InConversation: HMi meets… Sean McLintock, co-founder of Neo Kuma Ventures

Sean McLintock, co-founder Neo Kuma Ventures

Neo Kuma Ventures is a UK-based VC at the forefront of empowering the use of psychedelic therapies to address the root causes of mental illness. These products were revolutionary yesterday, nascent today, and will be world changing tomorrow. HMi caught up with Sean McLintock, co-founder of Neo Kuma, to learn more about the growing psychedelics sector from an investor’s perspective.

McLintock trained as a lawyer in South Africa, and then later in Utrecht in the Netherlands. It is there that he first began to develop an interest in mental health, sparked by a family affliction with addiction and depression. He later moved to the US where, after some time spent at Columbia University, he worked in the technology sector for high growth start-up Andela, building engineering teams and helping companies scale.

He started looking at psychedelics following a first foray into investing in microbiome companies exploring the gut-brain axis. ‘Interestingly, a large portion of our serotonin is produced in the gut, helping to control fear and anxiety. Further exploring these messages between the nerve cells led me to the groundbreaking research emerging in the psychedelic sector,’ he said.

From early-2018 and into mid-2019 he began making investments in the psychedelics sector with his business partner and co-founder of Neo Kuma, Clara Burtenshaw. They later formalised their investment thesis in the form of Neo Kuma.

The following transcript of HMi’s interview with Sean McLintock has been edited for brevity and clarity.

HMi: How would you describe Neo Kuma?

Sean McLintock: We founded Neo Kuma in late-2019 to invest in and empower a new wave of treatments that address the root causes of mental illness.

We invest in businesses that take a clinical approach to psychedelic healthcare and focus our investments across three main buckets: R&D; care delivery; and digital tools.

HMi: So, it’s important to invest across the value chain?

SM: There are a few funds that have picked certain parts of the sector, but we decided to invest across the entire value chain for a number of reasons.

The first step is, of course, to develop new treatments and successfully take them through clinical trial. Our investments, therefore, include psychedelic focused biotech companies that are developing new drugs and protocols for an expanded mental healthcare toolkit.

The next step is to deliver these drugs and treatments to patients. Care delivery has already become relevant because ketamine is available for off-label use with many clinics across North America already treating indications from anxiety to pain using a similar drug-assisted therapy protocol to psychedelics.

This care delivery aspect has been built out over several years and we’re now looking at how that can evolve to support new treatment protocols for drugs like MDMA or psilocybin (the active ingredient in magic mushrooms), which will soon be available for treating PTSD and TRD respectively. Both of these treatments will be available within the next five years, with many other psychedelic and non-psychedelic mental illness treatments following in the wings. This makes the build out of clinics incredibly important.

We will need new and innovative methods for diagnosis, service, therapist training and patient support tools with these new therapies. That is why our third ‘bucket’ of investments is in digital therapeutics and ancillary services. These tools are integral to a new and more precision orientated and holistic mental healthcare system, but they can also act as a portfolio hedge against more binary biotech investments as, in many cases, they generate significant recurring revenue or licensing fees.

Three of the four companies we have in the digital services space will hit US$1m ARR this year, and they’re not even 18 months into their journey.

What is most exciting is helping build an ecosystem of companies that plug into drug developers, care delivery providers, and integration programmes to provide a new suite of mental healthcare services. These digital tools are filling the gaps that still exist from the old treatment modalities that we’re trying to get rid of.

HMi: What kind of investors do you have in your fund and is that demographic changing as the market develops?

SM: The landscape is changing rapidly. Most of the investors we had in the initial stages were ultra-high net worth investors who had a personal attraction to these compounds ‒ they had read some of the early research, or they’d had a profound experience in a location where it was legal, for instance. That has changed, especially over the last six months, and we’ve seen larger family offices and institutions starting to invest in and pay more attention to the space.

With depressed public asset prices making investment more attractive, we’re seeing a lot of interest from the more sophisticated biotech funds, institutions, family offices, and biotech focused ultra-high net worth individuals.

HMi: How is the institutional interest manifesting itself?

SM: A lot of them are coming to us directly, fortunately. Many are starting to explore the space and looking for a partner to help guide them. With our position as the oldest and one of the largest funds in the UK and Europe exclusively looking at the space, we are fortunate to receive access to unique European opportunities.

HMi: What do you look for before deciding to invest?

SM: Primarily it’s the quality of the management team: can this team scale with the idea? Do they have the professional skills to take this idea to the next stage? And do they have the networks and prior experience? And that includes everything from the capacity that they’re building and the investors they’re bringing on board, to their trajectory in the market.

We look closely at whether the business is solving a large enough problem. What is the addressable market, why do we need this, and how is it going to advance the standard of patient care? Is the product or service scientifically and technically achievable? What gives this company a competitive edge?

Another thing we look for is appropriate planning and goal setting. We appreciate teams with considerate budgets, a clear vision of the inflection points they need to hit, and an ability to run efficiently on the resources they have. Factors like non-dilutive funding or strategic partnerships are crucial here. We really like teams that have gone out and found additional support for their company, it’s a great indicator of their ability to drum up interest in the right areas and from the right institutions.

Of course, there are many other surrounding factors that will influence our decision to invest.

HMi: How big is the fund and what kind of positions does it take?

SM: It’s an open-ended fund, but we aim to close this year with £20m (US$26m) in funding.

We only take equity stakes in the companies we invest in and only invest directly.

The size of the stake varies depending on the sector and the stage of the company. Typically, we’re taking between 5% and 10% for the early-stage companies or between 0.5% and 1% on the later stage companies.

We’ve invested just over £10m in 14 companies so far. We look at opportunities in the UK and the EU as much as possible as that is where we believe we have a competitive edge as a fund, but we are generally agnostic and of course look at and participate in deals around the world.

