Is MindMed a Good Psychedelic Stock to Buy? A clinical-stage psychedelic medicine biotech company, Mind Medicine Inc. (MMEDF), has benefited from growing demand for therapies for people with mental disorders. However, several headwinds related to FDA approval and uncertainties surrounding its commercialization prospects could lead to a stock-price retreat. So, let's take a closer look at this name.

A leading psychedelic medicine biotech company, Mind Medicine (MindMed) Inc. (MMEDF) is assembling a drug development pipeline of innovative treatments based on psychedelic substances, such as LSD, MDMA, DMT, and an Ibogaine derivative—18-MC. The company trades on NASDAQ, under the symbol MNMD.

MMEDF's stock has gained 31.8% year-to-date on the back of growing acceptance of psychedelic drugs for treating mental disorders.

However, none of its major projects has yet generated revenue or profit. And given that MMEDF is still in the early stages of its lifecycle, we think the stock could be a risky buy currently.

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Here is what we think could influence MMEDF's performance in the coming months:

Industry Headwinds

The global psychedelic drugs market has grown significantly in recent years due to an increasing prevalence of mental disorders, depression, and breakthroughs relating to psychedelic drugs. However, the market still faces considerable risk and uncertainties around securing U.S. FDA approvals and the stigma associated with the use of psychedelic drugs. Furthermore, the psychedelic drugs market remains at an early developmental stage, with most companies still executing clinical trials. This challenging state of play could hinder MMEDF's growth in the near term. Although its pipeline projects look promising, there remains high uncertainty regarding its commercial prospects and value.

Weak Financials

Since the company has not yet commercialized any of its products, it has not generated any revenues. For the fourth quarter ended December 31, 2020, MMEDF reported a $13.64 million loss, attributable primarily to general and administrative expenses of $2.98 million and $4.91 million in research and development costs. It reported a $13.93 million net loss, compared to a $8.64 million loss in the third quarter of 2020. Its loss per share was $0.04 over this period.

Low Profitability

MMEDF's trailing-12-month return on total capital is negative 43.5%.In addition, the company's negative ROA and ROE of 41.3% and 75.8%, respectively, are significantly lower than respective industry averages. And its trailing-12-month cash from operations is negative $24.18 million.

Unfavorable POWR Ratings

MMEDF has an overall D rating, which translates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. MMEDF has a Value Grade of C. Its trailing-12-months Price/Book ratio of 17.27x, which is 271.1% higher than the 4.65x industry average, justifies the grade.

In terms of Growth Grade, MMEDF has a C, which is in sync with the company's poor growth prospects.

Also, it has a D grade for Stability, reflecting that the stock is volatile compared to its peers.

Click here to see the additional POWR Ratings for MMEDF (Quality, Sentiment, and Momentum).

MMEDF is ranked #226 of 491 stocks in the F-rated Biotech industry.

There are several top-rated stocks in the same industry. Click here to access them.

Bottom Line

The stock soared 773.9% over the past year, primarily because of a surge in the popularity of psychedelic drugs. However, uncertainties regarding a timeline for potential FDA approval of its therapies could be a headwind. In fact, MMEDF's unprofitability and increasing operational losses might hamper its growth prospects. So, we think it could be wise to avoid the stock now.

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MMEDF shares were trading at $4.69 per share on Wednesday morning, up $1.17 (+33.24%). Year-to-date, MMEDF has gained 53.77%, versus a 12.23% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

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