian Angermayer, wrote: Many psychedelic companies out there will never be able to bring a product to market as they will hit the patents of Compass and ATAI [Compasss leading investor].
Compass has already secured five U.S. patents and several in the U.K. on key synthetic versions of psilocybin, putting it well ahead of its competitors. The company also has a large application of patents currently under review by international patent authorities that could dramatically expand its dominance.
These patents have met challenges at every turn from law firms and patent watchdog groups, some of which have succeeded. They accuse Compass of filing overly broad claims to corner the market and patenting research thats already in the public domain, a line of argument known as prior art. Freedom to Operate has been the leader pushing back against Compasss emerging patent monopoly.
This challenge is about what I know to be true: No one can own the basic compounds of psilocybin, said Turnbull. I want to see Compass manufacture and distribute psilocybin but with competition.
The patent dispute revolves around whether Compass has actually created a new crystalline form of psilocybin, which it calls Polymorph A, or just a patchwork of decades-old versions that dont meet the threshold of novelty. Freedom to Operate has built its most recent petition around a new paper in the peer-reviewed crystallography journal Acta Crystallographica, detailing the prior art of psilocybin and throwing Compasss claims into doubt.
New research has really pulled back the curtain on just how much knowledge is in the public domain on psilocybin and other psychedelics, so I think this round of petition has a good shot, said David Casimir, a patent lawyer and founder of Porta Sophia, a project cataloguing the early research into psychedelics to assist patent offices.
COMPASSS PATENTS DONT JUST COVER the chemical substance in synthetic psilocybin. It also has acquired ownership over a number of applications of the drug for therapy. These patents are the most troubling for Graham Pechenik, a psychedelic patent expert and co-founder of the law firm Calyx. He fears the wording in Compasss most recent U.S. patent could be interpreted to offer blanket coverage of any lab-created strain.
These claims have such broad coverage that they can include the administering of psilocybin in any form, not only Polymorph A, and not only purified synthetic forms, said Pechenik.
Compasss international patent application has also stirred controversy for claiming ownership over certain therapeutic applications of psilocybin that are cartoonishly generic. The application asks for blanket patent coverage of basic items used in a therapy setting such as: the room comprises soft furniture, the room is decorated using muted colors, the room comprises a high-resolution sound system, and the room comprises a bed or a couch.
Some of these claims will likely be invalidated. But Compasss critics still see them as a clear indication of how the company wants to control the psychedelic market, stifle further research into psilocybin, block generic competitors, manipulate prices, and set industry standards that put patients at risk.
Getting exclusive patent rights basically guarantees billions of dollars to the company, but it doesnt often work out well for the patients and consumers, said Pechenik.
The core objection to a patent monopoly is that Compass can unilaterally set the terms of the market and the price of the treatment. Overpricing in psychedelic therapy has already played out in the esketamine market for depression, which a drug company named Janssen has taken control over.
The core objection to a patent monopoly is that Compass can unilaterally set the terms of the market and the price of the treatment.
A recent Harvard paper on psychedelic patent law shows that the combination of FDA approval and patenting has given Janssens branded drug favorable coverage from insurers over cheaper generic versions. As a consequence, the product is far more expensive than it would be in a competitive market, according to an assessment from the Institute for Clinical and Economic Review, a consumer watchdog organization. That same scenario could play out with Compass in the psilocybin therapy market.
If were successful in our challenges, we can prevent Compass from overcharging the human race billions of dollars, said Turnbull.
Along with pricing, Compass can exert other forms of control. Theres still ambiguity and substantive variance in psychedelic research about the exact dosing and number of therapy sessions best for patients, therapist training, and screening patients health background for risks of experiencing a bad trip. With exclusive market power, Compass can make these decisions in the interest of its own profits, rather than patient safety.
Compass did not respond to multiple requests for comment.
Compasss shareholders have come under scrutiny. Peter Thiel currently holds the largest number of shares, outside of company founders George Goldsmith and Ekaterina Malievskaia and the biopharmaceutical company ATAI Life Sciences, which Thiel is also invested in. Thiels involvement with Compass foreshadowed the aggressive patent strategywhich is well suited to the man who famously decreed that competition is for losers and monopoly is the condition of every successful business.
The next-largest shareholder is a subsidiary of the Japanese pharma company Otsuka, which has embodied the most predatory tendencies of Big Pharma. In 2019, Otsuka paid out over $100 million in fines for bribing doctors to promote their patented drug to dementia patients without regulatory approval or adequate evidence it would work. It was far from their first fine and only put a small dent in their profits.
FREEDOM TO OPERATE FOUNDER Carey Turnbull is not inherently against drug patents. However, he does believe that the basic components of psilocybin cannot be owned, and that a monopoly would be unhealthy for the drugs development. He would prefer psilocybin to be commercialized as a generic product. If that neuters for-profit interest, he argues, then so much the better, since a wealth of nonprofit organizations would be willing to pick up the slack.
Rick Doblin, the head of MAPS, thinks that companies and organizations should be able to acquire data exclusivity for five to seven years, which guarantees some market exclusivity without directly blocking other research.
The patent race for the psilocybin market demonstrates the breakdowns in the patent system, and how it can be twisted to the benefit of monopolists. Reform advocates have called for radical restructuring of the system, to cut down the number of years and scrutinize granted patents with more oversight.
Millions of people could benefit from psychedelic-assisted therapy, if its approved. But a monopoly would put it all at risk.