Why pharma firms are betting billions on psychedelic drugs despite setbacks

The future of psychedelics is looking bright, after some dark times. Just two years ago, the US Food and Drug Administration (FDA) rejected an application to use MDMA — the active ingredient in the party drug ecstasy — to treat post-traumatic stress disorder. With that refusal, the whole field seemed to stall. But now, billion-dollar investments and more clinical-trial data suggest that the field is forging ahead.

The FDA refusal “stimulated a lot of thought and conversation”, says Rachel Yehuda, a neuroscientist at Icahn School of Medicine at Mount Sinai in New York City. “But it didn’t make people want to give up on these medicines. Everyone can see that loud and clear.”

In July, the drug giant Eli Lilly in Indianapolis, Indiana, announced plans to acquire AtaiBeckley, a psychedelic-medicine development firm in New York City, for up to US$3.8 billion. The company’s lead asset, BPL-003, targets treatment-resistant depression, a condition affecting millions of people around the world.

Eli Lilly’s bet is one of the largest so far. And it comes on the heels of other big investments, such as Illinois-based AbbVie’s $1.2 billion acquisition in 2025 of bretisilocin, a short-acting psychedelic being developed by Gilgamesh Pharmaceutical in New York City.

Why such persistence in the pursuit of psychedelic therapies? Researchers partially credit increasingly clear guidance from regulators worldwide on how these treatments should be studied and used. Even in the United States, where regulatory teams in the FDA have been thinned by layoffs, psychedelics are still a priority. “Where there’s a governmental will, there’s a governmental way,” says Yehuda.

Many psychedelic-development programmes have now advanced to late stages. Findings include rapid and potentially lasting effects for anxiety, depression and post-traumatic stress disorder (PTSD). Definium Therapeutics, based in New York City, released results in August and September from late-stage studies of its LSD-based pill, showing a significant reduction in symptoms of generalized anxiety disorder. Preliminary trials also hint at psychedelic benefits for conditions such as substance-use and eating disorders.

Meanwhile, researchers are zeroing in on specific properties of psychedelics, with the goal of engineering drugs that act for less time and with fewer hallucinations — tweaks that could make them more viable in the clinic.

Magic-mushroom compound blocks a severe side effect of chemotherapy, in mice

Still, scientists emphasize that there’s much more to be done. Further research is needed to understand, for example, the extent of possible mental and physical adverse effects and how long effects of various compounds need to last to have a therapeutic benefit.

Continued progress is not inevitable. The enthusiasm seen in the late 1990s and early 2000s, which led to the increased pace of discoveries, also happened in the 1950s and 1960s. However, it was stifled by the US government-led war on drugs, says Philippe Lucas, director of research at the non-profit organization Multidisciplinary Association for Psychedelic Studies in San Jose, California. “So I always have that red flag in the back of my mind.”

Still, given the big recent investments, he says, the field “looks to have significant legs”.

Boom over bust?

The failed FDA approval of MDMA initially seemed to have “a really sobering effect on the field”, says Ekaterina Malievskaia, co-founder and chief executive of n1 bio, an autism biotechnology firm in Miami, Florida, and co-founder of Compass Pathways, a psychedelic-development company headquartered in London that is trying to earn US approval of a psilocybin treatment.

In 2024, the FDA voiced specific concerns about the MDMA therapy from Lykos Therapeutics, now Resilient Pharmaceuticals in Lake Forest, Illinois. One major issue was that participants and researchers could guess whether someone was on an active psychedelic treatment during the trials, a phenomenon known as functional unblinding. This July, the FDA finalized psychedelic-trial guidance that includes advice for reducing functional unblinding.

The agency also flagged the difficulty in disentangling MDMA’s effects from those of the accompanying psychotherapy during the trials. Both safety and efficacy probably depend on the therapeutic context, says Yehuda.

Lykos’s studies were “guinea pigs” for the industry, says Emma Wille, an analyst at business-intelligence provider Citeline in New York City. “Now, companies know more about what will make a good data-submission package.”

And many are moving forwards with applications. Resilient resubmitted a new-drug application this year. Meanwhile, Compass Pathways has announced positive results from two late-stage trials of a psilocybin therapy for treatment-resistant depression. “It does look as though it’s inevitable that they will get the license”, says Robin Carhart-Harris, a neuroscientist and psychopharmacologist at the University of California, San Francisco.

The US government seems to anticipate movement on psychedelics. An August report from the US Substance Abuse and Mental Health Services Administration in Rockville, Maryland, urges states to prepare for possible FDA approval of psychedelic therapies by, among other recommendations, building the necessary health-system infrastructure to deliver such treatments.

How ecstasy and psilocybin are shaking up psychiatry

Although MDMA and psilocybin are likely to be the first psychedelics to be “pharmaceuticalized”, says Lucas, “dark horses are running in the same room”. Among the compounds getting attention as potential therapies are 5-MeO-DMT, the primary component of the poison excreted by the Sonoran Desert toad (Incilius alvarius), which can cause an almost complete dissolution of the sense of self, and ibogaine, which has psychedelic effects that can last for more than 24 hours and carries cardiovascular risks. “Ten years ago, many of us would have thought these would be the least likely to go through pharmaceutical development,” says Lucas.

US President Donald Trump signed an executive order in April that streamlines research into psychedelic compounds and increases the government’s financial investments. The order specifically highlights ibogaine. The chemical, found in a Central African shrub, is being studied as a treatment for substance-use disorders and PTSD. In October, the FDA announced a request for public input on the design of government-funded clinical trials of ibogaine.

Odette Hauke, a regulatory-affairs consultant based in Los Angeles, California, welcomed the move. There are many unresolved safety questions, she says. “It’s important that we’re approaching this cautiously.”

FDA rejects ecstasy as a therapy: what’s next for psychedelics?

Meanwhile, scientific discoveries and technological tools are making it possible to lessen some of the ‘weirdness’ and risks of specific psychedelics. By tweaking molecules to shorten or remove the psychedelic experience, developers aim to reduce the time, supervision and cost required for treatment.