A Pseudo-Nonprofit Model for Psychedelic Clinical Trial Funding

By Vincent Joralemon

A $70 million deal struck between a venture capital firm and a prominent psychedelic advocacy organization suggests that funding for psychedelic research may increasingly rely on nonprofit and commercial partnerships.

As the commercial appeal of these substances grows, this might serve as a promising model to channel the resources of for-profit entities toward this field. This funding can support clinical trials, FDA approval, and ultimately insurance coverage for these promising (but resource-intensive) therapies.

Drug Revenue Streams

A basic model for pharmaceutical revenue stream purchasing goes like this:

1. Company A develops a drug. This can involve making the drug, perfecting a way to administer it, and financing clinical trials. This is very expensive.
2. In return for their efforts, the U.S. gives Company A a limited monopoly on the sales of that drug for a period. This can come from patents, or from “regulatory exclusivity” for funding clinical trials.
3. Company A then transfers revenue rights for this drug to Company B for a set period. For example, Company B pays Company A $10 million for 50% of revenues from sales of the drug for ten years.

I like this system! Company A, a drug company, uses these sales to fund ongoing innovation—and stays independent by selling revenue streams instead of shares. Company B, a financial entity, can make money for its stakeholders. You can play around with this—Company B can sell their stream to third parties, or can even invest during drug development if Company A has a promising drug but not enough money to get over the final hump.

Psychedelic Revenue Streams

We’re seeing something like this in the psychedelics space. MAPS, a nonprofit with a public benefit corporation spinoff, has invested heavily to research therapeutic uses of MDMA, LSD, ibogaine, and ayahuasca. Until recently, they did this all with grants and donations from their supporters.

But, developing drugs is really expensive, and apparently, MAPS needed an infusion of cash to support their ongoing MDMA clinical trials for PTSD. So, they shifted their model. In 2021, MAPS announced a $70 million investment from Vine Ventures, a venture capital firm. The agreement works like this: 

• Vine is creating a special purpose vehicle (SPV) which is raising the capital to purchase the rights to the revenue share

• In return for the $70M, the SPV receives 6.1% of North America MDMA revenue for 8 years following initial drug sales

If you are a MAPS donor, you might have complicated feelings about this. If you donated $5 million to MAPS in 2021, you do not get a cut of these revenues. But you were okay with this; you believed in the organization’s mission, so you wrote them a check without expecting any money in return. But Vine Ventures is not a donor; they are in the business of making money—so they get something back for their investment.

Of course, Vine took on some risk. This deal was announced in 2021, long before we knew the outcome of the MAPS-funded MDMA clinical trials. But with the announcement of MAPS’ successful Phase 3 clinical trials for MDMA (which paved the way for FDA approval to treat PTSD), it looks like Vine’s bet paid off. In fact, it paid off so well that MAPS and Vine needed to amend their agreement:

CORRECTION 2/1/22: The SPV will contribute an escalating portion of revenues to MAPS in support of the mission: if twice the original principal has been returned to investors, the SPV gives 20% of subsequent revenue share back to MAPS. If three times the original principal is returned to investors, the SPV gives 30% of subsequent revenue share to MAPS. At four times the original principal, 40% of subsequent revenues are given back, and at five times the original principal, 50% of subsequent revenues are given back. Vine Ventures is not taking any carry or fees on the SPV, and is contributing significant capital to the SPV.

This basically sets a cap on how much the SPV can make back. I’m guessing the original agreement proved more lucrative than expected, so MAPS and Vine reworked the terms. It would probably be a bad look to all their donors if MAPS paid Vine well over 5 times their initial investment, so this is wise. (If I am wrong about this and you have knowledge of the deal, I’d love to hear more in the comments below.)

The Kinda-Nonprofit Model for Psychedelic Clinical Trial Funding

This showcases a cool model: 

1. A nonprofit raises funds from enthusiastic donors to explore a promising, but politically unpopular technology. This money goes towards basic research and early clinical trials.
2. As this research develops, valuable insights arise; the technology grows more mainstream.
3. Eventually, the technology becomes palatable enough to attract for-profit investors, who accelerate research investments.
4. With this infusion of cash, the nonprofit can complete clinical trials, or use the money to fund other mission-oriented research projects.

If you want MAPS to remain purely nonprofit, you might not like this. But if you believe in the mission of MAPS, and just want more interesting psychedelic research done as soon as possible, this is a cool deal. I think it is, and I like that MAPS wants to keep doing similar deals. 

There is substantial commercial interest in psychedelics, so why not channel some of that to fund their many ongoing research projects? Remember: selling streams is not selling shares. With this arrangement, MAPS retains organizational autonomy while amassing funds critical to funding clinical trials.

MAPS was able to achieve impressive strides through donations for most of their existence, but there is only so much you can expect without financial upside from the other party. If you care about finding effective psychedelic treatments, you want that treatment sooner rather than later. Revenue stream purchasing helps make that happen.