We like to focus on seed and series A investments, where we can add value to early-stage teams. Given the background and network of the Neo Kuma team, we’ve been able to help companies with a number of scaling challenges from legal to recruiting to fundraising.

Depending on the needs of the business, we often assist with business development ‒ connecting the teams with the opportunities.

We also help our companies ‘meet and greet’ new investors for their next rounds. That is a huge focus for us, as we aim to provide the teams with the right partners on the next stages of the funding journey. We like to see ourselves as a springboard for our portfolio companies.

HMi: What targets do you have from the fund’s investments?

SM: Time horizons have been slightly compressed in the psychedelics industry because of the scale of the hype and the speed at which this industry is moving. We look at two things: the route to exit and the firm’s ability to hit their targets within given timeframes.

Biotech companies will typically need eight to ten years to develop a product. However, we would encourage a company to look at partnerships with Big Pharma after five or six years. It is strategically important for biotech companies to have partnerships, royalty agreements or buy-outs at around the phase two stage. Of course, this all depends on a company’s own trajectory.

While there are no specific time schedules to exit an opportunity, our job as a fund is to realise our investments before the end of our eight-year fund term. Different types of companies will have different routes to exit but we aim to do all we can to support our companies in achieving the best outcome.

Much of our drug development portfolio has already gone public, with Bright Minds Biosciences and ATAI Life Sciences both featuring on the Nasdaq.

HMi: Is a public exit still available?

SM: We don’t believe the market conditions are receptive for a ‘go public’ event as we saw a little bit too much exuberance on the public markets last year.

On the macro level, there has been a general rotation away from growth into value and commodities, with many of the ‘biotech tourist’ investors withdrawing and limiting retail support on the markets. This means a lot of companies are now looking at either staying private for a longer period or tapping into the very cash rich, psychedelic and non-psychedelic pharma companies looking to buy assets. We’ve seen Otsuka become quite active recently and it’s really encouraging to see Big Pharma coming into the market.

A lot of pharma companies are also reaching the end of their product lifespans from a patent perspective, and they need to start purchasing new assets to ensure future revenue. Taking a step back, it is also clear that mental health is the fastest growing area in the market, which has also had the largest dearth of investment over the past 50 years. This positions mental health assets very well for sale to Big Pharma.

My hope is that a lot of these early-stage biotech companies are going to do the work up to Phase One and Two, and then exit out to Big Pharma. I don’t believe the idea of small companies taking a drug all the way to market and scaling it effectively is possible. We’ve seen the recent purchase of GW Pharma to Jazz Pharmaceuticals for US$7bn. That is what I hope to see in the next few years in the psychedelic sector.

There’s going to be a lot of M&A to fill the gaps — on training clinicians, on providing digital tools for clinicians and patients, care delivery protocols, and providing all the other necessary support telehealth medicine required to make this a viable paradigm of health.

HMi: Is the regulatory environment and research progressing sufficiently that you will be able to achieve all of this? There are other routes to address mental health issues, for instance.

SM: I think the biggest thing we need to be aware of is that psychedelics are not a panacea; they are not the silver bullet but are simply a tool for us to amplify current treatments that have proven efficacy, whether those be digital or psychotherapeutic, or whatever.

I’m against people who see psychedelics as the birth of an entirely new industry distinct from the current healthcare paradigm. This will only scale and reach the people it most needs to once it is accepted and absorbed by the mainstream as simply another part of a clinician’s toolkit when treating people with illnesses.

Unfortunately, that toolkit has been dwindling for years and it was never the best toolkit to begin with.

Most of the tools in the current mental health toolkit are addictive, they come with bad side effects, and they don’t work for most patients that take them — only about 30% of patients have a positive response to their anti-depressants. What we’re trying to do is simply expand the toolkit.

And if we can do that by creating successful drugs, then that’s fantastic.

There are two separate sides of these drugs that is important to note. One is the development of new kinds of daily regimen or habitual drugs that help with things from pain to epilepsy, to depression and anxiety, and even as far as erectile dysfunction. That’s the creation of new pharmaceutical drugs to be taken on a regular basis.

I believe there’s going to be a lot of money in those drugs, and psychedelics will certainly form the basis in the creation of a lot of those new drugs. Remember that penicillin comes from fungi too, and almost all pharma drugs have some natural component. It’s also worth remembering that not all psychedelics need to carry the trip aspect; some of them have had that removed.

On the other side of the coin is psychedelic assisted therapy, this is where someone undergoes bolus (large) dose of a particular drug, whether it be psilocybin or MDMA, and then they’re supported in a clinical environment by a clinician for a certain period.

This psychedelic assisted therapy protocol comes with therapy and support both pre and post treatment. This is a paradigm that I think is going to be difficult to build out: it’s going to require a lot of clinical infrastructure development and a lot of clinician training, but it also holds an incredible amount of promise.

As well as new tools we need a better understanding of these diseases. Terms like depression are incredibly broad. You can speak to ten people with depression and they’ll each have different symptoms, varying degrees of how they feel, and a range of onsets triggering their depression.

Right now, we’re not able to properly phenotype people to the point where we’re able to properly match people with the right drugs and the right tools.

We want to achieve with the fund is something like what was achieved in the late-1980s in the field of oncology: matching a person with a particular type of ailment that has been identified through digital biomarkers and digital phenotyping with the right treatment, whether that be psychedelic or not, or part psychedelic. It’s worth remembering that not all psychedelics need to carry the trip aspect; some of them have had that removed.

We’re on the cusp of a precision medicine approach for mental health, and with investments like Monument Therapeutics leading the way in digital biomarker development, we’re incredibly excited for what the future holds.