Stephanie Sirota: In 1958 Swiss Chemist Albert Hofmann isolated and synthesized psilocybin, the psychoactive compound found in certain mushrooms. Soon after, Sandoz began distributing a synthetic version under the brand name Indocybin to researchers and psychiatrists around the world.
By 1970, psilocybin was classified as a Schedule I Substance in the United States, effectively halting clinical research for decades. What followed was a long scientific pause shaped mostly by cultural backlash and the war on drugs. Now, more than half a century later, that research has resumed under modern clinical standards.
Large randomized trials are under way. Regulators are engaged, and for the first time since the 1970s, a psychedelic compound is advancing through the FDA approval pathway. Welcome to The RTW Podcast, where we aim to keep our audience healthy, wealthy, and wise. We're excited to welcome back Connor Williams, RTW's Senior Research Analyst covering disorders of the nervous system. Connor, thanks for joining us.
Connor Williams: Thank you for having me.
Stephanie Sirota: So, many people might know this compound by its pop culture name: magic mushrooms. But on a molecular level, what is psilocybin?
Explaining Psilocybin
Connor Williams: Psilocybin's a naturally occurring product that's found in hundreds of species of mushrooms. And it causes its psychedelic effect by activating what's called the 5HT2A receptor, which is a serotonin receptor found in the brain. And what's really interesting about psilocybin, and any other psychedelic that's under development clinically today, is if I drew them out on a page for you, you'd tell me they look remarkably like serotonin.
And that's because these compounds are activating the serotonergic system in the brain. And it's this co-opting of this natural system that they're able to have their profound effects on the way your brain behaves, its synchrony, and ultimately downstream treating severe mental illness.
Stephanie Sirota: Once it enters the body, what actually happens to the brain? Can you go a little deeper?
Connor Williams: Unlike a lot of these other psychedelics, psilocybin is orally bioavailable. And that's a huge advantage for Compass, who's developing their specific proprietary formulation of psilocybin, COMP360, because patients can take it as a pill.
The molecule itself, psilocybin, it's actually inactive. And it becomes activated by converting it into a drug called psilocin, which then circulates to the brain and has profound effects on the way the brain behaves. Regions of the brain that don't typically communicate as much start communicating more.
There are numerous academics out there that study that for their entire careers. But what happens downstream is clear. There's a profound effect that can ameliorate some of the most severe mental illnesses, like treatment-resistant depression, and potentially post-partum depression, P.T.S.D., anorexia, and even more.
Stephanie Sirota: Well, that's very hopeful. For decades, outside of formal research settings, people have encountered psychedelics in uncontrolled environments.
In fact, there was an entire literary and philosophical movement led by the beat generation, among whose core ideas were spiritual exploration, rejection of consumer culture and capitalism, and expanding consciousness. Now, this movement began in the late 1940s, into the '50s, and the beatniks and non-conformists ultimately charged ahead in the counter-culture of the 1960s. Is there any research documented from that original use case that was rooted in the philosophy of spiritual exploration?
Connor Williams: What's fascinating is for some of these companies we have invested in, we've actually gone back to some of this old research. The effects of 5-methoxy-DMT was actually described by Alexander Shulgin in one of his books.
He published two, PiHKAL and TiHKAL. He describes 5-methoxy-DMT as one of the most profound psychedelics that he ever took in his life. And the same is true for psilocybin and LSD. There were academic studies that give us incremental confidence as investors that these compounds did have the effects they were reported to have, that they were safe, and that they could be studied scientifically. And it helped pull us back from the post-war on drugs data sets where the literature suggested these drugs were dangerous.
Stephanie Sirota: How does that informal use differ from how psilocybin is being used today in regulated clinical settings?
Recreational Use to Medical Use
Connor Williams: What we're seeing now really is the legitimization of psychedelics as actual medicine, as opposed to just drugs you do in your free time. For hundreds of years, people have been taking psychedelics in uncontrolled settings. What really sets these current drug development programs apart is that they're being studied in rigorous, well-controlled trials, which can prove the efficacy and safety of these compounds to treat severe mental illness.
Stephanie Sirota: When exactly did psychedelics go from this recreational fringe drug use to legitimate therapeutic candidates?
Connor Williams: Immediately after the war on drugs began, people saw the profound potential therapeutic efficacy of psychedelics.
And then you had people that just liked using psychedelics. What kind of coalesced over the ensuing decades is that these drugs could be brought back to society by legitimizing them as a medicine. So, we stepped past recreational use.
This isn't taking psilocybin in your dorm room, and we've stepped past academic studies. This isn't dragging college students out of their dorms or other healthy volunteers to take psychedelics.
Stephanie Sirota: Did that actually happen?
Connor Williams: A lot of the original studies, particularly on LSD by Timothy O'Leary, were done in college students, studying their subjective effects. And as is the case in a lot of early-stage clinical research, some of these FMRI studies were various healthy volunteers that were just normal people who wanted to do psychedelics.
Connor Williams: This started as an academic effort, where benefactors were funding early biomarker studies, understanding what the effects of psilocybin and these other molecules were on the behavior of the brain.
Compass Pathways’ Story
It's from these early studies that groups like the people that founded Compass came together. The founders of Compass, their son was depressed.
And they started developing psilocybin because it worked as a medicine for them. And this scaled into an actual drug development effort. How do we take a drug which has been made illegal, that has been stigmatized, that has been outside what you could acceptably study in academia for decades, and rehabilitate it and run actual clinical studies, and eventually get the FDA's golden stamp of approval on it, such that it could benefit the millions of patients who have treatment-resistant depression?
Depression is not a small issue. There are tens of millions of Americans with depression. And this is more than just garden variety "I feel bad." These are people with major depressive disorder. They have a severe mental illness.
COMP360, which is the first psychedelic going to market, they're targeting treatment-resistant depression. These are patients who've tried two or more prior lines of pharmacologic therapy for their depression.
And they haven't gotten better. And there are studies, such as the STAR*D study, which show, once you've tried two adequate lines, the odds of you going into remission are remarkably low. For a disease like treatment-resistant depression, there's enormous unmet need because these patients really need something new. What's available today doesn't work for them.
Stephanie Sirota: We can dig deeper into Compass Pathways with their proprietary formulation known as COMP360. Can you walk us through the recent phase three results?
Connor Williams: Compass Pathways ran a very large phase three program in over 800 patients with documented treatment-resistant depression. And they tested their compound, COMP360, which is their proprietary form of psilocybin, for its effects to treat this disease.
Their first study evaluated a single dose of psilocybin, 25 milligrams, in their proprietary formulation known as COMP360, compared to placebo.
And their second study evaluated two doses of COMP360 spread three weeks apart in three arms. So that was 25 milligrams, ten milligrams, and then a one milligram arm, which they considered their active placebo, where the dose was too low to have a clinical effect, but they'd be able to say in the trial that everyone got the dose and compare the dose response of the drug.
Stephanie Sirota: And what have we seen in terms of the effect in treatment-resistant depression?
Connor Williams: COMP360 was able to separate from placebo in three separate trials, their prior phase 2B, as well as these two phase three trials.
And while it may seem that when a drug works it should work in all of its trials, this is not the case in psychiatry. There are innumerable approved psychiatric drugs that failed many, many trials before they ultimately got the one or two required for FDA clinical approval.
COMP360 kind of bucks that trend in a population that's already difficult to treat: treatment-resistant depression. There's only one pharmacologic invention on the market to treat treatment-resistant depression today, and that's Spravato: a drug that is big business for the company that markets it, Johnson & Johnson. It's now at over $2 billion a year in run rate, and they estimate that it will do over $3 billion in 2027 and 2028. But that drug had five clinical trials in its pivotal program, and only two hit. So, for Compass to be able to sit here and say, "Not only do we have our two adequate trials, but in the three we ran, it worked every single time" is something that very few psychiatric drugs can say.
Stephanie Sirota: With another player already on the market how difficult is it for a new entrant like Compass's drug to launch and penetrate that audience?
Connor Williams: Mental illness is such a large issue that even when you see multiple entrants in the same category in a short period of time, none of those drugs really pull down the sales of the other drugs.
And that's because with each new option, patients and physicians have something new in the pharmacologic armamentarium that they can use to treat these patients. And ultimately, because these diseases are so multi-factorial, so difficult to treat, patients will need two, three, even more options before they reach something that works for them.
So, we're excited for treatment-resistant depression patients who have not only access to what they have now, but also COMP360 and even more psychedelics, which could slowly chip away at this massive societal burden.
Stephanie Sirota: So from a clinical and regulatory perspective, what differentiates COMP360 from earlier efforts?
Connor Williams: What's true about any drug sponsor when they're developing their program to come to market, is they have to figure out a way to develop the drug such that it will be accessible to as many patients as possible. And in the case of psilocybin, there's a rich history of this drug being used in underground therapy.
And oftentimes, in underground therapy, you're taking the drug with a therapist. And it's thought that the combination of the drug as well as the therapy is what helps patients get through their mental illness and recover.
Stephanie Sirota: When you say underground, can I infer from that that these are not approved substances? That you're doing it with a guide?
Getting Psychedelics to Patients
Connor Williams: Psilocybin today is a Scheduled Compound. So, if you're taking it with your therapist, it's super illegal. (LAUGH) But what differentiates current sponsors who are developing these drugs as legitimate medicines is they have to take into account what it takes to get these drugs to patients.
While it would be nice if everyone could have a therapist they could talk to through their mental illness, that's ultimately something very difficult to scale.
Potentially you can deliver the benefit of hundreds of hours of therapy, but with a much shorter amount of time, all of which could be delivered by the drug itself. And the sponsors today, they're running these trials without concomitant psychotherapy to try and focus in on what is the real benefit of the drug.
If the drug is able to have its effect without psychotherapy, that means we have an intervention that's much more scalable.
Stephanie Sirota: It's somewhere in between. You don't have to go through talk therapy, but you're also not going home, and popping the pill in your living room. You have to take this in a controlled environment.
Connor Williams: Yeah, that's right. COMP360, or really any psychedelic, won't be available for take-home use (LAUGH) any time soon. These are drugs that are administered in interventional psychiatry clinics that specialize in treating severe mental illness.
Stephanie Sirota: Do we have an idea of whether this will be a one-time intervention? Is it periodic?
Connor Williams: For some patients, a single dose of a psychedelic or a short course is able to produce a durable effect on mental illness. And this is also actually borne out in Compass's 005 data when they presented.
The durability of the effect of this drug on depressive symptoms could last well out to 26 weeks. For some patients, they'll be coming back in order of magnitude less frequently than they do with a therapy like Spravato, which is administered every week or every two weeks in the maintenance setting.
Perhaps they only come two or three times a year. And for some patients, perhaps they might only do one single course of COMP360 and be good for years. This is something that really differentiates psychedelics from other available treatments for mental illness today.
Stephanie Sirota: What has the safety data shown so far in these controlled settings?
Connor Williams: To date, the effects of these psychedelics have been remarkably well tolerated in clinical practice.
Now, of course, there is an acute psychedelic experience. There are hallucinations. There's sometimes nausea and other adverse events that you see. And that's why these drugs need to be administered in a clinic because ultimately, they are impairing drugs.
But when you look long term at the data even in naturalistic observation of people who just have taken psychedelics recreationally, it's remarkable how safe these drugs are and how, for the most part, they produce positive outcomes in people.
Connor Williams: When you look at the COMP360 pivotal data, you can see how rapid the effect is. You can see the clinical measure, they call it the MADRS, drop down, at the first time point measured.
And that tells us this is a really rapidly acting anti-depressant. This is a drug that affects patients very quickly. And that's a massive advantage for COMP360.
When you see it on a piece of paper as a line, you think to yourself, "Wow. That's nice clinical data." But we've talked to psychiatrists that have been involved in pivotal trials for COMP360 and other psychedelic agents. And what's really consistent about their feedback is these drugs aren't like anything else. They really change patients' perspectives. And you can really see it immediately after dosing.
I've had multiple psychiatrists involved in these trials, or earlier academic studies. When they look back at the data they say, "While I understand this data's good, it doesn't capture the fact that my patient came to me immediately after the session and they said, 'Wow, Doc. I feel better.'" And that's something that really is truly remarkable about this class of drugs, just how quickly they can change people from despair to something better.
Stephanie Sirota: That's very uplifting. Is there any predictability about the durability of some of these compounds? And what is it about this compound that allows it to have this positive, durable impact on the patient?
Connor Williams: What's unfortunate in psychiatry and why it can sometimes be more of an art than a science is it's very difficult globally to look at these patients and say, “I can tell who will respond to Spravato.” “I can tell who will respond to ECT.” That data really isn't there yet.
But what we know is that some patients, when they do respond to Spravato, when they do respond to COMP360, that this effect can be durable.
So, in totality, the unsatisfying answer there is — do we know who will respond? No. But we know very clearly from the data that some patients do respond, and it really lasts for them.
Myth or Fact: Psilocybin
Stephanie Sirota: That's fascinating. Okay, so now I'd like to just do something a little different than our normal format. Myth or fact: psilocybin is addictive.
Connor Williams: That's definitely false. If anything, the data suggests even in uncontrolled environments that these drugs are safer than most hard drugs.
Stephanie Sirota: It causes permanent psychosis in most people.
Connor Williams: This is definitely false. This is something that we actually spent an enormous amount of time on as we ramped up on investing in the psychedelic space. What controlled studies show is that the symptom called hallucinogen persisting perceptual disorder isn't really a massive issue in clinical trials.
Now, will some patients react poorly to COMP360 or any psychedelic? Absolutely. That's the nature of any profound intervention in psychiatry. But you have to keep in mind that Compass isn't developing COMP360 for recreational use, or even garden variety depression. These are patients with severe mental illness that have no other options. It's about finding the patients for which the benefit-risk is right, as with any drug.
Stephanie Sirota: So, the risk-benefit is not going to be the same for a mentally healthy person?
Connor Williams: There is large scale naturalistic data that shows people who take psychedelics on average are mentally healthier than people who don't. But I'm sure if you asked any medical professional, "Should I take this random drug no matter what it is? I have no symptoms. And can you guarantee it will have no adverse events?" No. That's not true. This is no different from any other drug.
Stephanie Sirota: Myth or fact: It's just a recreational experience repackaged as medicine.
Connor Williams: Also false.
People report that alcohol is fun. Alcohol doesn't treat your depression. People report cannabis is fun. Cannabis doesn't treat depression. People, rats, mice, report cocaine is really fun. Cocaine definitely doesn't treat your depression.
But COMP360 does. And what that speaks to is this isn't about having fun. This is about how activating the 5HT2A receptor, about how the psychedelic experience, which we can induce pharmacologically, is profoundly effective in treating severe mental illness.
I've actually been to an interventional psychiatry clinic. It's kind of like going to the dentist.
I don't go to the dentist for fun. It's a very clinical experience. There are nurses, doctors, patients being dosed.
When you walk around these clinics, there aren't psychedelic pictures and tie-dye. There isn't psychedelic music. It's not the recreational experience that makes COMP360 efficacious.
Stephanie Sirota: The therapeutic effect is just about the trip.
Connor Williams: We know that psychedelics today, with more intense perceptual effects, tend to have greater efficacy. And we know that the more you can increase the intensity of the experience, the more you can increase the efficacy of the drug.
But what we don't know is if the pharmacology of engaging the 5HT2A receptor is intrinsically inseparable from the psychedelic experience. And there are companies out there today trying to develop 5HT2A agonists that engage the same receptor as psychedelics, but who may be able to do that in a way which doesn't produce a psychedelic experience.
Will these interventions work? We don't know. But what I can tell you for sure is a drug that can do all of that with no subjective experience would be an even more scalable intervention.
I wish those companies luck. (LAUGH)
Stephanie Sirota: Myth or fact: There's no way to standardize something like this.
Connor Williams: Compass and all the other psychedelic sponsors have proven that to be true. Compass has now run three large, robust studies, proving that COMP360 is able to treat treatment-resistant depression. And what's more, even if you don't believe the clinical studies of COMP360, we have a drug available on the market now that is out there being sold: Spravato. And just like COMP360, it's a drug that changes your perceptual experience that's being administered to so many patients that it can sell $2 billion a year in run rate.
Stephanie Sirota: How do we think about the infrastructure required to deliver at that scale? Is it more of these interventional clinics?
Connor Williams: You don't have to look far to imagine what the COMP360 infrastructure could look like.
Spravato is administered in these clinics. You can see how quickly patients are taken in, given the right medical care, monitored by nurses, monitored by CCTV as they go through their experience, and discharged into the world better.
And that's the same paradigm that COMP360 gets to slot into.
Stephanie Sirota: And the regulatory framework seems to be really encouraging because there's a path to these drugs becoming approved by FDA.
Connor Williams: That's right.
Even if you didn't have a head of HHS, a head of the VA, a head of the FDA who's spoken openly and publicly about how they are favorable to potential drugs that can treat severe mental illness, like P.T.S.D. and TRD, this is not a paradigm that has to be reblazed.
Stephanie Sirota: In the next episode I'm going to transition to a conversation with Dr. Steve Levine, the Chief Patient Officer at Compass Pathways. What are the key open questions that still need to be answered?
What’s next for Psilocybin?
Connor Williams: In the case of psilocybin, we have two robust phase threes, three studies in total that prove the efficacy of COMP360 in this population, that prove the drug is safe and well-tolerated. Now this can transition from a clinical trial exercise to something that has to be rolled out in the real world.
You have the FDA, which has to find the right way to label this drug, that has to find the right way to have a REMS to make sure this drug can be administered safely. And then ultimately, you have the task of Compass, of which Steve Levine is heavily involved in: finding a way to take this intervention and scale it to as many patients who can plausibly benefit from it in a safe way.
Stephanie Sirota: Will we get to the point one day where this might become first line, where patients won't have to go through one or more lines of therapy?
Connor Williams: There's definitely always going to be a space for an oral-safe anti-depressant where you don't need all this infrastructure.
Depression has been around as long as people have. And any additional tool we have to chip away at this will be useful for patients, and physicians, and everyone who knows someone that's depressed.
Stephanie Sirota: Will psychedelics be the next Prozac Nation moment?
Connor Williams: Every time there's an incremental treatment for depression you see it in the news. When Spravato was first becoming available to patients, President Trump was speaking about Spravato at press conferences.
When Zurzuvae, the first approval for post-partum depression was approved, you saw numerous newspapers publish on how this was the first drug which was proven safe and effective for post-partum depression.
And it's exciting that we have a society that celebrates incremental advances in psychiatry. But no one drug can change this disease. And it's about continually innovating and continually having the next biotech find the next great drug for psychiatric disease.
Stephanie Sirota: Well, there you have it. Connor, thank you so much as an investor and a researcher in this space. From counter-culture, to pop culture, to hopefully major transformational therapy that will help millions and tens of millions of people.
Connor Williams: Thank you for having me.
Credits: The RTW podcast was produced and recorded by Devon Leaver at the RTW headquarters in New York and edited by Dominique Guerra, with Production Coordinator, Ying Yu Lin, and production support by Annabelle Chan. Executive Editorial Advisor was our Partner, Chief Business Officer Stephanie Sirota, and our Research Consultant was Connor Williams, Senior Research Analyst at RTW Investments.
This interview was given by Senior Research Analyst, Connor Williams, and moderated by Stephanie Sirota, Partner and Chief Business Officer at RTW Investments. Statements reflect RTW's views and opinions as of the date hereof and not as of any future date.
All expressions of opinion are subject to change without notice and are not intended to be a forecast of future events or results. The views expressed by guests are their own, and their appearance on the program does not imply an endorsement of them or any entity they represent.
